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MORGAN STANLEY DEAN WITTER
[GRAPHIC] MORGAN STANLEY
DEAN WITTER
INSTITUTIONAL FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2000
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
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TABLE OF CONTENTS
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President's Letter .....................................................2
Performance Summary ....................................................4
Investment Overview and Statements of Net Assets
by Portfolio:
Global and International Equity Portfolios:
Active International Allocation ......................................6
Asian Equity ........................................................17
Asian Real Estate ...................................................23
Emerging Markets ....................................................29
European Equity .....................................................38
European Real Estate ................................................42
Global Equity .......................................................47
International Equity ................................................52
International Magnum ................................................58
International Small Cap .............................................67
Japanese Equity .....................................................71
Latin American ......................................................75
U.S. Equity Portfolios:
Equity Growth .......................................................80
Focus Equity ........................................................85
Small Company Growth ................................................89
Technology ..........................................................94
U.S. Equity Plus ....................................................99
U.S. Real Estate ...................................................105
Value Equity .......................................................110
Fixed Income Portfolios:
Emerging Markets Debt ..............................................114
Fixed Income .......................................................119
Global Fixed Income ................................................123
High Yield .........................................................127
Money Market Portfolios:
Money Market .......................................................133
Municipal Money Market .............................................137
Statements of Operations..............................................144
Statements of Changes in Net Assets...................................148
Financial Highlights..................................................160
Notes to Financial Statements.........................................184
Directors and Officers ...............................................192
This report is authorized for distribution only when preceded or accompanied by
prospectuses of the Morgan Stanley Dean Witter Institutional Fund, Inc. To
receive a prospectus, which contains more complete information such as charges,
expenses, risk considerations, and describes in detail each of the Portfolio's
investment policies to the prospective investor, please call 1(800) 548-7786.
Please read the prospectuses carefully before you invest or send money.
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[GRAPHIC] 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 the Fund's Semi-Annual Report for the six months ended
June 30, 2000. Our Fund currently offers 25 portfolios that provide investors
with a full array of global and domestic equity and fixed income products.
Together, the Fund's Portfolios allow investors to meet specific investment
needs or to allocate assets among different portfolios to implement an overall
investment strategy. In this Report, each of our portfolio managers discuss the
performance results and outlook of their markets and portfolios in greater
detail.
MARKET REVIEW
Global equity and bond markets experienced a volatile first half of 2000. The
equity market euphoria of late 1999 continued into the first weeks of 2000, as
Y2K passed uneventfully and growth seemed to remain strong. However, rising
interest rates in the U.S. and increasing inflation fears finally caught up to
the market in March. In the ensuing hostile market environment, highly priced
new economy stocks suffered most, and global equities fell 10.5% from the peak
before stabilizing in June. Global equities finished the first half with returns
of -2.6% (based on the MSCI World Index). The S&P 500 Index returned -0.4% for
the first half. The MSCI EAFE Index also fared poorly, returning -4.1%, as
Japanese economic performance disappointed investors, and the Euro continued to
weaken. The weakness of non-U.S. stock market performance in the first half was
exacerbated by the continued fall of the Euro, which fell from parity versus the
U.S. dollar to 0.88 before regaining ground to 0.95 by the end of the second
quarter. The strong performers of 1999 were also hard hit by the contagion of
technology volatility from the United States. Japan fell 5.4%, while non-Japan
Asia fell 14.2%. The expected growth slowdown in the U.S. led investors to fear
weaker global demand for Asia's exports, particularly technology-related
products. Emerging markets, which had seen a strong 1999 on better economic
growth faltered as well, being negatively affected by the hostile environment in
the U.S., returning -8.0%. European stocks performed relatively better,
returning -3.1%, despite weaker currencies, as the economy remained resilient
and inflation dormant. Although economic fundamentals in the non-U.S. regions
were positive throughout the second quarter, capital markets worldwide continue
to be strongly influenced by U.S. fundamentals and sentiment.
Fixed income faced a challenging first half amidst fears of more Fed tightening
and increasing inflation. Anticipation of economic slowdown was reflected in the
U.S. bond market. As interest rates peaked, spreads began to widen in
anticipation of a recession-driven deterioration of credit quality. The
announcement of Treasury bond buy-backs further intensified the situation by
creating a supply shortfall at the long end of the Treasury curve. Treasuries
(+5.4%) outperformed corporates (+2.4%), mortgages (+4.3%), and high yield debt
(-0.8%). However, signs of a potential soft landing in June helped to stabilize
the market. The Lehman Brothers Aggregate Bond Index returned 4.0% in the first
half, outperforming equities. A surprising exception to the trend of widening
spreads experienced during the first half of the year was emerging market debt
(+7.0%), which outperformed due to improving economic performance of developing
countries.
As the equity market turned, in March, a rotation of leadership also took place.
Growth stocks, which had dominated the market since 1994, lost ground to value
stocks. As inflation continued to rise and the Federal Reserve made clear its
goal to slow the U.S. economy, fears of profit disappointments drove investors
to revalue overpriced growth stocks. The technology sector, the most over priced
growth
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
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PRESIDENT'S LETTER
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segment, fell 26% from peak to trough globally during this period. In this
environment of expected slowing growth, defensive sectors, such as health care
and utilities, outperformed other sectors.
MARKET OUTLOOK
We are now in a period of synchronized global growth, similar to the global boom
economy of 1986-1987. While the growth environment is beneficial for corporate
earnings, the attendant inflationary pressures have caused central banks to
embark on a tightening trend. Recent data in the U.S. indicates that the tighter
monetary environment has begun to have a real impact on the economy. After
several quarters of strong and resilient growth at a 5-6% pace, the economy is
showing signs of slowing to a more sustainable level. Inflation, which had begun
to rear its head in both headline and core CPI, now shows signs of moderating.
Although markets have now priced in a soft landing scenario, we remain cautious
and await further economic data. In the last two years, a second quarter
slowdown has been followed by re-acceleration in the third quarter. Unit labor
cost pressures have been low, despite the tightest labor market in over 20
years, but may already be rising. Strong growth would put further pressure on
the tight labor market, and accelerate labor cost pressures. In this event, we
would expect that the Fed, ever vigilant in its fight against inflation, would
be forced to raise interest rates further, and perhaps force a harder landing
than many now expect. Although the economic backdrops in Europe and Asia are
strikingly different than that of the U.S., foreign markets continue to take
their cue from the U.S. capital markets. In this way, economic policy in the
U.S. has a disproportionate effect on global equity markets.
On a global basis, equity valuations are below their highs, but remain very
extended. This is particularly true for the U.S. and Europe, and for select
sectors such as Technology and Telecom. Fixed income real yields are at fair
value, after rallying in June. As the economy in the U.S. cools, bonds will
benefit from a better inflation outlook, and remain sheltered from the impact of
potentially slowing earnings.
We hope you find the Report informative. As always, we very much appreciate your
continued support of the Fund.
Sincerely,
/s/ Harold J. Schaaff, Jr.
Harold J. Schaaff, Jr.
PRESIDENT
July 2000
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PERFORMANCE SUMMARY (UNAUDITED)
JUNE 30, 2000
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<TABLE>
<CAPTION>
YEAR-TO-DATE ONE YEAR
INCEPTION DATES TOTAL RETURN TOTAL RETURN
----------------- -------------------------------- ----------------------------------
COMPARABLE COMPARABLE
CLASS A CLASS B CLASS A CLASS B INDICES CLASS A CLASS B INDICES
------- ------- ------- ------- ------------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS:
Active International Allocation 1/17/92 1/02/96 -6.80% -6.87% -4.06% (1) 14.41% 14.07% 17.16% (1)
Asian Equity 7/01/91 1/02/96 -9.73 -9.68 -14.15 (2) 13.31 13.04 -4.55 (2)
Asian Real Estate 10/01/97 10/01/97 -10.89 -10.97 -10.77 (3) -14.59 -14.90 -13.87 (3)
Emerging Markets 9/25/92 1/02/96 -4.77 -4.89 -7.99 (4) 37.25 36.87 9.47 (4)
European Equity 4/02/93 1/02/96 2.78 2.58 -3.08 (5) 14.03 13.70 15.10 (5)
European Real Estate 10/01/97 10/01/97 4.69 4.46 2.25 (6) -0.66 -0.96 -1.05 (6)
Global Equity 7/15/92 1/02/96 3.77 3.68 -2.56 (7) 3.96 3.75 12.19 (7)
International Equity 8/04/89 1/02/96 8.00 7.81 -4.06 (1) 18.23 17.96 17.16 (1)
International Magnum 3/15/96 3/15/96 -2.28 -2.43 -4.06 (1) 15.07 14.78 17.16 (1)
International Small Cap 12/15/92 -- 5.03 -- 5.45 (8) 27.32 -- 10.72 (8)
Japanese Equity 4/25/94 1/02/96 3.26 3.19 -5.37 (9) 33.63 33.42 26.62 (9)
Latin American 1/18/95 1/02/96 -0.71 -0.88 -3.75 (10) 22.33 22.15 16.71 (10)
U.S. EQUITY PORTFOLIOS:
Equity Growth 4/02/91 1/02/96 6.14 6.06 -0.42 (11) 28.56 28.38 7.25 (11)
Focus Equity 3/08/95 1/02/96 6.45 6.31 -0.42 (11) 25.71 25.38 7.25 (11)
Small Company Growth 11/01/89 1/02/96 18.62 18.52 1.23 (12) 80.64 80.22 28.39 (12)
Technology 9/16/96 9/16/96 18.27 18.14 -2.54 (13) 114.23 113.82 47.65 (13)
U.S. Equity Plus 7/31/97 7/31/97 -2.19 -2.27 -0.42 (11) 5.10 4.85 7.25 (11)
U.S. Real Estate 2/24/95 1/02/96 14.66 14.56 13.19 (14) 3.61 3.36 3.03 (14)
Value Equity 1/31/90 1/02/96 2.88 2.82 -0.42 (11) -5.21 -5.43 7.25 (11)
FIXED INCOME PORTFOLIOS:
Emerging Markets Debt 2/01/94 1/02/96 7.00 6.93 6.95 (15) 24.06 23.42 20.74 (15)
Fixed Income 5/15/91 1/02/96 3.34 3.29 3.99 (16) 3.92 3.24 4.57 (16)
Global Fixed Income 5/01/91 1/02/96 -0.80 -0.89 0.41 (17) -0.29 -0.49 2.70 (17)
High Yield 9/28/92 1/02/96 -2.15 -2.25 -0.84 (18) 1.26 0.94 -0.40 (18)
MONEY MARKET PORTFOLIOS:
Money Market 11/15/88 -- -- -- -- -- -- --
Municipal Money Market 2/10/89 -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YIELD INFORMATION AS OF JUNE 30, 2000
-------------------------------------
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 14.58% 14.31% Money Market 6.14% 6.12% 6.07% 5.86%(19)
Fixed Income 6.90 6.75 Municipal Money Market 3.86 3.89 3.63 3.58 (20)
Global Fixed Income 4.69 4.54
High Yield 12.36 12.10
</TABLE>
+ 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 will 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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4
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<TABLE>
<CAPTION>
FIVE YEAR TEN YEAR
AVERAGE ANNUAL TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN
--------------------------- ---------------------------
COMPARABLE COMPARABLE
CLASS A INDICES CLASS A INDICES
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS:
Active International Allocation 13.94% 11.33% (1) -- --
Asian Equity -5.00 -3.76 (2) -- --
Asian Real Estate -- -- -- --
Emerging Markets 8.44 0.99 (4) -- --
European Equity 12.06 18.45 (5) -- --
European Real Estate -- -- -- --
Global Equity 14.76 17.07 (7) -- --
International Equity 16.75 11.33 (1) 12.85% 7.95% (1)
International Magnum -- -- -- --
International Small Cap 12.26 0.40 (8) -- --
Japanese Equity 13.75 2.61 (9) -- --
Latin American 18.46 9.75 (10) -- --
U.S. EQUITY PORTFOLIOS:
Equity Growth 29.08 23.80 (11) -- --
Focus Equity 32.16 23.80 (11) -- --
Small Company Growth 32.24 15.80 (12) 20.19 13.26 (12)
Technology -- -- -- --
U.S. Equity Plus -- -- -- --
U.S. Real Estate 14.55 9.58 (14) -- --
Value Equity 16.69 23.80 (11) 13.98 17.80 (11)
FIXED INCOME PORTFOLIOS:
Emerging Markets Debt 12.76 15.67 (15) -- --
Fixed Income 6.10 6.25 (16) -- --
Global Fixed Income 3.80 3.74 (17) -- --
High Yield 9.33 6.68 (18) -- --
MONEY MARKET PORTFOLIOS:
Money Market -- -- -- --
Municipal Money Market -- -- -- --
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SINCE INCEPTION
AVERAGE ANNUAL TOTAL RETURN
-------------------------------------------------------------
COMPARABLE COMPARABLE
CLASS A INDICES-CLASS A CLASS B INDICES-CLASS B
--------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS:
Active International Allocation 10.64% 10.39% (1) 12.30% 10.67% (1)
Asian Equity 7.31 7.77 (2) -5.85 -4.38 (2)
Asian Real Estate -8.56 -15.11 (3) -8.88 -15.11 (3)
Emerging Markets 11.83 7.70 (4) 10.39 1.39 (4)
European Equity 15.32 17.61 (5) 12.81 18.58 (5)
European Real Estate 0.73 1.91 (6) 0.49 1.91 (6)
Global Equity 16.42 15.04 (7) 14.65 16.42 (7)
International Equity 13.37 6.60 (1) 16.69 10.67 (1)
International Magnum 10.09 11.29 (1) 9.79 11.29 (1)
International Small Cap 14.66 4.89 (8) -- --
Japanese Equity 7.45 0.99 (9) 11.38 0.96 (9)
Latin American 14.10 7.38 (10) 18.41 10.38 (10)
U.S. EQUITY PORTFOLIOS:
Equity Growth 20.80 18.16 (11) 27.61 22.86 (11)
Focus Equity 34.18 25.25 (11) 30.61 22.86 (11)
Small Company Growth 20.69 12.97 (12) 31.21 14.55 (12)
Technology 67.02 37.31 (13) 66.69 37.31 (13)
U.S. Equity Plus 14.44 17.18 (11) 14.22 17.18 (11)
U.S. Real Estate 15.24 10.02 (14) 12.99 8.61 (14)
Value Equity 13.53 18.17 (11) 15.28 22.86 (11)
FIXED INCOME PORTFOLIOS:
Emerging Markets Debt 9.05 9.79 (15) 10.26 13.37 (15)
Fixed Income 7.22 7.46 (16) 5.09 5.54 (16)
Global Fixed Income 5.93 7.25 (17) 2.66 3.43 (17)
High Yield 10.11 8.11 (18) 8.21 6.06 (18)
MONEY MARKET PORTFOLIOS:
Money Market -- -- -- --
Municipal Money Market -- -- -- --
------------------------------------------------------------------------------------------------------------------------
</TABLE>
INDICES:
(1) MSCI EAFE (Europe, Australasia, and Far East)
(2) MSCI All-Country Far East Free ex-Japan
(3) GPR General Real Estate Securities Index - Far East
(4) MSCI Emerging Markets Free
(5) MSCI Europe
(6) GPR General Real Estate Securities Index - Europe
(7) MSCI World
(8) MSCI EAFE Small Cap
(9) MSCI Japan
(10) MSCI Emerging Markets Free Latin America
(11) S&P 500
(12) Russell 2000 Growth
(13) NASDAQ Composite
(14) National Association of Real Estate Investment Trusts (NAREIT) Equity Index
(15) J.P. Morgan Emerging Markets Global Bond
(16) Lehman Aggregate Bond
(17) J.P. Morgan Traded Global Bond
(18) CS First Boston High Yield
(19) IBC Money Fund Comparable Yield
(20) IBC Municipal Money Fund Comparable Yield
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 or Municipal Money Market Portfolios are neither
insured nor guaranteed by the Federal Deposit Insurance Corporation. Although
the Money Market and Municipal Money Market Portfolios seek to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in these portfolios. Please read the Portfolios' prospectuses
carefully before you invest or send money.
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
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INVESTMENT OVERVIEW
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ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
[CHART]
<TABLE>
<S> <C>
Australia (1.2%)
Austria (0.2%)
Belgium (0.1%)
Brazil (1.1%)
Finland (2.5%)
France (9.1%)
Germany (7.9%)
Hong Kong (0.4%)
India (0.4%)
Italy (3.2%)
Japan (22.9%)
South Korea (0.9%)
Netherlands (6.7%)
Portugal (0.5%)
Singapore (2.1%)
Spain (2.7%)
Sweden (3.2%)
Switzerland (5.5%)
United Kingdom (14.2%)
Other (15.2%)
</TABLE>
Of the amount shown above as "Other", a significant portion represents cash
equivalents required under regulations to be held as collateral relating to
investments in futures contracts.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
------ ------ ------- ---------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A -6.80% 14.41% 13.94% 10.64%
PORTFOLIO -- CLASS B -6.87 14.07 N/A 12.30
INDEX -- CLASS A -4.06 17.16 11.33 10.39
INDEX -- CLASS B -4.06 17.16 N/A 10.67
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe,
Australasia and the Far East.
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 and sectors, rather than stock
selection. This approach reflects our belief that a diversified selection of
securities representing exposure to countries and sectors that we find
attractive provides an effective way to maximize the return potential and
minimize the risk associated with international investing. Foreign investing
involves certain risks, including currency fluctuations and controls,
restrictions on foreign investments, less governmental supervision and
regulation, less liquidity and the potential for market volatility and political
instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
-6.80% for the Class A shares and -6.87% for the Class B shares compared to
-4.06% for the Morgan Stanley Capital International (MSCI) EAFE Index (the
"Index"). For the one year ended June 30, 2000, the Portfolio had a total return
of 14.41% for the Class A shares and 14.07% for the Class B shares compared to
17.16% for the Index. For the five-year period ended June 30, 2000, the average
annual total return for the Class A shares was 13.94% compared to 11.33% for the
Index. For the period from inception on January 17, 1992 through June 30, 2000,
the average annual total return for the Class A shares was 10.64% compared to
10.39% for the Index. For the period from inception on January 2, 1996 through
June 30, 2000, the average annual total return for the Class B shares was 12.30%
compared to 10.67% for the Index.
OVERALL PERFORMANCE REVIEW
The first half of 2000 was exceedingly volatile for global markets. In the last
weeks of the first quarter there was a dramatic rotation from the technology,
media and telecom (TMT) sectors to the "old economy" stocks. This led the MSCI
EAFE Value Index to outperform the MSCI EAFE Growth Index in March. This was in
sharp contrast to the performance in January - February period when EAFE Growth
(-0.4%) strongly outpaced EAFE Value (-7.5%). These formerly high-flying TMT
sectors continued to sell off until the third week of May, and during this
period the more defensive sectors such as health care, food and utilities were
strong performers. Since then, the market has been choppy with some TMT rising
back sharply.
PERFORMANCE ATTRIBUTION
The main drivers of our performance from country selection were an underweight
to the U.K., Hong Kong, and Ireland and our overweights to Germany and the
Netherlands. Detracting from returns were our above Index weight in Japan, Spain
and Singapore and our underweights to Australia and Italy. Our significant
underweight (half of the Index weight) to the diversified telecommunications
sector
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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. 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.
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Active International Allocation Portfolio
6
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
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INVESTMENT OVERVIEW
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ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
added roughly 70 basis points to relative returns as these stocks were sold very
heavily in the second quarter, (-21.6%). During the second quarter, we deployed
a portion of our cash into our energy sector tilt, particularly integrated oils,
which added to relative returns.
PORTFOLIO REVIEW AND OUTLOOK
We believe we are at an inflection point in global economic growth. MSDW
economists have stopped raising their forecasts and believe that global economic
growth is peaking. However, any improvement in the gloomy outlook for Japan
would positively impact global growth and estimates for Latin America and
Non-Japan Asia are still being revised upwards. The key for global markets is
the outlook for inflation and higher commodity prices and wage rates are a large
source of price pressures and difficult to arrest.
However, with the latest batch of U.S. economic data and anecdotal evidence, the
burden of proof is shifting to those who believe that the U.S. economy and
inflation are going to reaccelerate again and that the Fed has considerably more
work to do. The odds of a summer rally have risen. Next year's prognosis for
U.S. earnings growth will be negatively impacted by accelerating labor costs and
slowing top-line growth but increased pricing power and a weaker dollar should
be supportive.
Conversely Japan's economy continues to bounce along the bottom, with recent
statistics being only mildly encouraging. Though business plans in the Tankan
survey were disappointing, the rise in sentiment measures was encouraging. A
rise in automobile sales (8.5%) was the fourth monthly rise in a row, and NTT
doubled its earnings forecast because of surging Internet usage. However, the
elections were totally uninspiring, healthy skepticism abounds and foreign
investors reduced their holdings during the second quarter.
We think that the perception that Japanese restructuring is not progressing is
misplaced. The pace is similar to that achieved in the earliest stages of
European restructuring. For example, labor force reduction appears to be moving
at 2% a year for the largest blue chips, which puts Japan on course for a
seven-year total reduction of 15% in listed-company labor force, the same pace
as that set by Europe in 1990-97. Importantly the public outcry over a proposed
government bail out of Sogo, the bankrupt retailer, seems to have forced the
government to step back from its old convoy system of bailing out the weak.
In Europe our economists have cut their 2001 economic growth forecasts by 0.5%
to 3.0% to reflect the impact of higher oil prices. Our 2001 earnings per share
forecast is 13% with earnings revisions trends probably peaking in the third
quarter. The possible staunching of the dramatic flows from Europe into NASDAQ
could be a powerful impetus to European equity and euro performance.
Our major strategy in Europe is our underweight allocation to the diversified
telecommunications. These stocks remain expensive relatively and face extreme
competitive pressures. The fundamentals have improved with the likelihood of
sharply lower 3G license costs, but the incumbents still face significant
investment costs and uncertain growth and revenues. Although down significantly
from their first quarter highs (-32.3%), most of these names are still up
sharply for the 12-month period (+31.2%) and trade at price-to-earnings above
50.
We believe that Asia ex-Japan could be the major beneficiary of a summer rally
in global equity markets. We are overweight and focused on Singapore, Hong Kong
and Korea. Singapore has been an incredibly lousy market this year (-22.7%), but
the fundamentals are great. Our economist predicts GDP growth of around 7% for
the year with inflation at less than 2%. The market is about as cheap as markets
get these days at 18.5 times this year's earnings and only 2 times book value.
Korea is cheap and offers attractively priced technology exposure. In Hong Kong,
we moved from a below Index position in the first half to overweight recently,
due to the perceived end of interest rates increases that has inspired investors
to cover their underweight positions in the bank and property stocks. The news
from China is decidedly positive as extolled by Stephen Roach (Morgan Stanley
Dean Witter's Chief Economist) after his recent trip: the economy is on the
mend, the winds of World Trade Organization accession are at its back and the
first tranche of reforms are starting to work.
In sum, we are agnostic, but are fully invested. The major risks to equity
markets are a steep decline in the U.S. dollar, downward earnings revisions, and
tightening liquidity (M3 and M1 growth have slowed faster than expected and
August/September could see the ECB tighten and the Bank of Japan end the zero
interest rate policy (ZIRP)). The Portfolio is defensively positioned with
overweight allocations to utilities, European real estate, foods, and
pharmaceuticals. Our sole cyclical holding is our overweight allocation to oil
and gas. While oil has largely has been a supply/demand story, we believe that
the reporting by U.S. companies of the second quarter results in late July could
be the catalyst for a re-rating of the sector.
Ann D. Thivierge
PORTFOLIO MANAGER
Barton M. Biggs
PORTFOLIO MANAGER
July 2000
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STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
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COMMON STOCKS (84.3%)
AUSTRALIA (1.1%)
25,992 Amcor Ltd. .................................... $ 91
38,429 AMP Ltd. ...................................... 390
22,116 Australian Gas Light Co., Ltd. ................ 131
8,731 Brambles Industries Ltd. ...................... 268
45,039 Broken Hill Proprietary Co., Ltd. ............. 531
25,593 Coca Cola Amatil Ltd. ......................... 50
44,207 Coles Myer Ltd. ............................... 169
(a)10,645 Commonwealth Bank Of Australia ................ 176
4,239 CSL Ltd. ...................................... 84
5,025 F.H. Faulding & Co., Ltd. ..................... 25
70,841 Fosters Brewing Group Ltd. .................... 199
57,183 General Property Trust ........................ 92
48,799 Goodman Fielder Ltd. .......................... 36
5,562 ICI Australia Ltd. ............................ 25
10,913 Leighton Holdings Ltd. ........................ 35
21,779 Lend Lease Corp., Ltd. ........................ 277
15,310 Mayne Nickless Ltd. ........................... 31
56,478 National Australia Bank Ltd. .................. 941
75,072 News Corp., Ltd. .............................. 1,031
57,258 Normandy Mining Ltd. .......................... 31
18,869 North Ltd. .................................... 44
41,844 Pacific Dunlop Ltd. ........................... 37
(a)8,663 PaperlinX Ltd. ................................ 16
16,658 QBE Insurance Group Ltd. ...................... 81
5,219 Rio Tinto Ltd. ................................ 86
43,961 Santos Ltd. ................................... 134
15,673 Schroders Property Fund ....................... 22
25,542 Southcorp Holdings Ltd. ....................... 74
13,009 Stockland Trust Group ......................... 27
(c)12,645 Suncorp-Metway Ltd. ........................... 65
13,015 TABCORP Holdings Ltd. ......................... 75
56,589 Telstra Corp., Ltd. ........................... 229
7,433 Wesfarmers Ltd. ............................... 59
55,675 Westfield Trust ............................... 108
(c)74,153 Westpac Banking Corp. ......................... 534
50,081 WMC Ltd. ...................................... 224
46,254 Woolworths Ltd. ............................... 170
---------------
6,598
---------------
AUSTRIA (0.2%)
(a,c)72 Austria Mikro Systeme International AG ........ 6
1,273 Austria Tabakwerke AG ......................... 47
4,391 Bank Austria AG ............................... 214
272 Bau Holding AG ................................ 11
529 BBag Oest Brau Beteiligungs AG ................ 24
596 Boehler-Uddeholm AG ........................... 21
98 BWT AG ........................................ 34
408 EA-Generali AG ................................ 66
1,226 Flughafen Wein AG ............................. 44
120 Lenzing AG .................................... 7
693 Mayr-Melnhof Karton AG ........................ 33
1,764 Oest Elektrizatswirts AG, Class A ............. 181
2,430 OMV AG ........................................ 211
865 VA Technologie AG ............................. 45
3,984 Wienerberger Baustoffindustrie AG ............. 90
---------------
1,034
---------------
BELGIUM (0.1%)
1,031 Electrabel S.A. ............................... 254
1,300 UCB S.A. ...................................... 48
---------------
302
---------------
BRAZIL (1.1%)
42,236,351 Banco Bradesco ................................ 274
(a)38,494,000 Banco Bradesco (Preferred) .................... 335
2,499,572 Banco Bradesco S.A. ........................... 22
5,154,000 Banco Itau (Preferred) ........................ 453
252,000 Brahma (Preferred) ............................ 214
11,799,000 CEMIG (Preferred) ............................. 206
26,625,000 Centrais Eletricus Brasileras ................. 546
21,000 CIA Vale Do Rio Doce, Class A (Preferred) ..... 593
4,081,000 Cinoabgua Siderurgica Nacional ................ 128
6,081,000 Companhia Brasileira de Distribuicao Grupo
Pao de Acucar (Preferred) ................... 194
13,236,000 Embratel (Preferred) .......................... 316
34,670 Petrobras ..................................... 1,007
26,080 Petrobras (Preferred) ......................... 788
18,000 Souza Cruz S.A. ............................... 101
13,385,000 Tele Centro Sul (Preferred) ................... 194
15,237,152 Tele Norte Leste (Preferred) .................. 357
12,616,000 Telecomunicacoes de Sao Paulo ................. 138
24,306,000 Telesp (Preferred) ............................ 456
11,506,658 Telesp Celular (Preferred) .................... 208
---------------
6,530
---------------
CANADA (0.0%)
(a)1 Boliden Limited................................ --
---------------
DENMARK (0.0%)
600 Novo-Nordisk A/S, Class B ..................... 102
---------------
FINLAND (2.5%)
749 Kesko Oyj ..................................... 8
4,989 Metra Oyj, Class B ............................ 86
12,968 Metso Oyj ..................................... 156
(a)243,091 Nokia Oyj ..................................... 12,393
67,130 Nordic Baltic Holding ......................... 488
7,446 Outokumpu Oyj ................................. 71
4,390 Oyj Hartwell Abp .............................. 88
800 Pohjola Insurance Co., Class B ................ 28
17,597 Raisio Group plc .............................. 35
7,755 Sampo Insurance Co., plc, Class A ............. 314
5,326 Sonera Oyj .................................... 242
5,008 Tieto Corp. ................................... 167
18,656 UPM-Kymmene Oyj ............................... 463
---------------
14,539
---------------
FRANCE (9.1%)
10,728 Accor ......................................... 439
(a)56,711 Alcatel S.A. .................................. 3,716
18,879 AXA ........................................... 2,971
(a)15,855 Banque Nationale de Paris ..................... 1,524
(c)1,745 Bouygues ...................................... 1,165
(a,c)7,099 Canal Plus .................................... 1,192
The accompanying notes are an integral part of the financial statements.
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STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
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<S> <C>
FRANCE (CONT.)
4,331 Cap Gemini Sogeti ............................. $ 762
34,908 Carrefour ..................................... 2,384
(a,c)4,598 Casino Guichard-Perrachon ..................... 425
(a)5,585 Cie de Saint Gobain ........................... 754
22 Coflexip ...................................... 3
5,492 Dassault Systemes S.A. ........................ 512
2,320 Eridania Beghin-Say ........................... 227
475 Essilor International ......................... 136
(c)7,477 France Telecom ................................ 1,044
3,670 Gecina ........................................ 392
13,012 Groupe Danone ................................. 1,725
8,780 Immeubles de France ........................... 159
(c)5,108 Klepierre ..................................... 468
(c)5,107 L'Air Liquide ................................. 665
3,346 L'OREAL ....................................... 2,895
2,343 Lafarge S.A. .................................. 182
8,498 Lagardere S.C.A. .............................. 648
5,116 LVMH Moet Hennessy Louis Vuitton .............. 2,108
8,802 Lyonnaise des Eaux ............................ 1,541
(c)10,909 Michelin Compagnie Generale des
Establissements, Class B .................... 350
4,985 Pechiney ...................................... 208
3,531 Pernod Ricard ................................. 192
(c)6,916 Pinault-Printemps-Re doute S.A. ............... 1,535
2,605 PSA Peugeot Citroen ........................... 522
44,054 Rhone-Poulenc, Class A ........................ 3,212
(a)214 Sagem ......................................... 251
34,396 Sanofi ........................................ 1,637
9,792 Schneider ..................................... 682
1,478 Silic ......................................... 211
4,777 Simco (RFD) ................................... 349
3,836 Soceite BIC ................................... 188
1,960 Societe Fonciere Lyonnaise .................... 206
(a)15,412 Societe Generale, Class A ..................... 926
1,919 Sodexho Alliance .............................. 348
(a)22,860 STMicroelectronics N.V. ....................... 1,439
9,567 Thomson CSF ................................... 376
60,013 TotalFina, Class B ............................ 9,193
5,392 Unibail ....................................... 746
(c)15,266 Usinor Sacilor ................................ 186
5,284 Valeo ......................................... 282
(c)28,609 Vivendi ....................................... 2,523
---------------
53,599
---------------
GERMANY (7.5%)
18,858 Allianz AG .................................... 6,696
35,750 BASF AG ....................................... 1,449
(c)40,150 Bayer AG ...................................... 1,536
22,370 Bayerische Vereinsbank AG ..................... 1,462
11,900 Beiersdorf AG ................................. 988
6,617 Continential AG ............................... 111
59,234 DaimlerChrysler AG ............................ 3,141
(c)31,150 Deutsche Bank AG .............................. 2,601
24,658 Deutsche Telekom .............................. 1,421
(c)5,000 Douglas Holding AG ............................ 146
24,467 Dresdner Bank AG .............................. 990
(c)78,049 E. On AG ...................................... 3,759
3,550 EM.TV & Merchandising AG ...................... 210
6,050 Fresenius Medical Care AG ..................... 476
3,850 Gehe AG ....................................... 125
3,200 Heidelberger Zement AG ........................ 195
(a)27,590 IVG Holding AG ................................ 354
(a,c)4,800 Karstadt Quelle AG ............................ 133
8,980 Linde AG ...................................... 362
12,000 Lufthansa AG .................................. 280
8,000 MAN AG ........................................ 248
7,250 Merck KGaA .................................... 221
(c)21,193 Metro AG ...................................... 718
13,057 Muechener Rueck AG (Registered) ............... 4,085
(c)11,850 Preussag AG ................................... 381
47,073 RWE AG ........................................ 1,596
(c)14,241 SAP AG ........................................ 2,152
7,650 Schering AG ................................... 416
44,183 Siemens AG .................................... 6,608
(a)33,100 Thyssen Krupp AG .............................. 526
(c)19,080 Volkswagen AG ................................. 733
(a)5,400 WCM Beteiligungs & Grundbesi .................. 125
---------------
44,244
---------------
HONG KONG (0.4%)
18,210 Bank of East Asia Ltd. ........................ 42
63,000 CLP Holdings Ltd. ............................. 293
27,000 Hang Lung Development Co. ..................... 21
27,400 Hang Seng Bank Ltd. ........................... 260
164,570 Hong Kong & China Gas Co., Ltd. ............... 185
12,000 Hong Kong & Shanghai Hotel Ltd. ............... 7
24,966 Hong Kong Telecommunications Ltd. ............. 55
19,200 Hopewell Holdings Ltd. ........................ 8
57,200 Hutchison Whampoa Ltd. ........................ 719
15,315 Hysan Development Co., Ltd. ................... 16
109,027 New World Development Co., Ltd. ............... 122
27,000 Shangri-La Asia Ltd. .......................... 32
45,950 Sino Land Co. ................................. 16
54,000 South China Morning Post Holdings Ltd. ........ 42
31,000 Sun Hung Kai Properties Ltd. .................. 223
20,500 Swire Pacific Ltd., Class A ................... 120
6,000 Television Broadcasts Ltd. .................... 40
30,600 Wharf Holdings Ltd. ........................... 55
---------------
2,256
---------------
INDIA (0.4%)
7,500 Cipla Ltd. .................................... 145
54,250 Container Corp. of India Ltd. ................. 209
13,000 Hero Honda Motors Ltd. ........................ 287
86,000 Housing Development Finance Corp., Ltd. ....... 490
3,100 Infosys Technology Ltd. ....................... 578
47,500 Tata Engineering & Locomotive Co., Ltd. ....... 131
28,500 Tata Tea Ltd. ................................. 212
47,000 Titan Industries Ltd. ......................... 68
---------------
2,120
---------------
ITALY (3.2%)
(c)72,913 Assicurazioni Generali S.p.A. ................. 2,497
The accompanying notes are an integral part of the financial statements.
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STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
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<S> <C>
ITALY (CONT.)
(c)11,972 Autogrill S.p.A. .............................. $ 128
(c)166,392 Banca di Roma ................................. 204
(a)1,237 Banca Intesa .................................. 2
133,770 Banco Ambrosiano Veneto S.p.A. ................ 598
14,615 Banco Popolare di Milano ...................... 105
(c)97,182 Benetton Group S.p.A. ......................... 203
(c)4,000 Cartiere Burgo ................................ 38
(c)176,781 Credito Italiano S.p.A. ....................... 845
(a,c)508,715 Enel S.p.A. ................................... 2,251
(c)695,090 ENI S.p.A. .................................... 4,011
(a,c)10,965 Fiat S.p.A. ................................... 284
25,616 Impregilo S.p.A. .............................. 15
52,544 Instituto Bancario San Paolo di Torino ........ 932
(c)41,064 Italgas ....................................... 181
343 Marzotto (Gaetano) & Figli S.p.A. ............. 3
(c)72,258 Mediaset S.p.A. ............................... 1,103
23,319 Mediobanca S.p.A. ............................. 240
(a,c)27,627 Olivetti S.p.A. ............................... 100
(c)108,378 Parmalat Finanziaria S.p.A. ................... 153
(c)136,776 Pirelli S.p.A. ................................ 359
35,762 R.A.S. S.p.A. ................................. 392
7,422 Reno de Medici S.p.A. ......................... 15
(a)13,088 Rinascente S.p.A. ............................. 74
(a)4,256 Sai-Soc Assic Industriale ..................... 75
11,259 Sirti S.p.A. .................................. 19
(c)21,621 Snia BPD S.p.A. ............................... 22
(c)280,972 Telecom Italia Mobile S.p.A. .................. 2,868
66,804 Telecom Italia Mobile S.p.A. (RNC) ............ 336
(c)27,040 Telecom Italia S.p.A. ......................... 371
3,040 Telecom Italia S.p.A. (RNC) ................... 20
---------------
18,444
---------------
JAPAN (22.9%)
9,200 Acom Co., Ltd. ................................ 773
3,090 Advantest Corp. ............................... 688
83,400 Ajinomoto Co., Inc. ........................... 1,069
1,000 Alps Electric Co. ............................. 19
175,900 Asahi Bank Ltd. ............................... 739
30,000 Asahi Breweries Ltd. .......................... 359
93,000 Asahi Chemical Industry Co., Ltd. ............. 657
133,800 Asahi Glass Co., Ltd. ......................... 1,494
(c)28,000 Bank of Fukuoka ............................... 190
108,800 Bank of Yokohama Ltd. ......................... 487
12,700 Benesse Corp. ................................. 879
56,000 Bridgestone Corp. ............................. 1,184
25,600 Canon, Inc. ................................... 1,273
52,800 Casio Computer Co., Ltd. ...................... 592
136 Central Japan Railway Co. ..................... 769
(c)29,600 Chugai Pharmaceuticals Co., Ltd. .............. 559
(a,c)33,160 Chuo Mitsui Trust & Banking Co., Ltd. ......... 144
3,300 Credit Saison Co., Ltd. ....................... 76
300 CSK Corp. ..................................... 9
(a)64,600 Dai Nippon Printing Co., Ltd. ................. 1,137
(c)75,600 Daiei, Inc. ................................... 283
6,000 Daiichi Pharmaceutical Co. Ltd. ............... 152
4,600 Daikin Industries Ltd. ........................ 107
188,000 Daiwa Bank Ltd. ............................... 487
60,600 Daiwa House Industry Co., Inc. ................ 442
84,000 Daiwa Securities Co., Ltd. .................... 1,108
35,600 Denso Corp. ................................... 865
298 East Japan Railway Co. ........................ 1,729
39,800 Ebara Corp. ................................... 539
12,000 Eisai Co., Ltd. ............................... 384
17,000 Fanuc Ltd. .................................... 1,728
214,000 Fuji Bank ..................................... 1,625
43,000 Fuji Photo Film Ltd. .......................... 1,758
2,900 Fuji Soft ABC, Inc. ........................... 172
53,200 Fujitsu Ltd. .................................. 1,839
(c)47,800 Furukawa Electric Co., Ltd. ................... 997
24,000 Gunma Bank Ltd. ............................... 124
100 Hirose Electric Co., Ltd. ..................... 16
94,000 Hitachi Ltd. .................................. 1,355
40,000 Honda Motor Co., Ltd. ......................... 1,360
2,000 Hoya Corp. .................................... 179
185,000 Industrial Bank of Japan ...................... 1,401
29,000 Ito-Yokado Co., Ltd. .......................... 1,743
1,000 Itochu Corp. .................................. 5
51,000 Japan Airlines Co., Ltd. ...................... 194
14,000 Japan Energy Corp. ............................ 15
98 Japan Tobacco, Inc. ........................... 860
21,600 Joyo Bank Ltd. ................................ 83
27,800 Jusco Co., Ltd. ............................... 526
200 Kadokawa Shoten Publishing Co., Ltd. .......... 20
(c)119,400 Kajima Corp. .................................. 380
5,000 Kaneka Corp. .................................. 55
87,900 Kansai Electric Power Co., Ltd. ............... 1,572
62,000 Kao Corp. ..................................... 1,892
39,000 Kawasaki Heavy Industries Ltd. ................ 60
138,000 Kawasaki Steel Corp. .......................... 198
6,000 Kinden Corp. .................................. 38
(c)128,200 Kinki Nippon Railway Co., Ltd ................. 519
140,400 Kirin Brewery Co., Ltd. ....................... 1,753
105,400 Komatsu Ltd. .................................. 741
600 Konami Co., Ltd. .............................. 38
152,000 Kubota Corp. .................................. 551
8,000 Kuraray Co., Ltd. ............................. 92
6,300 Kyocera Corp. ................................. 1,068
11,600 Kyowa Hakko Kogyo Co., Ltd. ................... 113
1,000 Marubeni Corp. ................................ 3
20,000 Marui Co., Ltd. ............................... 382
122,000 Matsushita Electric Industrial Co., Ltd. ...... 3,161
(c)4,000 Minebea Company, Ltd. ......................... 50
133,000 Mitsubishi Chemical Corp. ..................... 545
26,000 Mitsubishi Corp. .............................. 235
171,800 Mitsubishi Electric Corp. ..................... 1,858
65,000 Mitsubishi Estate Co., Ltd. ................... 764
323,000 Mitsubishi Heavy Industries Ltd. .............. 1,430
77,400 Mitsubishi Materials Corp. .................... 316
89,000 Mitsubishi Trust & Banking Co. ................ 690
29,800 Mitsui & Co., Ltd. ............................ 227
7,000 Mitsui Fire & Marine Insurance ................ 34
The accompanying notes are an integral part of the financial statements.
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JUNE 30, 2000
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JAPAN (CONT.)
40,400 Mitsui Fudosan Co., Ltd. ...................... $ 438
(c)45,800 Mitsukoshi Ltd. ............................... 203
8,000 Murata Manufacturing Co., Ltd. ................ 1,147
(c)18,800 Mycal Corp. ................................... 64
(c)700 NAMCO Ltd. .................................... 25
43,400 NEC Corp. ..................................... 1,362
(c)38,600 NGK Insulators Ltd. ........................... 478
(c)35,000 NGK Spark Plug Co., Ltd. ...................... 541
(c)4,800 Nichiei Co., Ltd. (Kyoto) ..................... 79
(c)3,100 Nidec Corp. ................................... 269
1,000 Nikon Corp. ................................... 37
9,300 Nintendo Corp., Ltd. .......................... 1,623
74,800 Nippon Express Co., Ltd. ...................... 459
30,600 Nippon Meat Packers, Inc. ..................... 447
186,800 Nippon Oil Co., Ltd. .......................... 855
15,000 Nippon Paper Industries Co. ................... 102
589,000 Nippon Steel Co. .............................. 1,237
256 Nippon Telegraph & Telephone Corp. (NTT) ...... 3,401
103,000 Nippon Yusen Kabushiki Kaisha ................. 495
147,600 Nissan Motor Co., Ltd. ........................ 869
2,500 Nissin Food Products Co. ...................... 64
2,000 Nitto Denko Corp. ............................. 77
129,000 Nomura Securities Co., Ltd. ................... 3,154
10,000 NSK Ltd. ...................................... 88
34,000 Obayashi Corp. ................................ 150
129,400 Oji Paper Co., Ltd. (New) ..................... 890
4,000 Olympus Optical Co., Ltd. ..................... 72
2,000 Omron Corp. ................................... 54
19,000 Onward Kashiyama Co., Ltd. .................... 258
6,400 Oriental Land Co., Ltd. ....................... 653
3,940 Orix Corp. .................................... 581
(c)210,600 Osaka Gas Co., Ltd. ........................... 605
14,000 Pioneer Electric Corp. ........................ 545
7,600 Promise Co., Ltd .............................. 600
100 Rohm Co., Ltd. ................................ 29
221,000 Sakura Bank Ltd. .............................. 1,526
50,800 Sankyo Co., Ltd. .............................. 1,146
155,000 Sanyo Electric Co., Ltd. ...................... 1,393
21,800 Secom Co., Ltd. ............................... 1,592
(a,c)11,600 Sega Enterprises Ltd. ......................... 178
1,000 Sekisui Chemical Co. .......................... 4
65,600 Sekisui House Co., Ltd ........................ 606
47,200 Sharp Corp. ................................... 834
400 Shimamura Co., Ltd. .......................... 47
8,200 Shimano, Inc. ................................. 197
80,600 Shimizu Corp. ................................. 230
13,000 Shin-Etsu Chemical Co., Ltd. .................. 659
12,000 Shionogi & Co., Ltd. .......................... 228
27,000 Shiseido Co., Ltd. ............................ 417
53,600 Shizuoka Bank Ltd. ............................ 454
13,000 Showa Shell Sekiyu K.K. ....................... 64
(c)16,000 Skylark Co., Ltd. ............................. 632
5,100 SMC Corp. ..................................... 959
(a)800 Softbank Corp. ................................ 109
(a,c)13,100 Softbank Corp. ................................ 1,777
43,800 Sony Corp. .................................... 4,085
(c)205,000 Sumitomo Bank ................................. 2,511
(c)137,600 Sumitomo Chemical Co., Ltd. ................... 827
18,400 Sumitomo Corp. ................................ 207
92,400 Sumitomo Electric Industries .................. 1,583
400 Sumitomo Forestry Co., Ltd. ................... 3
7,000 Sumitomo Marine & Fire Insurance Co., Ltd. .... 41
40,800 Sumitomo Metal & Mining Co. ................... 192
(a)67,000 Sumitomo Metal Industries ..................... 46
110,400 Taisei Corp., Ltd. ............................ 177
40,800 Taisho Pharmaceutical Co., Ltd. ............... 1,461
8,000 Taiyo Yuden Co., Ltd. ......................... 500
(c)3,000 Takara Shuzo .................................. 75
104,600 Takeda Chemical Industries .................... 6,859
9,400 Takefuji Corp. ................................ 1,134
84,400 Teijin Ltd. ................................... 411
22,000 Terumo Corp. .................................. 744
5,000 The 77 Bank, Ltd. ............................. 40
298,000 The Bank of Tokyo-Mitsubushi Ltd. ............. 3,596
59,400 Tobu Railway Co., Ltd. ........................ 170
36,900 Tohoku Electric Power Co., Ltd. ............... 497
(c)148,800 Tokai Bank Ltd. ............................... 733
103,000 Tokio Marine & Fire Insurance Co., Ltd. ....... 1,188
17,000 Tokyo Broadcasting System, Inc. ............... 734
123,000 Tokyo Electric Power Co. ...................... 2,995
4,000 Tokyo Electron Ltd. ........................... 547
196,600 Tokyo Gas Co. ................................. 552
(c)63,400 Tokyu Corp. ................................... 313
53,600 Toppan Printing Co., Ltd. ..................... 567
89,100 Toray Industries, Inc. ........................ 361
86,000 Toshiba Corp. ................................. 970
4,000 Tostem Corporation ............................ 65
58,600 Toto Ltd. ..................................... 449
3,000 Toyo Seikan Kaisha Ltd. ....................... 56
175,000 Toyota Motor Corp. ............................ 7,963
(c)107,400 Ube Industries Ltd. ........................... 336
1,100 Uni-Charm Corp. ............................... 67
500 World Co. Ltd. ................................ 22
35,000 Yamanouchi Pharmaceutical Co. ................. 1,909
5,000 Yamato Transport Co., Ltd. .................... 124
17,000 Yokogawa Electric Corp. ....................... 170
---------------
134,241
---------------
KOREA (0.9%)
17,486 Hyundai Motor Co., Ltd. ....................... 224
28,260 Kookmin Bank .................................. 360
26,355 Korea Electric Power Corp. .................... 818
23,390 L.G. Chemical Ltd. ............................ 468
5,464 L.G. Securities ............................... 153
(d)1,918 Pohang Iron & Steel Co., Ltd. ................. 167
6,694 Samsung Electro-Mechanics Co. ................. 420
5,160 Samsung Electronics Co. ....................... 1,708
57,222 Shinhan Bank .................................. 539
630 SK Telecom Co., Ltd. .......................... 206
---------------
5,063
---------------
The accompanying notes are an integral part of the financial statements.
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Active International Allocation Portfolio
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INSTITUTIONAL FUND, INC.
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STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
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ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
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SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
NETHERLANDS (6.7%)
62,057 ABN Amro Holding N.V. ......................... $ 1,519
(a)272 Aegon N.V. .................................... 10
(a,c)69,170 Aegon N.V. .................................... 2,459
7,300 Akzo Nobel N.V. ............................... 310
5,832 Buhrmann N.V. ................................. 167
37,970 Elsevier N.V. ................................. 459
12,243 Getronics NV .................................. 189
5,521 Hagemeyer N.V. ................................ 152
30,097 Heineken N.V. ................................. 1,830
58,490 ING Groep N.V. ................................ 3,950
37,465 Koninklijke Ahold N.V. ........................ 1,102
(a)81,580 Koninklijke Philips Electronics N.V. .......... 3,844
(a)1,515 Nedlloyd Groep N.V. ........................... 29
2,722 Oce N.V. ...................................... 44
(a)16,575 Rodamco Continental Europe N.V. ............... 679
294,276 Royal Dutch Petroleum Co. ..................... 18,272
6,678 Royal KPN N.V. ................................ 298
2,989 Stork N.V. .................................... 40
29,848 TNT Post Group N.V. ........................... 804
23,670 Uni Ivest N.V. ................................ 298
(c)55,775 Unilever N.V. ................................. 2,556
4,826 Vedior N.V. ................................... 60
17,816 Wolters Kluwer N.V. ........................... 474
---------------
39,545
---------------
NORWAY (0.0%)
(a)2,100 Petroleum Geo-Services A/S .................... 36
---------------
PORTUGAL (0.5%)
(c)74,502 Banco Commercial Portugues (Registered) ....... 387
9,030 Banco Espirito Santo e Comercial
de Lisboa (Registered) ...................... 221
60,305 Banco Portugues de Investimento (New) ......... 213
33,670 Brisa-Auto Estradas de Portugal S.A. .......... 290
2,397 Cia de Seguros Tranquilidade (Registered) ..... 76
1,090 Cin-Corp Industrial Do Norte .................. 6
(a)173 Corticeira Amorim ............................. 2
78,920 EDP-Electricidade de Portugal ................. 1,432
667 INAPA-Investimentos Participacoes e Gestao .... 4
(a)9,119 Jeronimo Martins SGPS ......................... 150
11,996 Portucel Industrial-Empressa .................. 73
11,972 Portugal Telecom .............................. 134
(a)358 Sociedade de Construcoes Soares da Costa ...... 1
(a)103,880 Sonae SGPS S.A. ............................... 182
---------------
3,171
---------------
SINGAPORE (2.1%)
117,000 City Developments Ltd. ........................ 454
7,350 Creative Technology Ltd. ...................... 177
51,000 Cycle & Carriage Ltd. ......................... 120
222,441 DBS Group Holdings Ltd. ....................... 2,859
226,750 DBS Land Ltd. ................................. 294
52,000 First Capital Corp., Ltd. ..................... 50
56,800 Fraser & Neave Ltd. ........................... 202
(c)148,000 Hotel Properties Ltd. ......................... 132
(c)141,750 Keppel Corp., Ltd. ............................ 307
(a)116,000 Neptune Orient Lines Ltd. (Foreign) ........... 107
211,688 Oversea-Chinese Banking Corp. (Foreign) ....... 1,458
76,000 Parkway Holdings Ltd. ......................... 194
320,644 Sembcorp Industries Ltd. ...................... 349
212,000 Singapore Airlines Ltd. (Foreign) ............. 2,099
65,018 Singapore Press Holdings Ltd. ................. 1,016
528,000 Singapore Technologies Engineering Ltd. ....... 776
122,500 Singapore Telecommunications Ltd. ............. 179
274,000 United Industrial Corp., Ltd. ................. 129
173,328 United Overseas Bank Ltd. (Foreign) ........... 1,134
106,000 United Overseas Land Ltd. ..................... 95
20,000 Venture Manufacturing (Singapore) Ltd. ........ 204
---------------
12,335
---------------
SPAIN (2.7%)
4,236 Acerinox ...................................... 122
(c)4,981 ACS Actividades ............................... 140
(a)14,239 Aguas de Barcelona ............................ 190
(c)21,489 Autopistas Concesionaria Espanola ............. 187
2,643 Azucarera Ebro Agricolas ...................... 32
(a)229,585 Banco Bilbao Vizcaya (Registered) ............. 3,427
195,003 Banco Santander ............................... 2,055
7,137 Corporacion Financiera Alba ................... 188
(c)5,977 Corporacion Mapfre ............................ 76
97,009 Endesa ........................................ 1,877
(a)7,584 Fomento Construction y Cantractas ............. 143
44,619 Gas Natural SDG S.A. .......................... 800
14,276 Grupo Dragados, S.A. .......................... 102
89,995 Iberdrola ..................................... 1,159
14,570 Imobiliaria Colonial S.A. ..................... 195
26,946 Inmobiliaria Metropolitana Vasco Central ...... 452
(a)24,739 Prima Immobiliaria S.A. ....................... 253
117,311 Repsol ........................................ 2,333
(a)7,936 SOL Melia S.A. ................................ 89
(a)27,598 Telefonica .................................... 592
(a,c)18,386 Telepizza ..................................... 103
29,782 Union Electrica Fenosa ........................ 538
57 Uralita ....................................... --
(c)103,645 Vallehermoso .................................. 618
115 Viscofan Envolturas Celulosicas ............... 1
3,981 Zardoya Otis .................................. 35
---------------
15,707
---------------
SWEDEN (3.2%)
(c)9,750 Atlas Copco AB, Class A ....................... 188
5,500 Atlas Copco AB, Class B ....................... 103
19,610 Castellum AB .................................. 211
44,400 Drott AB, Class B ............................. 478
23,600 Electrolux AB, Series B ....................... 365
11,690 Fastighets AB Tornet .......................... 153
27,250 ForeningsSparbanken AB ........................ 398
59,400 Hennes & Mauritz AB, Class B .................. 1,238
14,400 JM AB ......................................... 245
(a)733 Netcom Systems AB, Class B .................... 54
5,500 OM Gruppen AB ................................. 246
6,600 S.K.F. AB, Class B ............................ 110
21,100 Sandvik AB .................................... 442
30,140 Securitas AB, Class B ......................... 638
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
Active International Allocation Portfolio
12
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
SWEDEN (CONT.)
78,600 Skandia Forsakrings AB ........................ $ 2,075
30,900 Skandinaviska Enskilda Banken, Class A ........ 366
9,600 Skanska AB, Class B ........................... 340
16,300 Svenska Cellulosa AB, Class B ................. 309
33,200 Svenska Handelsbanken, Class A ................ 481
5,000 Svenskt Stal AB (SSAB), Series A .............. 50
1,100 Swedish Match AB .............................. 3
493,300 Telefonaktiebolaget LM Ericsson ............... 9,751
10,900 Trelleborg AB, Class B ........................ 76
3,600 Volvo AB, Class A ............................. 75
(c)13,650 Volvo AB, Class B ............................. 296
(a)27,500 Wm-Data AB .................................... 151
---------------
18,842
---------------
SWITZERLAND (5.5%)
(a)17,739 ABB AG ........................................ 2,121
1,145 Adecco ........................................ 972
(a)195 Alusuisse-Lonza Holdings Ltd. (Registered) .... 127
11,400 CS Holding AG (Registered) .................... 2,265
200 Georg Fischer AG .............................. 62
(a)562 Givaudan ...................................... 171
3,730 Nestle (Registered) ........................... 7,457
4,280 Novartis AG (Registered) ...................... 6,772
92 Roche Holding AG (Bearer) ..................... 972
470 Roche Holding AG (Registered) ................. 4,570
90 SAirgroup ..................................... 15
10 SGS Surveillance .............................. 17
320 SMH AG (Bearer) ............................... 407
(a)260 Sulzer AG (Registered) ........................ 173
(c)925 Swiss Reinsurance (Registered) ................ 1,883
490 Swisscom AG (Registered) ...................... 170
(a)17,198 UBS AG ........................................ 2,517
405 Valora Holding AG ............................. 112
2,970 Zurich Allied AG .............................. 1,466
---------------
32,249
---------------
THAILAND (0.0%)
(a)8,000 CMIC Finance & Securities PCL (Foreign) ....... --
(a)18,600 General Finance & Securities PCL (Foreign) .... --
(a,d)34,700 Siam City Bank PCL (Foreign) .................. --
---------------
--
---------------
UNITED KINGDOM (14.2%)
17,563 3I Group plc .................................. 361
35,442 Abbey National plc ............................ 424
57,481 Allied Zurich plc ............................. 679
19,826 Amvescap plc .................................. 318
(a)5,153 Anglian Water plc ............................. 48
34,654 Arjo Wiggins Appleton plc ..................... 135
(a)27,885 ARM Holdings Plc .............................. 297
43,086 BAA plc ....................................... 345
35,568 Barclays plc .................................. 884
26,934 Bass plc ...................................... 303
(a)201,773 BG plc ........................................ 1,303
27,906 BICC plc ...................................... 32
21,425 BOC Group plc ................................. 308
37,561 Boots Co. plc ................................. 286
1,896,916 BP Amoco plc .................................. 18,192
116,202 British Aerospace plc ......................... 724
131,336 British American Tobacco plc .................. 876
188,836 British Land Co. plc .......................... 1,157
58,647 British Sky Broadcasting plc .................. 1,146
44,131 British Telecommunications plc ................ 570
108,794 BTR plc ....................................... 408
112,160 Buford Holdings plc ........................... 165
15,703 Burmah Castrol plc ............................ 396
155,328 Cadbury Schweppes plc ......................... 1,020
(a)90,221 Canary Wharf Finance plc ...................... 506
6,064 Capital Group plc ............................. 148
3,230 Capital Shopping Centers plc .................. 20
38,691 Caradon plc ................................... 88
234,343 Centrica plc .................................. 782
36,580 Commercial Union plc .......................... 609
24,892 Compass Group plc ............................. 328
(a)45,523 Corus Group plc ............................... 66
240,037 Diageo plc .................................... 2,153
(a)52,928 Dixons Group Plc .............................. 215
25,553 EMI Group plc ................................. 232
550 Frogmore Estates plc .......................... 4
53,336 GKN plc ....................................... 680
192,353 Glaxo Wellcome plc ............................ 5,607
62,987 Granada Group plc ............................. 629
257,960 Grantchester Holdings plc ..................... 663
112,090 Great Portland Estates plc .................... 395
36,437 Great Universal Stores plc .................... 234
59,928 Halifax plc ................................... 575
43,530 Hammerson plc ................................. 291
52,339 Hays plc ...................................... 292
156,296 HSBC Holdings plc ............................. 1,786
28,216 Imperial Chemical Industries plc .............. 224
55,049 Kingfisher plc ................................ 501
52,756 Ladbroke Group plc ............................ 185
69,346 Land Securities plc ........................... 829
46,769 Lasmo plc ..................................... 99
226,127 Legal & General Group plc ..................... 528
127,636 Lloyds TSB Group plc .......................... 1,205
11,700 Logica plc .................................... 277
77,228 Marconi plc ................................... 1,005
102,670 Marks and Spencer plc ......................... 361
13,917 MEPC plc ...................................... 115
20,586 MISYS plc ..................................... 174
30,777 National Grid Group plc ....................... 243
71,882 National Power plc ............................ 458
18,761 Nycomed Amersham plc .......................... 186
1,636 Pearson plc ................................... 52
28,680 Peninsular & Oriental Steam Navigation ........ 246
68,016 Pilkington plc ................................ 97
77,344 Prudential Corp. plc .......................... 1,133
9,167 Psion plc ..................................... 89
17,776 Railtrack Group plc ........................... 276
33,606 Rank Group plc ................................ 78
47,026 Reed International plc ........................ 409
121,637 Rentokil Initial plc .......................... 276
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
Active International Allocation Portfolio
13
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
UNITED KINGDOM (CONT.)
49,612 Reuters Group plc ............................. $ 846
23,488 Rexam plc ..................................... 91
21,061 Rio Tinto plc ................................. 344
4,913 Royal Bank of Scotland Group plc .............. 82
71,113 Sainsbury (J) plc ............................. 323
(a)4,206 Schroders plc ................................. 76
83,982 Scottish Power plc ............................ 711
13,620 SEMA Group plc ................................ 194
102,790 Slough Estates plc ............................ 569
33,004 Smith & Nephew plc ............................ 122
323,045 Smithkline Beecham plc ........................ 4,227
1 Smiths Industries plc ......................... --
29,686 Tate & Lyle plc ............................... 148
19,311 Taylor Woodrow plc ............................ 45
83,214 Tesco plc ..................................... 259
26,206 Thames Water plc .............................. 339
35,892 The Sage Group plc ............................ 290
19,353 TI Group plc .................................. 105
210,141 Unilever plc .................................. 1,271
26,840 United Utilities plc .......................... 266
2,987,540 Vodafone Group plc ............................ 12,066
4,460 Wates City Of London Properties plc ........... 6
22,642 WPP Group plc ................................. 330
100,625 Zeneca Group plc .............................. 4,696
---------------
83,132
---------------
TOTAL COMMON STOCKS (Cost $473,799) ............................. 494,089
---------------
PREFERRED STOCKS (0.5%)
AUSTRALIA (0.1%)
66,586 News Corp., Ltd. .............................. 802
---------------
BRAZIL (0.0%)
59,000 Aracruz Celulose (Preferred) .................. 114
---------------
GERMANY (0.4%)
1,600 RWE AG ........................................ 44
10,101 SAP AG ........................................ 1,886
3,250 Volkswagen AG ................................. 77
---------------
2,007
---------------
HONG KONG (0.0%)
12,500 Johnson Electric Holdings Ltd. ................ 118
---------------
ITALY (0.0%)
2,110 Fiat S.p.A. ................................... 35
---------------
TOTAL PREFERRED STOCKS (Cost $2,829) ............................ 3,076
---------------
<CAPTION>
NO. OF
RIGHTS
-----------------
<S> <C>
RIGHTS (0.0%)
GERMANY (0.0%)
27,590 IVG Holding AG, expiring 6/30/00 .............. 1
---------------
ITALY (0.0%)
144,301 Banca Intesa S.p.A., expiring 6/30/00 ......... 3
---------------
PORTUGAL (0.0%)
25,970 Sonae SGPS, expiring 8/01/00 .................. 18
---------------
TOTAL RIGHTS (Cost $--) ......................................... 22
---------------
<CAPTION>
NO. OF VALUE
WARRANTS (000)
--------------------------------------------------------------------------------
<S> <C>
WARRANTS (0.0%)
FRANCE (0.0%)
(a)455 Banque Nationale de Paris, expiring 7/01/02
(Cost $2) ................................... $ 3
---------------
FACE
AMOUNT
(000)
-----------------
FIXED INCOME SECURITIES (0.0%)
FRANCE (0.0%)
$ 136,400 Casino Guichard-Perrachon, Series XW,
4.50%, 07/12/01 ............................. 128
---------------
PORTUGAL (0.0%)
(a)10 Jeronimo Martins SGPS,
Zero Coupon, 12/30/04 ....................... 6
---------------
TOTAL FIXED INCOME SECURITIES (0.0%) (Cost $56) ................. 134
---------------
TOTAL FOREIGN SECURITIES (84.8%) (Cost $476,686) ................ 497,324
---------------
SHORT-TERM INVESTMENTS (20.5%)
SHORT-TERM INVESTMENTS HELD AS COLLATERAL ON
LOANED SECURITIES (6.7%)
675 Abbey National Treasury Services, MTN,
6.51%, 08/04/00 ............................. 675
1,500 ABN Amro Bank, TD, 7.125%, 7/03/00 ............ 1,500
1,500 Allied Irish Bank, TD, 7.15%, 7/03/00 ......... 1,500
250 Abbey National Treasury Services, MTN,
6.52%, 08/04/00 ............................. 250
600 Baltimore Gas and Electric, MTN, 6.75%,
9/14/00 ..................................... 600
1,500 Banca Commerciale Italiano (London),
TD, 7.25%, 07/03/00 ......................... 1,500
1,500 Banco Santander S.A., TD, 7.125%,
7/03/00 ..................................... 1,500
1,500 Bank of Austria, TD, 7.25%, 7/03/00 ........... 1,500
1,500 Banque Bruxelles Lambert, TD, 7.25%,
7/03/00 ..................................... 1,500
1,500 Bayerische Hypo-Und Vereinsbank, TD,
7.125%, 7/03/00 ............................. 1,500
250 Bayerische Landesbank, N.Y.,Yankee CD,
6.68%, 2/22/01 .............................. 250
500 Bayerische Landesbank, N.Y., Yankee CD,
6.67%, 12/15/00 ............................. 500
1,250 Bear Stearns, Yankee CD, 6.72%, 5/04/01 ....... 1,250
650 BNP Paribas N.Y., Yankee CD, 6.53%,
1/08/01 ..................................... 650
675 Commerzbank AG, N.Y., Yankee CD, 6.55%,
1/08/01 ..................................... 675
1,749 CIT Group Holdings, MTN, 6.70%, 5/24/01 ....... 1,749
1,500 Citibank Corp.,TD, 7.125%, 7/03/00 ............ 1,500
1,500 Credit Agricole Indozuez, TD, 7.125%,
7/03/00 ..................................... 1,500
1,500 Credit Commerciale, TD, 7.125%, 7/03/00 ....... 1,500
625 Deutsche Bank N.Y., Yankee CD, 6.66%,
12/13/03 .................................... 625
650 Dexia Bank N.Y., Yankee CD, 6.53%,
1/08/01 ..................................... 650
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
Active International Allocation Portfolio
14
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS HELD AS COLLATERAL ON
LOANED SECURITIES (CONT.)
$ 400 Dresdner Bank, N.Y., Yankee CD,
6.67%, 7/24/00 .............................. $ 400
1,750 First Union Bank, CD, 6.68%, 2/20/01 .......... 1,750
1,500 Fortis Bank, TD, 7.19%, 7/03/00 ............... 1,500
801 General Motors Acceptance Corp., MTN,
6.78%, 12/15/00 ............................ 801
1,702 Goldman Sachs Group, L.P., MTN,
6.27%, 1/09/01 ............................. 1,702
1,500 Landesbank Baden Wuerttember, TD,
7.19%, 7/03/00 ............................. 1,500
2,337 Lehman Brothers, Inc., 7.075%, dated
6/30/00, due 7/03/00, to be repurchased at
$2,338, collateralized by U.S.
Government Agency Bonds, having
various rates and maturities, valued at
$2,384 (Cost $2,337) ....................... 2,337
1,750 Links Finance Corp., MTN, 6.65%, 5/21/01 ...... 1,750
1,199 Nordeutsche Landesbank, N.Y., Yankee CD,
6.76%, 2/26/01 ............................. 1,199
1,199 Svenska Handelsbank, N.Y., Yankee CD,
6.67%, 2/26/01 ............................. 1,199
600 Toyota Motor Credit Corp., MTN,
6.27%, 1/09/00 ............................. 600
1,500 Westdeutsche Landesbank G.C., TD,
7.125%, 7/03/00 ............................ 1,500
---------------
TOTAL SECURITIES HELD FOR COLLATERAL ON LOANED
SECURITIES ................................................... 39,112
---------------
REPURCHASE AGREEMENT (13.8%)
80,746 Chase Securities, Inc., 6.15%, dated
6/30/00, due 7/03/00, to be repurchased
at $80,787, collateralized by U.S.
Treasury Bonds, having various rates
and maturity dates, valued at $83,358 ....... 80,746
---------------
TOTAL SHORT-TERM INVESTMENTS (Cost $119,858) .................... 119,858
---------------
FOREIGN CURRENCY (0.1%)
AUD 2 Australian Dollar ............................. 1
EUR 147 European Monetary Unit ........................ 140
HKD 147 Hong Kong Dollar .............................. 19
INR 128 Indian Rupee .................................. 3
JPY 33,665 Japanese Yen .................................. 317
NOK 20 Norwegian Krone ............................... 2
SGD 37 Singapore Dollar .............................. 22
KRW 79,281 South Korean Won .............................. 71
SED 105 Swedish Krona ................................. 12
---------------
TOTAL FOREIGN CURRENCY (Cost $588) .............................. 587
---------------
TOTAL INVESTMENTS (105.4%) (Cost $597,132) ...................... 617,769
---------------
<CAPTION>
AMOUNT
(000)
---------------------------------------------------------------------------------
OTHER ASSETS (2.0%)
<S> <C> <C>
Cash ............................................ $ 2,243
Receivable for Portfolio Shares Sold ............ 7,670
Net Unrealized Gain on Foreign Currency
Exchange Contracts ............................ 505
Dividends Receivable ............................ 475
Receivable for Investments Sold ................. 309
Foreign Withholding Tax Reclaim Receivable ...... 291
Interest Receivable ............................. 53
Other ........................................... 17 $ 11,563
------------
LIABILITIES (-7.4%)
Collateral on Securities Loaned ................. (39,112)
Payable for Portfolio Shares Redeemed ........... (1,507)
Net Payable for Variation on Futures Contracts .. (1,406)
Investment Advisory Fees Payable ................ (760)
Custodian Fees Payable .......................... (112)
Administrative Fees Payable ..................... (85)
Directors' Fees and Expenses Payable ............ (25)
Distribution Fees Payable ....................... (22)
Payable for Investments Purchased ............... (1)
Other Liabilities ............................... (65) (43,095)
------------ ---------------
NET ASSETS (100%) ............................................... $ 586,237
===============
NET ASSETS CONSIST OF:
Paid in Capital ................................................. $ 505,602
Undistributed Net Investment Income ............................. 2,903
Accumulated Net Realized Gain ................................... 58,095
Unrealized Appreciation on Investments, Foreign Currency
Translations and Futures Contracts ........................... 19,637
---------------
NET ASSETS ...................................................... $ 586,237
===============
CLASS A:
NET ASSETS ...................................................... $ 558,195
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 41,999,328 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ................... $ 13.29
===============
CLASS B:
NET ASSETS ...................................................... $ 28,042
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,089,287 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .................... $ 13.42
===============
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
Active International Allocation Portfolio
15
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(a) -- Non-income producing security
(c) -- All or a portion of security on loan at June 30, 2000 -- See Note
A-9 to financial statements.
(d) -- Security valued at fair value -- See Note A-1 to financial
statements.
CD -- Certificate of Deposit
MTN -- Medium Term Note
NCS -- Non-Convertible Shares
PCL -- Public Company Limited
RFD -- Ranked for Dividend
RNC -- Non-Convertible Savings Shares
TD -- Time Deposit
--------------------------------------------------------------------------------
FUTURES CONTRACTS:
At June 30, 2000, the following futures contracts were open:
<CAPTION>
NET
UNREALIZED
NUMBER NOTIONAL APPRECIATION
OF VALUE EXPIRATION (DEPRECIATION)
CONTRACTS (000) DATE (000)
--------- -------- ---------- --------------
<S> <C> <C> <C> <C>
LONG:
Aust All Ord. (Australia) 17 U.S.$ 856 Sept-00 $ 29
CAC 40 Index (France) 340 U.S.$ 20,848 Sept-00 (573)
DAX Index (Germany) 58 U.S.$ 9,694 July-00 (568)
Hang Seng Index (Japan) 117 U.S.$ 3,438 July-00 5
IBEX Index (Spain) 78 U.S.$ 7,870 July-00 (301)
MIB30 Index (Italy) 274 U.S.$ 6,107 Sept-00 (14)
TOPIX Index (Japan) 209 U.S.$ 31,502 Sept-00 31
-------
$(1,391)
=======
--------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
--------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary ................................. $ 67,289 11.5%
Consumer Staples ....................................... 37,589 6.4
Energy ................................................. 55,610 9.5
Financials ............................................. 112,171 19.1
Healthcare ............................................. 47,780 8.2
Industrials ............................................ 50,356 8.6
Information Technology ................................. 52,278 8.9
Materials .............................................. 17,199 2.9
Telecommunication Services ............................. 26,027 4.4
Utilities .............................................. 31,025 5.3
-------- ----
$497,324 84.8%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
Active International Allocation Portfolio
16
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
[CHART]
<TABLE>
<S> <C>
China (8.2%)
Hong Kong (24.9%)
Indonesia (0.9%)
South Korea (25.6%)
Malaysia (5.4%)
Singapore (10.5%)
Taiwan (19.9%)
Thailand (2.4%)
Other (2.2%)
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) ALL-COUNTRY FAR
EAST FREE EX-JAPAN INDEX(1)
--------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
------- ------ ------- ---------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A.... -9.73% 13.31% -5.00% 7.31%
PORTFOLIO -- CLASS B.... -9.68 13.04 N/A -5.85
INDEX -- CLASS A........ -14.15 -4.55 -3.76 7.77
INDEX -- CLASS B........ -14.15 -4.55 N/A -4.38
</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,
South Korea, Singapore, Taiwan and Thailand.
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. Foreign investing
involves certain risks, including currency fluctuations and controls,
restrictions on foreign investments, less governmental supervision and
regulation, less liquidity and the potential for market volatility and political
instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
-9.73% for the Class A shares and -9.68% for the Class B shares compared to
-14.15% for the Morgan Stanley Capital International (MSCI) All-Country Far East
Free ex-Japan Index (the "Index"). For the one year ended June 30, 2000, the
Portfolio had a total return of 13.31% for the Class A shares and 13.04% for the
Class B shares compared to -4.55% for the Index. For the five-year period ended
June 30, 2000, the average annual total return for the Class A shares was -5.00%
compared to -3.76% for the Index. For the period from inception on July 1, 1991
through June 30, 2000, the average annual total return for the Class A shares
was 7.31% compared to 7.77% for the Index. For the period from inception on
January 2, 1996 through June 30, 2000, the average annual total return for the
Class B shares was -5.85% compared to -4.38% for the Index.
Markets globally continued to be volatile as higher inflation data in the U.S.
and a subsequent 0.5% rate hike by the Federal Reserve made equity investors
nervous about the prospects of a hard landing in the U.S. Asian ex-Japan
markets continued to slide lower and the high-performing technology and telecom
stocks corrected significantly from their highs in March this year. The markets
began to stabilize towards the end of the second quarter of 2000 as the Federal
Reserve kept interest rates on hold in June and economic data releases pointed
to a slow down in the U.S. economy.
The Korean market, which had been underperforming broader Asian markets in the
first quarter of 2000, was among the best performing markets in the second
quarter of 2000. However, at one point the market touched a 12-month low as
domestic retail investors and institutions sold down equities heavily. However,
strong policy action and several positive postures by the government, including
the
-------------------------------------------------------------------------------
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.
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.
-------------------------------------------------------------------------------
Asian Equity Portfolio
17
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INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
injection of public funds into the ailing investment trust companies, helped the
market to bounce back strongly. In addition, the Hyundai Group's implementation
of an aggressive restructuring plan to induce foreign capital and dissolve
control by the founding family, as well as a re-capitalization plan of its
investment trust company were viewed positively by investors. With respect to
the restructuring of the defunct Daewoo Group, preliminary bids were submitted
by potential strategic investors for Daewoo Motors with the highest bid coming
in well above market expectations. With foreign portfolio investment inflows in
the second quarter of 2000 and growing foreign direct investment (FDI), the
Korean Won continued to show strength. One of the government measures to calm
financial markets was the implementation of the second tranche of the bond
stabilization plan worth 10 trillion Won to soak up some of the supply from
illiquid bond markets. Based on new demand sources and waning redemptions at
investment trust companies which resulted in forced sells in the first quarter
of 2000, benchmark bond yields started to trend down towards the latter half of
the second quarter of 2000. The monumental summit between the leaders of the two
Koreas did not have much impact on the stock market. We continue to retain an
extremely positive stance on Korea with our Portfolio anchored in blue chips
like Samsung Electronics and Korea Telecom.
While Taiwan was the best performing market in the first quarter of 2000, it was
among the worst performing in the second quarter of 2000. Although part of this
underperformance came from a generic sell-off in technology related shares
globally, much of this was due to diminishing domestic investor confidence and
confusion over the domestic policy moves of the new DPP government. There were
indications from the government taxes would be introduced to hi-tech companies,
which traditionally paid little or no tax. Technology companies in Taiwan,
especially in the semi-conductor sector, have enjoyed significant tax
advantages while the financial and other traditional sector companies have been
fully taxed. These feelers are perhaps the first steps towards rationalization
of the taxation system and attempts to bridge the fiscal deficit, which has
become bloated. We think that investors are likely to be cautious in the
long-term towards the Taiwanese technology sector and analysts are likely to
start incorporating taxation anomalies in valuations. The new President has done
much to help calm cross-strait relations and it seems that the worst is behind
us.
Hong Kong was a weak performer in the second quarter of 2000, but the market
managed to recover toward the end of the second quarter of 2000 as investors
became increasingly comfortable with a soft landing scenario in the U.S. There
was increased interest in Hong Kong companies benefiting from growth momentum in
China. GDP growth rates in Hong Kong have been running ahead of expectations for
the last two quarters. With a benign outlook for interest rates and a recent
well-bided land auction, demand is returning to the Hong Kong residential
market. Although growth rates are heady, Hong Kong's recovery has probably had
its best quarter and growth is likely to be slower in 2001 with deflation
continuing to be a problem. Hutchison Whampoa, our biggest position in Hong
Kong, continues to be in the limelight with its foray into 3G in the United
Kingdom and its attractive mobile telecom assets in the U.S. Our positive stance
on global exports and supply logistics leader, Li & Fung, performed very well
this year.
China has been the star among Asian markets year-to-date. While there have been
substantial portfolio inflows into China on back of the increased weighting in
MSCI Indices, positive macroeconomic news flow from China continues to keep
sentiment very strong. Economic growth in China, which had been decelerating for
the last seven years, is now showing impressive cyclical revival. GDP growth for
the first half of this year was over 8%. Consumer spending in China has started
to pick up and with exports continuing to stay robust, the quality of growth is
also changing for the better. Political risks from Taiwan-China relations have
diminished considerably after the new Taiwanese President delivered a friendly
inauguration speech in May. The U.S. Senate approved PNTR (Permanent Normal
Trade Relations) with China. Indications from listed corporate companies in
China lead us to believe that corporate results for the first half of 2000 are
likely to exceed expectations. China has stated plans to open up the A-share
market, which when combined with the listed H-shares and red chips, would make
China the biggest stock market in Asia after Japan in the next few years. We
have been adding to China weightings in our Portfolio, but the lack of liquid
and attractively priced investable ideas is a constraint in constructing a
broad-based portfolio. The current Index constituents are very skewed and top
heavy with China Mobile making up almost 60% of the China Index. We managed to
increase exposure to the growing mobile telecom sector by participating in the
highly successful listing of China Unicom, the second biggest mobile
communication services company in China.
Malaysia, which was the best performing Asian market in the first quarter of
2000, reversed direction in the second quarter of 2000. Malaysia's strength has
been its closed capital account, which was beneficial when U.S. interest rate
anxiety was at a high. This made Malaysia one of the
-------------------------------------------------------------------------------
Asian Equity Portfolio
18
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INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
best-performing markets in Asia for the first five months of this year. However,
in the month of June, the market succumbed to selling pressure and ended the
first half with an increase of only 2.6%. The re-entry of Malaysia into various
indices on May 31, 2000 proved to be a non-event. Local investors harbored high
expectations that indexed funds will start a second wave of foreign portfolio
funds rushing into the market. Wavering government policies, relatively
expensive valuations and the lack of major corporate restructuring plans proved
to be major negative influences.
The smaller southeast Asian markets continued to be laggards and diminished in
importance as their country weights fell further after the Index re-adjustments
starting May 31, 2000. In Indonesia, protracted political uncertainties, foot-
dragging on economic reforms and increased disintegration risk contributed to
the market being the worst performer year-to-date. The Indonesian Rupiah
continues to remain highly vulnerable and volatile. Most investors have also
continued to ignore the Philippine market over the last few quarters. In
Thailand, the market is suffering from the reduction of its weight in indices.
Thai corporates face an uphill task of attracting foreign investors amidst a
backdrop of near-term political uncertainties and moderate economic growth.
Non-performing loan (NPL) reduction, an important confidence booster, is
expected to be gradual. With concerns easing over the prospect of a hard landing
for the U.S. economy, banks and other interest-rate sensitive stocks could do
well in the short term. However, we are still underweight the banking sector as
banks are unlikely to solve their NPLs in an acceptable timeframe. We prefer the
export and consumer sectors in Thailand, especially those possessing strong
balance sheets and good management.
The Indian market witnessed a huge increase in weighting for the TMT
(Technology, Media & Telecom) sector but it has been volatile in line with the
gyrations of the NASDAQ. Although data on industrial production over the last
few months demonstrated strength in the cyclical upswing of the economy, the
high fiscal deficit numbers continue to be a looming concern. An incremental
foreign portfolio inflow is a function of the perceived success of the
government's privatization program. We continue to favor high growth software
services stocks like Infosys Technologies, NIIT and SSI as these companies are
increasing market share in the global IT services market with their smooth
execution and cost competitiveness.
Singapore has been a relative laggard year-to-date but the underlying economic
fundamentals continue to stay strong. GDP growth in second quarter of 2000 was
over 7.7%, much higher than consensus estimates. New U.S. orders for
electronics, a key leading indicator for Singapore exports, has shown the strong
growth the last few quarters. In addition, the recovery in Japan and increase in
intra-Asian trade are creating impressive new demands for Singapore exports.
Over the medium-term, we believe that a soft landing in the U.S. will ease off
interest rate fears in Asia and refocus attention on some of the inexpensive
growth stocks, especially in South Korea. China's strong recovery and entry into
the World Trade Organization later this year will keep sentiment on China stocks
buoyant through the rest of the year. We think that future performance will
depend on judicious stock selection, as the gap between the winners and losers
continues to widen.
Ashutosh Sinha
PORTFOLIO MANAGER
July 2000
-------------------------------------------------------------------------------
Asian Equity Portfolio
19
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
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-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (97.7%)
CHINA (8.2%)
348,000 China Merchants Holdings
International Co. Ltd. ...................... $ 239
502,000 China Telecom Ltd. ............................ 4,427
918,000 China Unicom .................................. 1,949
394,000 Cosco Pacific Ltd. ............................ 311
1,177,000 Great Wall Technology Co., Class H ............ 815
684,000 TCL International ............................. 250
----------
7,991
----------
HONG KONG (24.9%)
148,000 Asia Satellite Telecommunications
Holdings Ltd. ................................. 506
136,000 ASM Pacific Technology ........................ 509
463,000 Cathay Pacific Airways Ltd. ................... 858
193,900 Cheung Kong Holdings Ltd. ..................... 2,145
11,600 China.com Corp., Class A ...................... 237
79,000 Citic Pacific Ltd. ............................ 414
67,000 Dao Heng Bank Group Ltd. ...................... 297
51,700 Hang Seng Bank Ltd. ........................... 491
614,600 Hong Kong & China Gas Co., Ltd. ............... 690
124,000 Hong Kong Land Holdings Ltd. .................. 198
1,416,500 Hong Kong Telecommunications Ltd. ............. 3,116
592,980 Hutchison Whampoa Ltd. ........................ 7,455
89,500 Johnson Electric Holdings Ltd. ................ 847
234,000 Legend Holdings Ltd. .......................... 227
(a)313,200 Li & Fung Ltd. ................................ 1,567
550,000 Phoenix Satellite TV .......................... 77
1,920,000 Sino-i.com Ltd. ............................... 87
88,000 SmarTone Telecommunications Holdings Ltd. ..... 195
3,206,000 Soundwill Investments Ltd. .................... 76
289,600 Sun Hung Kai Properties Ltd. .................. 2,080
212,200 Swire Pacific Ltd., Class A ................... 1,241
118,800 Television Broadcasts Ltd. .................... 792
(a)584,000 Timeless Software Ltd. ........................ 264
----------
24,369
----------
INDIA (0.0%)
205 Hero Honda Motors Ltd. ........................ 4
----------
INDONESIA (0.9%)
161,000 Gudang Garam .................................. 260
132,500 Semen Gresik .................................. 121
69,480 Telekomunikasi Indonesia ADR .................. 482
----------
863
----------
KOREA (25.6%)
8,090 39Shopping Corp. .............................. 265
5,860 Cheil Communications, Inc. .................... 765
22,800 Communication Network Interface, Inc. ......... 126
(d)10,146 Dongwon Securities Co. ........................ 73
40,978 Housing & Commercial Bank, Korea .............. 959
(a)30,390 Humax Co., Ltd. ............................... 421
23,046 Hyundai Electronics Industries Co. ............ 455
56,802 Kookmin Bank .................................. 723
64,330 Korea Electric Power Corp. ADR ................ 1,186
1,200 Korea Telecom Corp. ........................... $106
29,900 Korea Telecom Corp. ADR ....................... 1,446
4,910 Korea Telecom Freetel ......................... 327
4,320 L.G. Home Shopping, Inc. ...................... 411
820 L.G. Information & Communication Ltd. ......... 46
2,710 Locus Corp. ................................... 220
21,000 Pohang Iron & Steel Co., Ltd. ADR ............. 504
36,643 Prochips Technology, Inc. ..................... 145
18,359 Samsung Electro-Mechanics Co. ................. 1,151
33,115 Samsung Electronics Co. ....................... 10,959
69,050 Shinhan Bank Co., Ltd. ........................ 650
1,530 SK Telecom Co., Ltd. .......................... 501
81,570 SK Telecom Co., Ltd. ADR ...................... 2,962
30,530 Telson Electronics Co., Ltd. .................. 324
10,850 Tongyang Confectionery Co. .................... 236
----------
24,961
----------
MALAYSIA (5.4%)
105,000 Carlsberg Brewery Malaysia Bhd ................ 354
71,000 Commerce Asset Holdings Bhd ................... 205
205,000 Digi.Com Bhd .................................. 375
257,800 Malayan Banking Bhd ........................... 1,045
58,000 Malaysian Pacific Industries Bhd .............. 595
474,000 Public Bank Bhd ............................... 437
153,000 Resorts World Bhd ............................. 419
53,400 Rothmans of Pall Mall (Malaysia) Bhd .......... 436
133,000 Tanjong plc ................................... 318
203,000 Telekom Malaysia Bhd .......................... 700
116,000 Tenaga Nasional Bhd ........................... 378
----------
5,262
----------
SINGAPORE (10.5%)
(a)79,000 Chartered Semiconductor Manufacturing Ltd. .... 691
78,600 City Developments Ltd. ........................ 305
65,520 Datacraft Asia Ltd. ........................... 577
(a)156,235 DBS Group Holdings Ltd. ....................... 2,008
128,000 Keppel Corp., Ltd. ............................ 277
76,000 Natsteel Electronics Ltd. ..................... 233
341,000 Neptune Orient Lines Ltd. (Foreign) ........... 316
303,000 Omni Industries Ltd. .......................... 500
(a)94,224 Overseas Union Bank Ltd. ...................... 365
166,000 Overseas-Chinese Banking Corp. (Foreign) ...... 1,143
103,200 Sembcorp Logistics Ltd. ....................... 579
237,000 SIA Engineering Ltd. .......................... 266
105,000 Singapore Airlines Ltd. ....................... 1,039
64,900 Singapore Press Holdings Ltd. ................. 1,014
203,000 ST Assembly Test Services ..................... 522
40,700 Venture Manufacturing (Singapore) Ltd. ........ 415
----------
10,250
----------
TAIWAN (19.9%)
10,000 Accton Technology Corp. ....................... 22
(a)224,824 Acer Peripherals, Inc. ........................ 637
144,850 Acer, Inc. .................................... 271
(a)166,696 Advanced Semiconductor Engineering, Inc. ...... 510
56,500 Advantech Co., Ltd. ........................... 300
20,000 Ambit Microsystems Corp. ...................... 199
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Asian Equity Portfolio
20
<PAGE>
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-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
------------------------------------------------------------------------------
<S> <C>
TAIWAN (CONT.)
(a)12,100 ASE Test Ltd. .................................. $ 356
136,510 Asustek Computer, Inc. ......................... 1,129
439,850 China Steel Corp. .............................. 301
(a)356,760 Chinatrust Commercial Bank ..................... 310
(a)161,691 Compal Electronics, Inc. ....................... 397
142,000 Delta Electronics, Inc. ........................ 672
310,434 Far East Textile Ltd. .......................... 386
4,600 GigaMedia Ltd. ................................. 56
(a)137,288 Hon Hai Precision Industry ..................... 1,242
152,200 Macronix International ......................... 381
76,200 Microelectronics Technology .................... 253
464,080 Nan Ya Plastics Corp. .......................... 936
96,544 President Chain Store Corp. .................... 361
43,000 ProMos Technologies, Inc. ...................... 174
(a)55,100 Ritek, Inc. .................................... 221
(a)262,710 Siliconware Precision Industries Co. ........... 590
18,500 Siliconware Precision Industries Co. ........... 171
(a)500,200 Taishin International Bank ..................... 321
(a)977,885 Taiwan Semiconductor Manufacturing Co. ......... 4,647
(a)1,162,821 United Micro Electronics Corp., Ltd. ........... 3,236
248,160 United World Chinese Commercial Bank ........... 236
(a)108,400 Universal Scientific IND ....................... 265
294,290 Winbond Electronics Corp. ...................... 852
----------
19,432
----------
THAILAND (2.3%)
59,400 Advanced Information Service PCL (Foreign) ..... 740
(a)48,400 BEC World PCL (Foreign) ........................ 289
(d)28,599 Delta Electronics (Thailand) PCL (Foreign) ..... 202
559,900 Golden Land Property Development PCL (Foreign).. 83
22,300 Hana Microelectronics PCL ...................... 175
111,766 Siam Cement PCL (Foreign) ...................... 422
458,000 Thai Farmers Bank PCL (Foreign) ................ 386
----------
2,297
----------
TOTAL COMMON STOCKS (Cost $85,616) ............................... 95,429
----------
NO. OF
WARRANTS
---------------
WARRANTS (0.1%)
THAILAND (0.1%)
547,200 Siam Commercial Bank PCL (Foreign),
expiring 5/10/02(Cost $19) ................... 64
----------
TOTAL FOREIGN SECURITIES (97.8%) (Cost $85,635) .................. 95,493
----------
FACE
AMOUNT
(000) VALUE
(000)
------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS (0.1%)
REPURCHASE AGREEMENT (0.1%)
$ 126 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/03/00, to be repurchased at $126,
collateralized by U.S. Treasury Bonds,
5.875%, due 11/15/05, valued at $132
(Cost $126) ................................. $ 126
----------
FOREIGN CURRENCY (0.7%)
GBP 4 British Pound ................................. 6
INR 202 Indian Rupee .................................. 5
IDR 37,235 Indonesian Rupiah ............................. 4
MYR 11 Malaysian Ringgit ............................. 3
SGD 6 Singapore Dollar .............................. 4
KRW 7,211 South Korean Won .............................. 6
TWD 19,625 Taiwan Dollar ................................. 639
----------
TOTAL FOREIGN CURRENCY (Cost $666) .............................. 667
----------
Total Investments (98.6%) (Cost $86,427) ........................ 96,286
----------
OTHER ASSETS (2.4%)
Receivable for Investments Sold ................ $2,135
Dividends Receivable ........................... 153
Other .......................................... 16 2,304
----------
LIABILITIES (-1.0%)
Payable for Investments Purchased ............ (504)
Investment Advisory Fees Payable ............. (145)
Bank Overdraft Payable ....................... (103)
Custodian Fees Payable ....................... (85)
Payable for Portfolio Shares Redeemed ........ (50)
Directors' Fees and Expenses Payable ......... (23)
Administrative Fees Payable .................. (16)
Distribution Fees Payable .................... (2)
Payable for Foreign Taxes .................... (1)
Other Liabilities ............................ (45) (974)
---------- ----------
NET ASSETS (100%) ............................................... $ 97,616
==========
NET ASSETS CONSIST OF:
Paid in Capital ................................................. $167,212
Undistributed Net Investment Income ............................. 390
Accumulated Net Realized Loss ................................... (79,829)
Unrealized Appreciation on Investments and Foreign Currency
Translations (Net of accrual for foreign taxes of $1 on
unrealized appreciation of investments) ....................... 9,843
----------
NET ASSETS ...................................................... $ 97,616
==========
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Asian Equity Portfolio
21
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-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
<CAPTION>
VALUE
(000)
-------------------------------------------------------------------------------
<S> <C>
CLASS A:
NET ASSETS ....................................................... $94,999
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 7,312,949 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ......................... $12.99
========
CLASS B:
NET ASSETS ....................................................... $2,617
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 203,261 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ......................... $12.88
========
------------------------------------------------------------------------------
(a) -- Non-income producing security
(d) -- Security valued at fair value -- See Note A-1 to financial statements.
ADR -- American Depositary Receipt
PCL -- Public Company Limited
------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
VALUE PERCENT OF
SECTOR (000) NET ASSETS
------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary ......................... $ 6,987 7.2%
Consumer Staples ............................... 1,647 1.7
Financials ..................................... 23,573 24.1
Industrials .................................... 5,541 5.7
Information Technology ......................... 35,804 36.7
Materials ...................................... 2,284 2.3
Telecommunication Services ..................... 17,326 17.7
Utilities ...................................... 2,331 2.4
------- ----
$95,493 97.8%
======= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Asian Equity Portfolio
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INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
<TABLE>
<S> <C>
Other (4.2%)
Thailand (1.2%)
Singapore (13.7%)
Philippines (0.1%)
Japan (21.9%)
Australia (12.1%)
Hong Kong (46.8%)
</TABLE>
PERFORMANCE COMPARED TO THE
GPR GENERAL REAL ESTATE SECURITIES INDEX - FAR EAST(1)
<TABLE>
TOTAL RETURNS(2)
-------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION
--- ---- ---------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A..... -10.89% -14.59% -8.56%
PORTFOLIO -- CLASS B..... -10.97 -14.90 -8.88
INDEX.................... -10.77 -13.87 -15.11
</TABLE>
1. The GPR General Real Estate Securities Index - Far East is a market
capitalization weighted index measuring total return of listed
property/real estate securities in the Far East.
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. A company is considered to be Asian
if its shares trade on a recognized stock exchange in Asia or if it is organized
under the laws of an Asian country and whose business is conducted principally
in Asia. Foreign investing involves certain risks, including currency
fluctuations and controls, restrictions on foreign investments, less
governmental supervision and regulation, less liquidity and the potential for
market volatility and political instability.
For the six months June 30, 2000, the Portfolio had a total return of -10.89%
for the Class A shares and -10.97% for the Class B shares compared to -10.77%
for the GPR General Real Estate Securities Index - Far East (the "Index"). For
the one year ended June 30, 2000, the Portfolio had a total return of -14.59%
for the Class A shares and -14.90% for the Class B shares compared to -13.87%
for the Index. For the period from inception on October 1, 1997 through June 30,
2000, the Portfolio had an average annual total return of -8.56% for the Class A
shares and -8.88% for the Class B shares compared to -15.11% for the Index.
Asian real estate securities sustained significant volatility and traded off
their lows at the June quarter end. Expectations of future U.S. interest rate
increases by the Fed was the over-riding concern which drove share prices lower.
The uncertainty was augmented by a sharp correction in U.S. stock markets and
significant portfolio adjustments in response to changes to the Morgan Stanley
Capital International Index to reflect a larger weighting for the technology,
media and telecom (TMT) sector and a smaller weighting for listed property
companies. In the second quarter, Hong Kong (HSI -7.2%) was most affected by
liquidity swings given its currency peg to the U.S. dollar, leaving little room
but for asset prices to adjust for higher interest rates. Aside from Korea, Hong
Kong was also most affected by the MSCI Index changes. Investors sold Korea
(KOSPI -12.4%) and Singapore (STI -4.4%) to fund increased weightings in Taiwan
and Malaysia. In Japan, the Nikkei 225 Index fell 14.4% when investors sold TMT
stocks. In contrast, the TPREAL Index rose 15.6% on the back of excitement over
benefits that JReits could bring to the real estate market and for the defensive
characteristics of real estate in a difficult equity market. Australia showed
modest gains supported by a stronger currency and rising commodity prices. We
are optimistic that Asian real estate securities can deliver a strong
performance when the U.S. interest rate cycle peaks. Asia's economic recovery is
underway, with positive GDP surprises from both Japan and
--------------------------------------------------------------------------------
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.
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.
-------------------------------------------------------------------------------
Asian Real Estate Portfolio
23
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INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO (CONT.)
China. Resumption of demand and pricing power will be a key driver for P/NAV
expansion for Asian real estate investments going forward.
MACRO-ECONOMIC OVERVIEW
Japan's first quarter GDP growth was 2.4% quarter-on-quarter, the strongest
since the first quarter of 1996. This was achieved on the back of strong growth
in personal consumption, robust private-sector capital expenditures and a sharp
improvement in exports. Contraction in public fixed spending was the only major
setback, resulting in growth levels at the lower range of market expectations.
Consumer spending is key to sustaining the current upturn in investments. As the
consumer sector continues to face strong headwinds such as job uncertainty and
smaller summer and winter bonus payments (which a large number of Japanese rely
upon), there appears little reason for the Bank of Japan to abandon its
near-zero interest rate policy. Although currently subject to debate, we believe
a change in monetary policy will have little impact on the economy, beyond a
steeper yield curve that will already be under pressure by the government's
enormous fiscal deficit. Rising political pressure in favor of another
government fiscal stimulus package, on the other hand, serve to accelerate
Japan's economic recovery prospects.
Non-Japan Asia continues to produce strong headline year-on-year first quarter
GDP growth. Nevertheless, evidence is emerging to show that sequential
quarter-on-quarter growth momentum is more mixed. Korea, the Philippines,
Thailand and Taiwan all experienced deceleration or flat growth, while the rest
of Asia (Hong Kong, Singapore, Indonesia, and Malaysia) enjoyed an acceleration.
This can be explained by the deterioration of external trade, pointing to a more
significant slowdown in trade to Japan. The evidence is more mixed for the U.S.
imports, while exports from ASEAN were still accelerating.
Alongside this uncertain regional outlook is the reassuring fact that China
appears firmly on track toward steady economic expansion. Recent data confirms
that China is enjoying continued strong momentum in both exports and domestic
consumer expenditures. Further U.S. tightening will have a limited impact on
China. Imminent entry into WTO is likely to usher in more foreign direct
investment inflows to China and the prospect of reduced political tensions with
Taiwan will lift business and consumer confidence.
A key risk for Asia is that external demand slows just as exporters bring in
additional capacity to meet the backlog of demand. A sharper slowdown in Asian
exports than currently built into expectations will expose a subset of the
corporate sector to greater risk of financial distress. Higher U.S. interest
rates is another major challenge on the horizon. Asia has been able to deliver
robust growth as lower interest rates lifted corporate cash flow thereby
enhancing its capacity to undertake investment from internal funding and due to
a more buoyant capital market which allowed credit-worthy companies to bypass
banks and access funding from equity and bond issues. Going forward, a less
buoyant financial market, especially in the midst of global tightening, would
mean that financial growth outside the banking system would become less of an
option to fall back on.
Macro-economic factors should play a less decisive role in driving asset prices
up as growth momentum wanes. We believe the key catalyst to restoring investor
confidence, and hence reductions of the risk premium for the region, lies in
structural reforms and the de-leveraging process. Those who succeed in pushing
through structural reforms and paring down both public and private debt will
thrive.
REAL ESTATE MARKETS
In Japan, the passing of legislation for investment trusts by the Diet is the
most significant milestone in the second quarter of 2000. It is expected that a
JReit market should start up next spring. The structure of JReit is more likely
to follow the externally managed listed property trust model in Australia and it
is expected to trade alongside the existing property companies. In the greater
Tokyo condominium market, the supply of 7,990 units in April represents a 12%
decline from 9,083 units available in March. Unsold condominium inventory rose
8.6% to 7,932 units. The average unit price per apartment fell 0.6% to 1.79
million yen per-tsubo in April. Government-run Housing Loan Corporation again
cut its lending rate to 2.75% to spur home demand. Office vacancy in the five
central wards of Tokyo fell to 4.7% from 4.8% in April. Although vacancy remains
low, average office rents remained unchanged at 19,739 yen per-tsubo, possibly
due to the upcoming supply of new space.
In Hong Kong, the Housing Authority recently announced plans to cut the number
of flats for sale under the Home Ownership Scheme and to increase the number of
subsidized residential loans. We believe this may mark the turning point for
Hong Kong's residential sector as the government attempts to put a floor on
prices. Buyers are likely to move forward any planned purchase if they see this
as a signal that housing prices have bottomed. It is an essential catalyst to
enable the clearing of private sector unsold inventory. The launch of 1,000
units at Prima Villa by Sun Hung Kai Properties on the same week of the
announcement resulted in 95% of the units sold, albeit at
-------------------------------------------------------------------------------
Asian Real Estate Portfolio
24
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
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INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO (CONT.)
discounted prices. Further improvement in take-up rates in primary and secondary
market transactions as well as higher consumption of government home subsidy
loans are essential signs to the trend reversal. Meanwhile, developers remain
active bidders in land tender/auction and securing land at subdued prices.
Price pressure is still prevalent in the primary and secondary residential
sales. New mortgage lending continues to fall, declining 6.4% to Hong Kong
dollar 10.1m in April as rising interest rates dampen home demand. Economic
recovery and diminishing supply are driving the cyclical up-trend in Grade A
offices. Office rents in Hong Kong Central have risen 45% year-to-date with
near zero supply until 2002. Office transactions are beginning to pick-up with
the sale of a lower block at the Grand Millennium Plaza for 3,700 Hong Kong
dollars per square foot. It is rumored that the HKMA has offered to buy twelve
floors at IFC Tower Two at 12,000 Hong Kong dollars per square foot.
In Singapore, the residential sector demand story remains unchanged from the
previous quarter. The government remains committed to its 9,000 units land sale
program in 2000. Local developers prefer to compete on non-price factors such as
product design, quality of interior finishes and resort-style recreational
facilities. Nonetheless, the take-up rate for newly launched residential
projects stayed at around 20% to 30% island-wide. We are concerned with the
observation that erosion of confidence in the housing sector is slowly spreading
to the public housing market, which houses 80% of the population. Recent
statistics indicate a rapidly shortening queue for new public housing units and
a narrowing price premium for secondary market units, while the Housing
Development Board is still embarking on a 30,000 units per annum construction
program. It may be necessary for the government to ease either trading or
financing restrictions if volume and price weaknesses continue to persist in the
public market. In the commercial office sector, there are clear signs of a
supply side squeeze. Net absorption in the first half of 2000 is estimated at 2
million square feet. Grade A office rent has risen by 10% to 15% since the start
the year. The central bank recently ruled that Singapore banks have to divest
non-core assets within three years; retain a maximum of 10% equity stakes in
non-financial companies as equity portfolio investments; and unravel
cross-shareholdings in companies where the principal shareholders have interest.
This new ruling has significant implications as the local banks are amongst the
largest owners of prime commercial real estate in Singapore. Also, these banks
have majority control in several listed property companies owning prime
commercial real estate. While there may be fears that excessive prime commercial
properties could flood the market, this is a good opportunity for the government
to spearhead the development of an asset securitization market in Singapore.
Also investors would welcome a greater breadth of well-managed and transparent
property companies listed on the exchange.
In China, the evidence of stronger economic growth, reflation and improving
foreign direct investment suggest better conditions for the real estate sector
after a five-year decline. Vacancy rates are coming down in Beijing, Shanghai,
and Guangzhou. Values of office and upper-end residential appear to have
bottomed. In line with the government's move to make home-ownership easier in
order to end state rent subsidies and boost housing sales and construction, the
China Construction Bank (the nation's largest mortgage lender) announced plans
to increase the current share of housing loans to its total lending to 9%
from 6%.
Elsewhere in southeast Asia, the property market outlook is mixed. In Thailand,
the finance ministry is working toward further measures to revive the sluggish
property market, which includes increasing tax allowance for mortgage payments,
making land purchases by companies tax deductible, and extending the reduced
property transfer fee to end-2002. In the Philippines, prime office vacancy rose
to 15.7% from 13.8% in quarter-one due to limited demand in the midst of new
supply that is still being completed.
REAL ESTATE SECURITIES
Investors continued to sell down Asian real estate securities in the second
quarter on the back of rising interest rates. Portfolio reallocation as a result
of higher MSCI weighting for the TMT sector put additional selling pressure on
large-cap and liquid real estate stocks. However, investors purchased property
developers when the Hong Kong government moderated its public housing program,
lifting P/NAV to 66% in the second quarter of 2000. In Singapore, speculative
investors returned to a handful of small-to-mid sized companies trading at
significant discounts to NAV and widely rumored to be privatized by its majority
shareholders so as to realize the value of its underlying property assets. In
Japan, real estate securities continue to outperform the broader equity index
with significant gains driven by second-tier property companies such as Daibiru
Corp (+30.2%) and Sumitomo Realty & Development (+37.5%). The initial euphoria
on positive development from JReit is waning as investors focus on the
commercial estate supply pipeline from now until 2004. In Australia, the LPTs
provided moderate gains as trust yields remained above bond yields in the second
quarter.
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Asian Real Estate Portfolio
25
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INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO (CONT.)
We continue to shape the Portfolio with quality companies offering attractive
fundamental valuations relative to their underlying real estate values. We
maintained our overweight position in Hong Kong. We believe that the developers
have the highest leverage recovery of domestic demand and inflation when the
interest rate cycle turns and the P/NAV of the investors will continue to expand
as the uptake in office demand drives rental increases. We have utilized price
weakness to add China Resource Beijing Land to our current holdings for a
leverage play on China's reflation and WTO entry story. In Singapore, we added
United Overseas Land and Singapore Land warrants to the Portfolio for further
exposure to the office sector recovery story as well as a play on asset
privatization theme. We remain underweight in Japan and Australia. Lastly, we
shaved our weighting in Philippines as political uncertainty heightens and
economic fundamentals being subject to undue distress.
Theodore R. Bigman
PORTFOLIO MANAGER
Angeline Ho
PORTFOLIO MANAGER
July 2000
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Asian Real Estate Portfolio
26
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
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-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (95.3%)
AUSTRALIA (12.1%)
24,700 AMP Office Trust .............................. $ 17
(a)19,700 BT Office Trust ............................... 16
24,800 Centro Properties Group ....................... 41
3,300 Lend Lease Corp., Ltd. ........................ 42
23,800 Mirvac Group .................................. 48
13,800 Westfield Holdings Ltd. ....................... 95
64,400 Westfield Trust ............................... 125
----------
384
----------
HONG KONG (46.8%)
146,000 Amoy Properties Ltd. .......................... 98
24,000 Cheung Kong Holdings Ltd. ..................... 266
170,000 China Resources Beijing Land .................. 23
20,000 Great Eagle Holdings, Ltd. .................... 32
17,000 Hang Lung Development Co. ..................... 13
22,000 Henderson Land Development Co., Ltd. .......... 97
92,000 Hong Kong Land Holdings Ltd. .................. 147
60,000 Kerry Properties Ltd. ......................... 63
116,800 New World China Land Ltd. ..................... 34
64,000 New World Development Co., Ltd. ............... 71
154,700 Sino Land Co. ................................. 55
41,000 Sun Hung Kai Properties Ltd. .................. 295
22,000 Swire Pacific Ltd., Class A ................... 129
72,000 Wharf Holdings Ltd. ........................... 129
48,000 Wheelock & Co., Ltd. .......................... 31
----------
1,483
----------
JAPAN (21.9%)
4,000 Daibiru Corp. ................................. 32
26,000 Mitsubishi Estate Co., Ltd. ................... 306
27,000 Mitsui Fudosan Co., Ltd. ...................... 293
14,000 Sumitomo Realty & Development Co., Ltd. ....... 63
----------
694
----------
PHILIPPINES (0.1%)
30,980 Ayala Land, Inc., Class B ..................... 4
----------
SINGAPORE (13.2%)
24,000 City Developments Ltd. ........................ 93
86,500 DBS Land Ltd. ................................. 112
86,000 Keppel Land Ltd. .............................. 114
(a)8,000 Singapore Land Ltd. ........................... 17
23,000 United Overseas Land Ltd. ..................... 20
85,000 Wing Tai Holdings Ltd. ........................ 61
----------
417
----------
THAILAND (1.2%)
26,800 Golden Land Property Development PCL .......... 4
(d)20,800 MBK Properties and Development PCL ............ 9
(d)4,300 Oriental Hotel (Thailand) PCL ................. 23
----------
36
----------
TOTAL COMMON STOCKS (Cost $2,711) ................................. 3,018
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS VALUE
(000) (000)
-------------------------------------------------------------------------------
<S> <C>
WARRANTS (0.5%)
SINGAPORE (0.5%)
(a)19,000 Singapore Land Ltd., expiring 3/23/05
(Cost $14) ................................. $ 17
----------
TOTAL FOREIGN SECURITIES (95.8%) (Cost $2,725).................... 3,035
----------
FACE
AMOUNT
(000)
---------
SHORT-TERM INVESTMENT (4.3%)
REPURCHASE AGREEMENT (4.3%)
$ 136 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/03/00, to be repurchased at $136,
collateralized 136 U.S. Treasury Notes,
5.875%, due 11/15/05, valued at $140
(Cost $136) ................................. 136
----------
FOREIGN CURRENCY (0.3%)
JPY 272 Japanese Yen .................................. 3
SGD 9 Singapore Dollar .............................. 5
THB 35 Thai Baht ..................................... 1
----------
TOTAL FOREIGN CURRENCY (COST $9) ................................. 9
----------
TOTAL INVESTMENTS (100.4%) (Cost $2,870) ......................... 3,180
----------
OTHER ASSETS (1.6%)
Receivable for Investments Sold ........................ $36
Dividends Receivable ................................... 8
Receivable from Investment Advisor ..................... 7 51
---
LIABILITIES (-2.0%)
Payable for Investments Purchased ....................... (31)
Custodian Fees Payable .................................. (11)
Administrative Fees Payable ............................. (2)
Distribution Fees Payable ............................... (1)
Other Liabilities ....................................... (18) (63)
---- ----------
NET ASSETS (100%)................................................. $3,168
==========
NET ASSETS CONSIST OF:
Paid in Capital .................................................. $5,358
Undistributed Net Investment Income .............................. 19
Accumulated Net Realized Loss .................................... (2,518)
Unrealized Appreciation on Investments and
Foreign Currency Translations .................................. 309
---------
NET ASSETS........................................................ $3,168
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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Asian Real Estate Portfolio
27
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STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO (CONT.)
<TABLE>
<CAPTION>
AMOUNT
(000)
--------------------------------------------------------------------------------
<S> <C>
CLASS A:
NET ASSETS ........................................................ $2,463
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 350,072 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .......................... $7.04
==========
CLASS B:
NET ASSETS ........................................................ $705
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 99,790 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .......................... $7.06
==========
</TABLE>
(a) -- Non-income producing security
(d) -- Security valued at fair value -- See Note A-1 to financial
statements.
PCL -- Public Company Limited
-------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
-----------------------------------------------------------
<S> <C> <C>
Hotels, Restaurants & Leisure .... $ 43 1.4%
Diversified Financials ........... 171 5.4
Real Estate ...................... 2,821 89.0
------- -------
$3,035 95.8%
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
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Asian Real Estate Portfolio
28
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INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
[CHART]
<TABLE>
<S> <C>
Brazil (8.8%)
Chile (0.2%)
China (1.3%)
Czech Republic (0.4%)
Egypt (1.0%)
Greece (2.3%)
Hong Kong (6.8%)
Hungary (0.7%)
India (6.6%)
Indonesia (0.6%)
Israel (8.4%)
Korea (21.2%)
Malaysia (2.0%)
Mexico (9.4%)
Poland (1.0%)
Russia (3.7%)
South Africa (3.7%)
Taiwan (13.3%)
Thailand (1.2%)
Turkey (4.0%)
Other (3.4%)
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS
FREE INDEX AND IFC GLOBAL TOTAL RETURN COMPOSITE
INDEX(1)
------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A ................... -4.77% 37.25% 8.44% 11.83%
PORTFOLIO -- CLASS B ................... -4.89 36.87 N/A 10.39
MSCI EMERGING MARKETS FREE INDEX
-- CLASS A ........................... -7.99 9.47 0.99 7.70
IFC GLOBAL TOTAL RETURN COMPOSITE INDEX
-- CLASS A ........................... -6.82 9.60 1.07 7.15
MSCI EMERGING MARKETS FREE INDEX
-- CLASS B ........................... -7.99 9.47 N/A 1.39
IFC GLOBAL TOTAL RETURN COMPOSITE INDEX
-- CLASS B ........................... -6.82 9.60 N/A 1.60
</TABLE>
1. The MSCI Emerging Markets Free Index is a market capitalization weighted
index composed of companies that are representative of the market structure
of developing countries in Latin America, Asia, Eastern Europe, the Middle
East and Africa. 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.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the Emerging Markets Portfolio is to provide
long-term capital appreciation by investing primarily in growth-oriented equity
securities of emerging country issuers. Foreign investing involves certain
risks, including currency fluctuations and controls, restrictions on foreign
investments, less governmental supervision and regulation, less liquidity and
the potential for market volatility and political instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
-4.77% for the Class A shares and -4.89% for the Class B shares compared to
-7.99% for the Morgan Stanley Capital International (MSCI) Emerging Markets Free
Index (the "MSCI Index") and -6.82% for the IFC Global Total Return Composite
Index (the "IFC Index"). For the one year ended June 30, 2000, the Portfolio had
a total return of 37.25% for the Class A shares and 36.87% for the Class B
shares compared to 9.47% for the MSCI Index and 9.60% for the IFC Index. For the
five-year period ended June 30, 2000, the average annual total return for the
Class A shares was 8.44% compared to 0.99% for the MSCI Index and 1.07% for the
IFC Index. For the period from inception on September 25, 1992 through June 30,
2000, the average annual total return for the Class A shares was 11.83% compared
to 7.70% for the MSCI Index and 7.15% for the IFC Index. For the period from
inception on January 2, 1996 through June 30, 2000, the average annual total
return for the Class B shares was 10.39% compared to 1.39% for the MSCI Index
and 1.60% for the IFC Index.
Outperformance relative to the MSCI Index resulted from our country selection,
particularly our overweight positions in China (country index total return was
+0.9%), Israel (+26.5%), Malaysia (+4.1%), Taiwan (-2.7%) and Turkey (-10.2%)
coupled with our underweight stance in Greece (-25.7%), India (-3.3%), the
Philippines (-35.9%), South Africa (-15.3%) and Thailand (- 36.0%). Strong stock
selection in Brazil, Greece and Mexico also helped performance. Our overweight
position in Egypt (-23.3%) and our underweight stance in Venezuela (+19.0%) and
Russia (-5.6%) weakened performance. Stock selection in China, India, Israel,
South Africa, South Korea, and Turkey also detracted from performance.
-----------------------------------------------------------------------------
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A
RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE
RESULTS PROVIDED IN THIS OVERVIEW ARE AS MEASURED BY THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS FREE AND THE IFC GLOBAL TOTAL
RETURN COMPOSITE INDICES, ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT
BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S 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.
-----------------------------------------------------------------------------
29 Emerging Markets Portfolio
<PAGE>
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INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
Many first quarter gains in emerging markets were given back during the second
quarter of 2000, as positive macroeconomic and political developments within the
emerging markets countries were overshadowed by the sharp NASDAQ declines in
April, volatility in developed markets, and heightened investor skittishness
regarding U.S. interest rates. However, towards the end of June 2000, most
emerging markets rebounded as economic numbers pointed to a soft landing for the
U.S. economy, thus allaying investor fears of sharply tighter U.S. interest
rates; and promising signs of economic recovery appeared from various emerging
countries.
The Latin American region fell 3.8% during the first half of 2000. Latin
American markets advanced during the beginning of the year as investors rewarded
continued signs of macroeconomic improvements in the region and steps towards
increasing fiscal responsibility. However, Latin American markets declined
overall during the second quarter, amidst the backdrop of poor performance and
massive volatility in the developed markets. Technology stocks were particularly
hit, declining in sympathy with some of the NASDAQ's sharp falls during the
second quarter of 2000. Latin American markets fell as the region's positive
economic fundamentals were overshadowed by investor concerns over higher U.S.
interest rates and market volatility. However, the markets rebounded towards
quarter end as good U.S. economic numbers allayed investor concerns surrounding
inflation and necessary interest rate hikes. Notable events during these past
six months included Telefonica de Espana's (TEF) tender offers for its Latin
American telecommunications services subsidiaries and changes within the Mexican
banking sector. We are encouraged by signs of economic recovery and we believe
corporate restructuring and the possibility for lower real interest rates should
lead to improved earnings for many Latin companies.
Equities in Brazil were relatively flat during the first half of 2000, as
positive economic fundamentals and the country's commitment to adopt greater
fiscal discipline and to meet IMF targets were eclipsed by investor skittishness
and the volatile performance of technology and telecommunication stocks. During
the second quarter, Brazil's performance on the fiscal primary surplus,
inflation, and industrial production figures surpassed expectations. The
government demonstrated perseverance towards fiscal constraint and improving
corporate governance, as evidenced by Congress' passage of the Minimum Wage Bill
and Lower House approval of a corporate legislation bill. Investor sentiment
during the second quarter was aggravated by a Supreme Court case on retroactive
monetary readjustment to workers' accounts, with a potential fiscal cost to the
government of U.S. $30 billion. Investor sentiment was also weighed down by the
sharp declines in NASDAQ, but market confidence was restored in June as investor
concerns regarding sharp U.S. interest rate hikes were allayed and Brazil
continued to reveal positive economic developments. The Central Bank proved
aggressive in June, surprising the market by lowering the benchmark Selic rate
by 100 basis points to 17.5%. It also lowered reserve requirements while
adopting an easing bias for its monetary stance.
Mexican equities (-6.0%) were weighed down by investor fears of higher U.S.
interest rates and a U.S. economic slowdown (more than 80% of Mexico's exports
are to the U.S.) and uncertainty regarding the presidential election on July 2.
Equities rallied during June as concerns regarding higher U.S. rates were
allayed and sentiment focused on continued signs of a robust domestic economic
recovery. Recent highlights include the approved takeover of Mexican bank GF
Bancomer by Spain's Banco Bilbao Vizcaya Argentaria (BBVA), which we believe may
foster an expansion of bank credit, spearheading further GDP growth. Strong U.S.
economic performance and high oil prices have also benefited Mexico, as the U.S.
is the largest market for Mexican exports and oil is one of Mexico's largest
exports. The Mexican Peso was increasingly volatile during the second quarter
and lost ground prior to the presidential elections on July 2. Although we are
cautiously monitoring pressures on the peso, we believe a weaker Peso may help
Mexico's trade balance, which remains vulnerable when oil exports are excluded.
We anticipate equities should fare well following a more certain scenario post
the elections, which should restore investor confidence. We are likely to add to
equities in Brazil and Mexico, notably to media, telecommunication and
conglomerate industries, as we believe equities in these markets shall continue
to be supported by positive economic trends coupled with attractive valuations
and companies with great earnings growth potential.
Asian equities fell 9.7% during the first half of 2000, weighed down by investor
skittishness induced by the NASDAQ volatility, by heightened political tensions
within Indonesia and between China and Taiwan, and by concerns over financial
reforms in South Korea. Asian markets rebounded towards quarter-end, as market
sentiment was buoyed by reduced fears regarding U.S. interest rate hikes and
investors focused once again on trends in improving macroeconomic fundamentals
coupled with strong earnings stories throughout the region. We are maintaining
and adding to our overweight stance in Asia, as we are encouraged by signs of
strong economic recovery, robust
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INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
exports and global outsourcing opportunities that enhance prospects for the
region.
Equities in Taiwan (-2.7%) advanced at the beginning of the year, yet were later
pulled down in sympathy with the NASDAQ sell-off and by the renewal of mainland
China military posturing in the Taiwan strait. Equities failed to rebound in
June due to a lack of interest by retail investors, who have already priced in
most of the good May sales figures. Voters elected Democratic Progressive Party
candidate Chen Shui-bian as their new president on March 19, ending more than
half a century of Nationalist (KMT) rule. We believe Chen's victory should be
positive for the market over the longer-term, and recent conciliatory remarks
directed at China have helped to reduce political uncertainty in the near-term.
We believe Taiwan's strong economic fundamentals coupled with attractive
valuations, strong earnings growth potential and world-class technology
companies continue to make this an exciting market. Taiwan's weight in the MSCI
indices increased from 50% to 65% of market capitalization effective after the
close of May 31. This increase in Taiwan's weighting could potentially yield
increased inflows in the future. We are modestly overweight in Taiwan and we
have favored companies that we believe represent exciting opportunities
leveraged to trends in technology and outsourcing.
Our largest country overweight position is South Korea (-2.9%), where we believe
equities should continue to benefit from upward revisions of GDP growth
forecasts, a strong current account surplus, and market sentiment buoyed by the
government's prudent handling and restructuring of troubled chaebols and
investment trusts. South Korean equities were weighed down as investors were
wary of financial reforms and potential problems at investment trust companies.
However, South Korea led the Asian equities in June, as upward revisions of GDP
growth forecasts, a strong current account surplus figure for May, and a
historic summit meeting with North Korea boosted sentiment. During the first
half of 2000 we increased our exposure to South Korean banks, as we believe they
should be supported by strong economic growth, a benign interest rate
environment and improving market confidence.
Chinese equities advanced 0.9%, buoyed by better-than-expected first quarter GDP
growth and promising economic activity based on a surge in overseas demand,
industrial production and direct investment. We are adding to our overweight
stance in China, which we believe will be supported by domestic demand recovery,
including robust growth in retail sales and positive CPI after a period of
deflation. On May 31st, MSCI revised the construction of the MSCI China Free
Index to better represent the investment opportunities available to foreign
investors, which significantly increased the market capitalization of the Index.
Consequently, China's weight in the Index increased considerably.
Equities in India fell 3.3% over the past six months, yet were boosted toward
the latter half by the strong performance of technology, media and telecom
stocks. Although we continue to believe India's market should fare well over the
longer term, with robust economic growth forecast for 6.5%-7.0% this year, we
are somewhat disappointed by the government's follow-through with privatization
plans. Within India, the Portfolio is focused on well-managed data processing
and reproduction companies such as Infosys, which provides managed software
solutions to clients worldwide, specifically targeting the distribution,
banking, telecommunications, and manufacturing sectors.
Emerging Europe and the Middle East (EEMEA) declined 6.0%, although posting
mixed returns. We maintain our underweight stance in Greek equities, which
declined 25.7% as the market has already discounted most of the good news
surrounding European Monetary Union convergence. We believe telecom services
providers are attractively valued and reduced our underweight in Greek equities
during the quarter via this sector, by adding to OTE. Israeli equities advanced
26.5%, supported by a positive macroeconomic environment, strong corporate
earnings results and tax reforms. We took advantage of strong performance to
trim our overweight position in various Israeli technology-related companies,
given the combination of rich valuations and a more cautious outlook on U.S.
interest rates and the market overall. Within Israel, which remains our largest
overweight in the EEMEA region, we are attracted to companies with core
competencies in communications, software and semiconductor equipment,
possessing strong management and with great earnings growth potential.
Russian equities fell 5.6%, despite strong oil prices and continued signs of
economic strength, such as a stable Ruble, increasing foreign reserves, and
robust GDP growth, as sentiment has been tempered by the hostilities in Chechnya
and the need for substantive economic reform. We added to oil stocks Lukoil and
Surgutneftegaz as we believe Russian equities are attractively valued and that
oil stocks should benefit in the near-term from the strength of oil prices.
Turkish equities declined 10.2%, as a higher-than-expected current account
deficit and political uncertainty surrounding
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INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
corruption allegations against key officials dampened market sentiment. We
may add to our modest overweight stance in Turkey as we anticipate equities
should appreciate once political tensions subside. We are cautiously watching
inflation figures for signs of improving trends but are encouraged by the
currency's stability, improving industrial production and fiscal surplus
figures that indicate the economy is turning around. Encouraged by Turkey's
progress with its reform program, we added to Yapi Kredi Bank and
telecommunications equipment supplier Netas Telecom.
The Czech Republic (+6.2%), Hungary (-7.8%) and Poland (+1.5%) have faced
subdued investor interest given a somewhat disappointing macroeconomic
environment in the near-term. We are underweight these markets.
South African equities declined 15.3%, weighed down by disappointing inflation
and first quarter GDP figures, and investor wariness fueled by the tensions in
trading partner Zimbabwe. A better-than-expected trade surplus in May and recent
Rand strength helped equities perform well towards the end of the second
quarter. We continue to underweight South Africa, as lackluster economic growth
has been exacerbated by rising oil prices and education and health care costs
adversely affecting inflation as well as by capital flight.
Robert L. Meyer
PORTFOLIO MANAGER
Andy B. Skov
PORTFOLIO MANAGER
July 2000
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--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (95.9%)
BRAZIL (8.8%)
(a,d)295,998,880 Banco Nacional SA (Preferred) ........... $ 8
(a)38,404,369 Celular CRT (Preferred) ................. 16,823
(e,d)6,031,766 CEMIG (Preferred) ....................... 105
(e,d)182,078 CEMIG ADR (Preferred) ................... 3,150
134,838 CIA Vale do Rio Doce,
Class A (Preferred) ................... 3,805
12,542,400 Coteminas ............................... 730
(e,d)98,865 Coteminas ADR ........................... 287
28,580,675 CRT (Preferred) ......................... 9,667
257,959 CVRD ADR (Preferred) .................... 7,287
273,467,000 Embratel Participacoes (Preferred) ...... 6,535
347,180 Embratel Participacoes ADR .............. 8,202
(a,e,d)120,830 Lojas Arapua SA GDR (Preferred) ......... --
(a,d)119,019,000 Lojas Arapua SA Preferred) .............. --
303,135 Petrobras (Preferred) ................... 9,160
23,760 Petrobras ADR (Preferred) ............... 718
464,025,910 Tele Celular Sul (Preferred) ............ 2,238
59,085 Tele Celular Sul ADR .................... 2,674
(c)469,788,110 Tele Centro Sul (Preferred) ............. 6,799
60,861 Tele Centro Sul ADR ..................... 4,447
253,287,610 Tele Nordeste Celular (Preferred) ....... 941
8,975 Tele Nordeste Celular ADR ............... 622
147,008,606 Tele Norte Leste (Preferred) ............ 3,444
266,575 Tele Norte Leste ADR .................... 6,298
627,935,816 Telemig Celular (Preferred) ............. 2,260
18,254 Telemig Celular ADR ..................... 1,305
502,994,686 Telesp Celular (Preferred) .............. 9,092
(c)134,458 Telesp Celular ADR ...................... 6,034
415,128 Unibanco GDR (Preferred) ................ 11,935
(a)133,500 Votorantim Celulose e Papel SA ADR ...... 2,453
-------------
127,019
-------------
CHILE (0.2%)
138,900 CIA de Telecomunicaciones
de Chile ADR .......................... 2,518
-------------
CHINA (1.3%)
(a)1,250 AsiaInfo Holdings Inc. .................. 56
(a,c)62,300 China Unicom Ltd. ADR ................... 1,324
(a)6,352,000 Nanjing Panda Electronics ............... 2,281
(a)61,185,000 PetroChina Company Ltd. ................. 12,715
(a)17,800 PetroChina Company Ltd. ADR ............. 373
101,936 Yanzhou Coal Mining Co., Ltd. ADR ....... 1,019
4,101,300 Zhenhai Refining & Chemical
Co., Ltd., Class H .................... 637
-------------
18,405
-------------
COLOMBIA (0.0%)
(a)103,207 Bancolombia (Preferred) ................. 75
-------------
CZECH REPUBLIC (0.4%)
(a)231,682 Cesky Telecom AS ........................ 3,890
(a)77,270 Cesky Telecom AS GDR .................... 1,259
-------------
5,149
-------------
EGYPT (1.0%)
(a)81,646 Al-Ahram Beverages Co. GDR .............. 1,402
43,725 Eastern Tobacco ......................... 954
21,000 Egypt Gas Co. ........................... 952
(a)335,439 Egyptian Co. for Mobil Services ......... 10,917
-------------
14,225
-------------
GREECE (2.3%)
783,817 Hellenic Telecommunication
Organization (OTE) .................... 19,110
1,126,158 Hellenic Telecommunication
Organization (OTE) ADR ................ 13,725
-------------
32,835
-------------
HONG KONG (6.8%)
493,000 Asia Satellite Telecommunications
Holdings Ltd. ......................... 1,685
(c)3,671,000 China Merchants Holdings
International Co. Ltd. ................ 2,519
2,913,000 China Telecom Ltd. ...................... 25,690
(a)96,500 China Telecom Ltd. ADR ................. 17,159
7,256,000 China Unicom Ltd. ....................... 15,405
987,000 Citic Pacific Ltd. ...................... 5,166
4,217,000 Cosco Pacific Ltd. ...................... 3,327
(a)4,032,000 Founder Holdings Ltd. ................... 1,797
13,832,300 Great Wall Technology Co. Ltd. .......... 9,582
1,062,000 Guangdong Kelon Electrical
Holdings Co., Ltd. .................... 576
6,098,000 Legend Holdings Ltd. .................... 5,906
(a)5,061,000 Phoenix Satellite TV .................... 704
(a,c)12,700 SINA.COM ................................ 325
14,606,000 TCL International Holdings Ltd. ......... 5,340
(a)3,018,000 Timeless Software Ltd. .................. 1,365
954,000 Yue Yuen Industrial HoldingsLtd. ........ 2,117
-------------
98,663
-------------
HUNGARY (0.7%)
257,593 Matav Rt. ............................... 1,790
230,810 Matav Rt. ADR ........................... 7,949
-------------
9,739
-------------
INDIA (6.5%)
5,650 Apollo Tyres Ltd. ....................... 12
44,800 Aptech Ltd. ............................. 849
863,950 Bharat Heavy Electricals Ltd. ........... 2,582
161,000 BSES Ltd. ............................... 885
25,000 BSES Ltd. GDR ........................... 462
(d)836,800 Container Corp. of India Ltd. ........... 3,223
46,907 Dabur India Ltd. ........................ 686
200 Federal Bank Ltd. .......................
391,706 Gujarat Ambuja Cements Ltd. ............. 1,711
60,000 Gujarat Ambuja Cements Ltd. GDR ......... 255
(a)54,100 HCL Technologies Ltd. ................... 1,561
97,563 Hero Honda Motors Ltd. .................. 2,158
(a)59,536 Hindustan Lever Ltd. .................... 3,782
326,710 Housing Development
Finance Corp., Ltd. ................... 4,091
(e,d)393,611 India-Info.com Private Co., Ltd. ........ 1,693
477,500 Indo Gulf Corporation Ltd. .............. 453
161,805 Infosys Technologies Ltd. ............... 30,146
</TABLE>
The accompanying notes are an integral part of the financial statements.
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33
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INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
INDIA (CONT.)
100 ITC Ltd. ................................ $ 2
109,247 Larsen & Toubro Ltd. .................... 604
(a)118,726 Lupin Laboratories Ltd. ................. 522
5 Madras Cements Ltd. ..................... --
908,918 Mahanagar Telephone Nigam Ltd. .......... 4,367
(a)165,500 Mahanagar Telephone Nigam Ltd. GDR ...... 1,521
(g)25,663,200 Morgan Stanley India Growth Fund ........ 6,811
331 MRF Ltd., Class B ....................... 10
55,500 NIIT Ltd. ............................... 2,747
402,300 Reliance Industries Ltd. ................ 3,071
30,000 Reliance Industries Ltd. GDR ............ 630
(a)139,800 Satyam Computer Services Ltd. ........... 9,338
(a,d)45,000 Sri Venkatesa Mills Ltd. ................ --
57,749 Sterlite Industries (India) ............. 1,078
(e)105,000 Strides Arcolab Ltd. .................... 581
2,608 Sudarshan Chemical Industries Ltd. ...... 3
(a)450,000 Tata Engineering &
Locomotive Co., Ltd. .................. 1,243
154,900 Tata Tea Ltd. ........................... 1,151
66,300 Videsh Sanchar Nigam Ltd. ............... 1,796
313,500 Zee Telefilms Ltd. ...................... 3,146
-------------
93,170
-------------
INDONESIA (0.6%)
3,098,641 Gudang Garam ............................ 5,009
(a)5,007,055 Indah Kiat Pulp & Paper
Corp. (Foreign) ....................... 1,015
1,454,100 Semen Gresik ............................ 1,321
230,874 Telekomunikasi Indonesia ADR ............ 1,602
-------------
8,947
-------------
ISRAEL (8.4%)
(a,c)54,369 Amdocs Ltd. ............................. 4,173
(a)121,756 Aladdin Knowledge Systems ............... 1,925
(a)40,120 Batm Advanced Communications ............ 3,500
(a)56,260 BreezeCom Ltd. .......................... 2,447
(a,c)84,870 Check Point Software Technologies ....... 17,971
(a)46,758 Comverse Technology, Inc. ............... 4,348
(a)110,911 DSP Group, Inc. ......................... 6,211
(c)861,830 ECI Telecommunications Ltd. ............. 30,811
(a)432,456 Galileo Technology Ltd. ................. 9,298
(a)125,177 Gilat Satellite Networks Ltd. ........... 8,684
(a)43,382 M-Systems Flash Disk Pioneers ........... 3,379
(a)26,049 NICE-Systems Ltd. ....................... 2,026
(a)33,866 NICE-Systems Ltd. ADR ................... 2,614
(a)169,840 Optibase Ltd. ........................... 2,983
(a)100,220 Orckit Communications Ltd. .............. 3,019
(a)64,231 RADWARE Ltd. ............................ 1,702
(a,c)124,199 Tecnomatix Technologies Ltd. ............ 1,692
32,860 Teva Pharmaceutical
Industries Ltd. ADR ................... 1,822
(a)219,050 TTI Team Telecom International Ltd. ..... 7,886
(a)58,460 Vcon Telecommunications Ltd. ............ 616
(a)74,717 Zoran Corp. ............................. 4,927
-------------
122,034
-------------
KOREA (21.2%)
57,730 CJ39 Shopping Corp. ..................... 1,890
63,130 Cheil Communications Inc. ............... 8,238
(a)282,265 Communication Network Interface Inc. .... 1,557
1,053 Daou Technology, Inc. ................... 10
(a,d)10,165 Dreamline Corp. ......................... 280
110,270 Hana Bank ............................... 687
(a)886,830 Hanvit Bank ............................. 2,267
(a,e)498,550 Hanvit Bank GDR ......................... 2,493
187,710 Housing & Commercial Bank ............... 4,394
(a)329,945 Humax Co., Ltd. ......................... 4,572
391,590 Hyundai Electronics Industries Co. ...... 7,726
3,100 Hyundai Securities Co. .................. 31
338,480 Kookmin Bank ............................ 4,310
246,500 Korea Electric Power Corp. .............. 7,649
236,926 Korea Electric Power Corp. ADR .......... 4,368
189,090 Korea Technology Banking ................ 2,035
505,690 Korea Telecom Corp. ..................... 44,536
(c)378,690 Korea Telecom Corp. ADR ................. 18,319
(a)48,580 Korea Telecom Freetel ................... 3,237
107,950 LG Electronics .......................... 3,020
(a)41,210 LG Home Shopping Inc. ................... 3,918
15,660 LG Information & Communication Ltd. ..... 880
231,700 LG Investment & Securities Co. Ltd. ..... 3,013
(a)13,550 Locus Corp. ............................. 1,100
112,532 Pantech Co., Ltd. ....................... 866
(d)20,063 Pohang Iron & Steel Co., Ltd. ........... 1,753
207,129 Samsung Electro-Mechanics Co. .......... 12,985
330,753 Samsung Electronics Co. ................. 109,457
188,130 Samsung Securities Co., Ltd. ............ 4,134
314,340 Shinhan Bank ............................ 2,960
(a)105,230 SK Telecom Co., Ltd. .................... 34,447
121,135 SK Telecom Co., Ltd. ADR ................ 4,399
329,436 Telson Electronics Co., Ltd. ............ 3,501
57,550 Tongyang Confectionery Co. .............. 1,252
(a)6,830 Trigem Computer Inc. .................... 137
-------------
306,421
-------------
MALAYSIA (2.0%)
545,000 British Amerian Tobacco Bhd ............. 4,446
520,000 Commerce Asset Holdings Bhd ............. 1,505
(a)1,029,000 Digi.Com Bhd ............................ 1,882
1,326,000 Malayan Banking Bhd ..................... 5,374
285,000 Malaysian Pacific Industries Bhd ........ 2,925
2,872,000 Public Bank Bhd ......................... 2,645
787,000 Resorts World Bhd ....................... 2,154
1,673,000 Telekom Malaysia Bhd .................... 5,768
829,000 Tenaga Nasional Bhd ..................... 2,705
-------------
29,404
-------------
MEXICO (8.8%)
(a)1,040,799 Alfa, Class A ........................... 2,385
(a)966,103 Banacci, Class L ........................ 3,907
(a)1,047,242 Banacci, Class O ........................ 4,469
(a)3,434,253 Bancomer, Class O ....................... 1,745
(e)277,930 Bancomer, Class O ADR ................... 2,823
(a)1,393,609 Carso, Class A1 ......................... 4,942
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Emerging Markets Portfolio
34
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--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
MEXICO (CONT.)
(a)900,071 Cemex CPO ............................... $ 4,221
315,222 Cemex CPO ADR ........................... 7,368
(a)94,656 Fomento Economico Mexicano S.A. ADR ..... 4,076
252,800 Grupo Modelo, Class C ................... 566
(a)77,025 Grupo Sanborns SA ....................... 124
1,057,847 Kimberly-Clark, Class A ................. 3,010
(a,c)340,707 Televisa CPO GDR ........................ 23,487
995,359 Telmex, Class L ADR ..................... 56,860
(a)85,222 Wal-mart de Mexico ADR .................. 2,000
(a)1,780,411 Wal-mart de Mexico, Class C ............. 4,107
(a)600,157 Wal-mart de Mexico, Class V ............. 1,409
-------------
127,499
-------------
POLAND (1.0%)
(a,d)33,400 Eastbridge NV ........................... 2,246
(a)132,491 Elektrim ................................ 1,521
(a)21,630 Polski Koncern Naftowy GDR .............. 209
1,455,533 Telekomunikacja Polska GDR .............. 10,050
-------------
14,026
-------------
RUSSIA (3.6%)
(a)592,359 Alliance Cellulose Ltd. ................. 1,636
254,871 Lukoil Holding ADR ...................... 13,029
(c)68,700 Lukoil Holding Sponsored ADR ............ 1,382
(a)66,270,017 Mustcom ................................. 13,817
76,960 Rostelecom ADR .......................... 1,049
317,851 Russian Telecom Development Corp. ....... 636
(a,d)990 Storyfirst Communications,
Inc., Class C ......................... 422
(a,d)2,640 Storyfirst Communications,
Inc., Class D ......................... 1,125
(a,d)3,250 Storyfirst Communications,
Inc., Class E ......................... 1,385
(a,d)1,331 Storyfirst Communications,
Inc., Class F ......................... 1,134
(a)944,926 Surgutneftegaz ADR ...................... 12,591
279,490 Unified Energy Systems GDR .............. 3,214
(a,c)1,230 Vimpel-Communications ADR ............... 27
-------------
51,447
-------------
SOUTH AFRICA (3.7%)
186,265 Anglo American Corp. .................... 5,372
5,390,035 B.O.E Ltd. .............................. 693
540,759 Bidvest Group Ltd. ...................... 3,736
106,893 De Beers Centenary AG ................... 2,603
8,560 De Beers Consolidated Mines ADR ......... 208
(a)663,677 Dimension Data Holdings Ltd. ............ 5,496
(a)397,350 Ellerine Holdings Ltd. .................. 1,707
34,800 Impala Platinum Holdings Ltd. ........... 1,296
95,950 Liberty Life Association of Africa Ltd. . 914
1,796,840 M-Cell Ltd. ............................. 8,712
(a)38,900 MIH Ltd. ................................ 1,168
160,132 Naspers Ltd. ............................ 1,335
223,003 Nedcor Ltd. ............................. 4,687
(a)3,299,470 New Africa Investments Ltd., Class N .... 828
739,780 Rembrandt Group Ltd. .................... 6,988
215,640 Sappi Ltd. .............................. 1,623
1,020,300 Sasol Ltd. .............................. 6,852
-------------
54,218
-------------
TAIWAN (13.3%)
(a)2,423,400 Accton Technology Corp. ................. 5,403
(a)2,893,813 Acer Peripherals, Inc. .................. 8,194
(a)1,595,472 Advanced Semiconductor
Engineering, Inc. ..................... 4,881
287,800 Advantech Co. Ltd. ...................... 1,527
(a)334,000 Ambit Microsystems Corp. ................ 3,316
(a)105,900 ASE Test Ltd. ........................... 3,117
1,471,829 Asustek Computer, Inc. .................. 12,167
(a)2,381,200 Chinatrust Commercial Bank .............. 2,069
488,700 Compal Electronics, Inc. ................ 1,201
2,265,150 D-Link Corp. ............................ 5,308
1,269,000 Delta Electronics, Inc. ................. 6,009
(a)1,394,000 Dialer and Business ..................... 2,632
(e)3,367,010 Far East Textile Ltd. ................... 4,186
(a)17,200 Far East Textile Ltd. GDR ............... 215
91,000 Faraday Technology Corp. ................ 1,004
31,400 GigaMedia Ltd. .......................... 381
(a)1,481,000 Hon Hai Precision Industry .............. 13,400
(a)96,700 Hon Hai Precision Industry GDR .......... 2,321
2,340,700 International Commercial
Bank of China ......................... 1,981
(a)1,542,600 Macronix International .................. 3,866
(a)354,600 Microelectronics Technology ............. 1,177
1,450,000 President Chain Store Corp. ............. 5,427
(a)463,000 ProMos Technologies Inc. ................ 1,876
(a)24,750 Ritek, Inc. ............................. 99
(a)282,061 Ritek, Inc. GDR ......................... 2,253
(a)2,106,240 Siliconware Precision Industries Co. .... 4,730
(a)1,266,248 Taishin International Bank .............. 812
(a)10,034,641 Taiwan Semiconductor
Manufacturing Co. ..................... 47,683
(a)10,542,400 United Micro Electronics Corp., Ltd. .... 29,337
(a)1,427,600 Universal Scientific
Industrial Co., Ltd. .................. 3,485
(a)3,102,440 Winbond Electronics Corp. ............... 8,987
(a)1,145,000 WYSE Technology Taiwan Ltd. ............. 2,050
(a)199,000 Zinwell Corp. ........................... 984
-------------
192,078
-------------
THAILAND (1.2%)
(a)556,650 Advanced Information Services PCL
(Foreign) ............................. 6,934
376,300 BEC World PCL (Foreign) ................. 2,248
(d)501,004 Delta Electronics (Thailand) PCL
(Foreign) ............................. 3,530
435,300 Shinawatra Computer Co. PCL
(Foreign) ............................. 2,289
1,646,700 Thai Farmers Bank PCL (Foreign) ......... 1,387
(a)135,000 Total Access Communication PCL .......... 542
-------------
16,930
-------------
TURKEY (4.0%)
(a)7,583,000 Alcatel Telekomunikasyon ................ 1,650
(a)252,649,000 Dogan Sirketler Grubu Holding ........... 6,108
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Emerging Markets Portfolio
35
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INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
TURKEY (CONT.)
(a)154,969,000 Dogan Yayin Holdings .................... $ 2,623
82,193,300 Ege Biracilik ........................... 5,365
(a)13,374,932 Erciyas Biracilik ....................... 625
(a)470,388,000 Garanti Bankasi A.S. .................... 5,686
18,430,149 Netas Telekomunik A.S. .................. 2,050
(a)35,268,288 Vestel Elektronik Sanayi
Ve Ticaret A.S. ....................... 10,658
(a)2,022,656,151 Yapi Ve Kredi Bankasi A.S. .............. 22,494
(a)71,687 Yapi Ve Kredi Bankasi A.S. GDR .......... 720
-------------
57,979
-------------
OTHER (0.1%)
(g)100,130 MSDW Africa Investment Fund, Inc. ....... 795
-------------
TOTAL COMMON STOCKS (Cost $1,273,339) ......................... 1,383,576
-------------
<CAPTION>
NO. OF
UNITS
(000)
-------------------
<S> <C>
UNITS (0.7%)
MEXICO (0.6%)
1,970,701 Fomento Economico Mexicano S.A.
(Femsa) ............................... 8,410
-------------
RUSSIA (0.1%)
(a,d)1,637 Storyfirst Communications, Inc.,
First Section, Tranche I, 25.00%
(Convertible) ......................... 698
(a,d)96 Storyfirst Communications, Inc.,
Second Section, Tranche I, 25.00%
(Convertible) ......................... 41
(a,d)421 Storyfirst Communications, Inc.,
Tranche II, 26.00% (Convertible) ...... 179
(a,d)562 Storyfirst Communications, Inc.,
Tranche IV, 28.00% (Convertible) ...... 240
(a,d)654 Storyfirst Communications, Inc.,
Tranche V, 29.00% ..................... 279
(a,d)550 Storyfirst Communications, Inc.,
Tranche VI, 30.00% .................... 234
-------------
1,671
-------------
TOTAL UNITS (Cost $8,914) ..................................... 10,081
-------------
<CAPTION>
FACE
AMOUNT
(000)
-------------------
<S> <C>
CONVERTIBLE DEBENTURES (0.0%)
INDIA (0.0%)
INR (d)336 DCM Shriram Industries Ltd.,
7.50%, 2/21/02 (Cost $473) ............ 173
-------------
NON-CONVERTIBLE DEBENTURES (0.1%)
INDIA (0.1%)
(d)341 DCM Shriram Industries Ltd.,
(Floating Rate), 9.90%, 2/21/02 ....... 232
700 Saurashtra Cement & Chemicals
Ltd.,18.00%,11/27/00 .................. 1,463
-------------
TOTAL NON-CONVERTIBLE DEBENTURES (Cost $2,864) ................ 1,695
-------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------------------- ---------------
<S> <C>
TOTAL FOREIGN SECURITIES (96.7%) (Cost $1,285,590) ............ $ 1,395,525
-------------
SHORT-TERM INVESTMENTS (10.0%)
SHORT-TERM INVESTMENTS HELD AS COLLATERAL ON
LOANED SECURITIES (6.2%)
$ 3,500 Abbey National Treasury Services,
TD, 7.1875%, 7/03/00 .................. 3,500
3,500 ABN Amro Bank, TD, 7.125%, 7/03/00 ...... 3,500
3,500 Allied Irish Bank, TD, 7.125%, 7/03/00 .. 3,500
3,500 Banca Commerciale Italiano (London),
TD, 7.25%, 07/03/00 ................... 3,500
3,500 Banco Santander S.A., TD, 7.125%,
7/03/00 ............................... 3,500
3,500 Bank of Austria (London),
TD, 7.25%, 703/00 ..................... 3,500
3,500 Bank of Ireland, TD,
7.125%, 703/00 ........................ 3,500
3,000 Bank of Scotland (London), TD,
7.16%, 703/00 ......................... 3,000
3,500 Banque Bruxelles Lambert, TD,
7.25%, 7/03/00 ........................ 3,500
3,500 Barclays Bank Plc., TD, 7.125%,
07/03/00 .............................. 3,500
3,500 Bayerische Hypo-Und Vereinsbank,
TD, 7.125%, 7/03/00 ................... 3,500
2,508 BNP Paribas (London), TD,
6.53%, 1/08/01 ........................ 2,508
3,500 Commerzbank AG, (Tokyo), TD,
7.125%, 7/03/00 ....................... 3,500
3,500 Citibank Corp.,TD, 7.125%, 7/03/00 ...... 3,500
3,500 Credit Agricole Indozuez, TD, 7.125%,
7/03/00 ............................... 3,500
3,500 Credit Commerciale, TD, 7.125%,
7/03/00 ............................... 3,500
3,500 Dresdner Bank, N.Y., TD,
7.125%, 07/03/00 ...................... 3,500
3,500 Fortis Bank, TD, 7.1875%, 7/03/00 ....... 3,500
3,500 Halifax Plc., TD, 7.125%, 7/03/00 ....... 3,500
3,500 Landesbank Baden Wuerttember,
TD, 7.1875%, 7/03/00 .................. 3,500
5,000 Lehman Brothers, Inc., 7.025%, dated
6/30/00, due 7/03/00, to be
repurchased at $5,003, collateralized
by U.S. Government Agency Bonds,
having various rates and maturities,
valued at $5,100 (Cost $5,000) ........ 5,000
3,500 Societe Generale, TD, 7.125%, 7/03/00 ... 3,500
3,500 Nordeutsche Landesbank, TD,
7.125%, 7/03/00 ....................... 3,500
3,500 Toronto Dominion- London, TD,
7.125%, 07/03/00 ...................... 3,500
3,500 Westdeutsche Landesbank G.C., TD,
7.125%, 7/03/00 ....................... 3,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Emerging Markets Portfolio
36
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------------------- ---------------
<S> <C> <C>
SECURITIES HELD FOR COLLATERAL ON LOANED
SECURITIES (CONT.)
$ 2,486 Windmill Funding Corp., CP,
6.71%, 07/28/00 $ 2,486
-------------
TOTAL SECURITIES HELD FOR COLLATERAL ON LOANED
SECURITIES ................................................ 89,994
-------------
REPURCHASE AGREEMENT (3.8%)
54,065 Chase Securities, Inc., 6.15%, dated
6/30/00, due 7/03/00, to be
repurchased at $54,092,
collateralized by U.S. Treasury
Bonds, 5.875%, due 11/05/05, valued
at $31,710 and 5.50%, due 5/15/09,
valued at $55,222 ..................... 54,065
-------------
TOTAL SHORT-TERM INVESTMENTS (Cost $144,059) .................. 144,059
-------------
FOREIGN CURRENCY (0.3%)
BRL 162 Brazilian Real .......................... 90
GBP 615 British Pound ........................... 930
HKD 5 Hong Kong Dollar ........................ 1
HUF 917 Hungarian Forint ........................ 3
INR 669 Indian Rupee ............................ 15
IDR 417,037 Indonesian Rupiah ....................... 48
MYR 21 Malaysian Ringgit ....................... 5
MXP 110 Mexican Peso ............................ 11
ZAR 3,639 South African Rand ...................... 537
KRW 702 South Korean Won ........................ 1
TWD 70,749 Taiwan Dollar ........................... 2,303
THB 968 Thai Baht ............................... 25
-------------
TOTAL FOREIGN CURRENCY (Cost $3,960) .......................... 3,969
-------------
TOTAL INVESTMENTS (107.0%) (Cost $1,433,609) .................. 1,543,553
-------------
OTHER ASSETS (1.1%)
Receivable for Investments Sold ............. $ 8,249
Receivable for Portfolio Shares Sold ........ 5,432
Dividends Receivable ........................ 1,987
Interest Receivable ......................... 3
Foreign Withholding Tax Reclaim Receivable .. 3
Other ....................................... 65 15,739
-------------
LIABILITIES (-8.1%)
Collateral on Securities Loaned ............. (89,994)
Payable for Investments Purchased ........... (14,292)
Investment Advisory Fees Payable ............ (4,331)
Bank Overdraft Payable ...................... (3,478)
Payable for Foreign Taxes ................... (2,674)
Custodian Fees Payable ...................... (696)
Payable for Portfolio Shares Redeemed ....... (325)
Administrative Fees Payable ................. (181)
Directors' Fees and Expenses Payable ........ (138)
Distribution Fees Payable ................... (13)
Other Liabilities ........................... (236) (116,358)
------------- -------------
NET ASSETS (100%) $ 1,442,934
=============
<CAPTION>
VALUE
(000)
---------------
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital ............................................... $ 1,334,054
Accumulated Net Investment Loss ............................... (8,118)
Undistributed Net Realized Gain ............................... 9,746
Unrealized Appreciation on Investments and Foreign
Currency Translations (Net of accrual for foreign taxes
of $2,674 on unrealized appreciation of investments) ........ 107,252
-------------
NET ASSETS .................................................... $ 1,442,934
=============
CLASS A:
--------
NET ASSETS .................................................... $ 1,421,652
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 77,424,358 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ...................... $ 18.36
=============
CLASS B:
--------
NET ASSETS .................................................... $ 21,282
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,162,285 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ...................... $ 18.31
=============
--------------------------------------------------------------------------------
(a) -- Non-income producing security
(c) -- Security is in default.
(d) -- Investments 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.
CP -- Commercial Paper
ADR -- American Depositary Receipts
GDR -- Global Depositary Receipt
PCL -- Public Company Limited
Floating Rate -- Interest rate changes on these instruments are based on changes
in a designated base rate. The rates shown are those in effect on
June 30, 2000.
TD -- Time Deposit
--------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<CAPTION>
PERCENT
VALUE OF NET
SECTOR (000) ASSETS
------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary ........................ $ 103,106 7.1%
Consumer Staples .............................. 42,468 2.9
Energy ........................................ 57,666 4.0
Financials .................................... 124,800 8.7
Healthcare .................................... 3,610 0.3
Industrials ................................... 33,762 2.3
Information Technology ........................ 509,349 35.3
Materials ..................................... 53,578 3.7
Telecommunication Services .................... 443,694 30.8
Utilities ..................................... 23,492 1.6
------------- -------------
$ 1,395,525 96.7%
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Emerging Markets Portfolio
37
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
EUROPE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
<TABLE>
<S> <C>
Belgium (0.5%)
Finland (0.7%)
France (14.8%)
Germany (8.0%)
Italy (5.1%)
Netherlands (7.3%)
Portugal (1.1%)
Spain (2.8%)
Sweden (5.4%)
Switzerland (9.9%)
United Kingdom (40.7%)
Other (3.7%)
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX(1)
--------------------------------------------
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Portfolio -- Class A............ 2.78% 14.03% 12.06% 15.32%
Portfolio -- Class B............ 2.58 13.70 N/A 12.81
Index -- Class A.............. -3.08 15.10 18.45 17.61
Index -- Class B.............. -3.08 15.10 N/A 18.58
</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.
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 primarily 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. Foreign investing involves certain risks, including
currency fluctuations and controls, restrictions on foreign investments, less
governmental supervision and regulation, less liquidity and the potential for
market volatility and political instability.
The approach taken in selecting investments for the Portfolio is oriented to
individual stock selection and is value driven. The initial step in identifying
attractive undervalued securities is the screening of European databases. Stocks
are screened for undervaluation on two primary criteria, cash flow and book
value, and three secondary criteria, earnings, sales and yield. Once stocks have
been selected from this screening process, they are put through detailed
fundamental analysis. Important areas covered during this in-depth study
include the companies' balance sheets and cash flow, franchise, products,
management and the strategic value of the assets.
For the six months ended June 30, 2000, the Portfolio had a total return of
2.78% for the Class A shares and 2.58% for the Class B shares compared to -3.08%
for the Morgan Stanley Capital International (MSCI) Europe Index (the "Index").
For the one year ended June 30, 2000, the Portfolio had a total return of 14.03%
for the Class A shares and 13.70% for the Class B shares compared to 15.10% for
the Index. For the five-year period ended June 30, 2000, the average annual
total return for the Class A shares was 12.06% compared to 18.45% for the Index.
For the period from inception on April 2, 1993 through June 30, 2000, the
average annual total return for the Class A shares was 15.32% compared to 17.61%
for the Index. For the period from inception on January 2, 1996 through June 30,
2000, the average annual total return for the Class B shares was 12.81% compared
to 18.58% for the Index.
Defensive stocks continued their recovery during the second quarter of 2000,
with consumer staples being the strongest performing sector in the European
market. Consequently, the Portfolio benefited from its significant overweight,
with familiar names such as Nestle (stock performance was +15%), Reckitt
Benckiser (+18%) and Danone (+23%) being top contributors to performance. Our
underweight to telecommunications, which have been weakened by interest rate
fears and anticipated acquisition costs of third generation spectrum, was a
positive. Our overweight in
--------------------------------------------------------------------------------
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED ARE MEASURED BY THE MSCI EUROPE INDEX AND ARE FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE
PORTFOLIO'S FUTURE PERFORMANCE. 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.
--------------------------------------------------------------------------------
European Equity Portfolio
38
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO (CONT.)
health care was further enhanced by strong stock selection, as Aventis (+35%)
recently surpassed Merck as the largest pharmaceutical company in the world. We
are significantly underweight in technology (2% versus 11% for the Index), as
valuations remain excessive and we feel that new competitive threats to the
European handset manufacturers (eg. the Japanese market) have not been factored
into expectations. The one technology stock we own, Alcatel, contributed 96
basis points following strong growth in its Internet & Optics business units.
Stock selection in energy was a negative during the second quarter of 2000. Our
overweight to materials was also a detractor during the second quarter as an
attempted merger between France's L'Air Liquide, U.S. based Air Products and
Chemicals and U.K.'s BOC Group (-27%) failed. BASF (Germany, -13%) reflects
sector concerns over the outlook for economic activity.
European fundamentals look quite solid, with the main risk to European equities
appearing to be the potential for a slowdown in the U.S. economy. In the
meantime, the Portfolio has opportunistically reduced its small cap exposure on
strength and increased its U.K. exposure for stock specific valuation and
fundamental reasons.
Margaret Naylor
PORTFOLIO MANAGER
Willem Vinke
PORTFOLIO MANAGER
Nathalie Degans
PORTFOLIO MANAGER
Amr Diab
PORTFOLIO MANAGER
July 2000
--------------------------------------------------------------------------------
European Equity Portfolio
39
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (93.4%)
BELGIUM (0.5%)
55 G.I.B. Group - VVPR ............................. $ 2
(a)15,900 Mobistar SA ..................................... 527
----------
529
----------
FINLAND (0.7%)
16,840 Sampo Insurance Co. ............................. 683
----------
FRANCE (14.8%)
(a)21,480 Alcatel Alsthom ................................. 1,408
38,385 Aventis SA ...................................... 2,799
7,120 AXA ............................................. 1,121
3,070 Banque Nationale de Paris ....................... 295
20,630 Cie Generale des Establissements Michelin,
Class B (Registered) ............................ 661
46,170 CNP Assurances .................................. 1,572
11,520 Groupe Danone ................................... 1,527
15,860 Pernod Ricard ................................... 862
20,110 Schneider SA .................................... 1,400
17,114 TotalFina, Class B .............................. 2,622
----------
14,267
----------
GERMANY (5.1%)
11,450 Adidas AG ....................................... 629
15,355 BASF AG ......................................... 622
7,261 Bayer AG ........................................ 278
20,060 Bayerische Motoren Werke AG ..................... 610
13,254 Bayerische-Hypo Vereinsbank AG .................. 866
22,869 Deutsche Telekom ................................ 1,318
10,275 Schering AG ..................................... 559
----------
4,882
----------
ITALY (5.1%)
47,465 Banca Popolare Di Bergamo S.p.A. ................ 877
147,810 ENI S.p.A. ...................................... 853
21,435 Marzotto (Gaetano) & Figli S.p.A. ............... 175
39,100 Mediaset S.p.A. ................................. 597
68,750 Telecom Italia Mobile S.p.A. .................... 701
82,690 Telecom Italia S.p.A. (RNC) ..................... 1,136
123,520 UniCredito Italiano S.p.A ....................... 590
----------
4,929
----------
NETHERLANDS (7.3%)
19,490 ABN Amro Holding N.V. ........................... 477
32,270 Akzo Nobel N.V. ................................. 1,370
23,436 Buhrmann N.V. ................................... 669
25,672 ING Groep N.V. .................................. 1,734
44,210 Laurus N.V. ..................................... 529
(a)42,150 Philips Electronics N.V. ........................ 1,986
4,250 Royal Dutch Petroleum Co. ....................... 264
----------
7,029
----------
PORTUGAL (1.1%)
104,890 Banco Commercial Portugues(Registered) .......... 545
(a)32,950 Telecel-Commincacoes Pessoais ................... 500
----------
1,045
----------
SPAIN (2.8%)
21,080 Banco Popular Espanol ........................... 651
45,250 Endesa .......................................... $ 876
(a)56,161 Telefonica ...................................... 1,205
----------
2,732
----------
SWEDEN (5.4%)
35,640 Autoliv AB ...................................... 872
50,270 ForeningsSparbanken AB .......................... 734
148,521 Nordbanken Holding AB ........................... 1,119
40,740 Scandic Hotels AB ............................... 489
38,670 Svedala Intrustri AB ............................ 736
24,570 Svenska Cellulosa AB (SCA), Class B ............. 466
54,190 Svenska Handelsbanken, Class A .................. 786
----------
5,202
----------
SWITZERLAND (9.9%)
670 Cie Financiere Richemont AG, Class A ............ 1,803
882 Holderbank Financiere Glarus AG, Class B
(Bearer) ........................................ 1,080
1,695 Nestle (Registered) ............................. 3,389
1,005 Novartis AG (Registered) ........................ 1,590
473 Schindler Holding AG (Registered) ............... 724
(a)6,350 UBS AG .......................................... 930
----------
9,516
----------
UNITED KINGDOM (40.7%)
313,800 Allied Domecq plc ............................... 1,661
63,400 Allied Zurich plc ............................... 750
25,800 AstraZeneca Group plc ........................... 1,204
94,900 BAA plc ......................................... 761
141,900 BAE Systems plc ................................. 884
61,239 Bank of Scotland ................................ 582
36,400 Barclays plc .................................... 905
91,393 BG Group plc .................................... 590
142,600 Blue Circle Industries plc ...................... 920
48,200 BOC Group plc ................................... 693
154,500 British American Tobacco plc .................... 1,031
127,390 British Telecommunications plc .................. 1,646
229,400 Cadbury Schweppes plc ........................... 1,506
8,100 Capital Radio plc ............................... 189
137,300 Centrica plc .................................... 458
165,938 Diageo plc ...................................... 1,489
40,300 GKN plc ......................................... 514
60,600 Glaxo Wellcome plc .............................. 1,766
134,200 Granada Group plc ............................... 1,340
165,980 Great Universal Stores plc ...................... 1,067
176,540 Halma plc ....................................... 272
143,800 Imperial Tobacco Group plc ...................... 1,377
59,800 Lloyds TSB Group plc ............................ 564
101,700 Prudential Corp. plc ............................ 1,489
227,468 Reckitt & Benckiser plc ......................... 2,546
262,700 Rentokil Initial plc ............................ 596
38,200 RMC Group plc ................................... 497
304,800 Rolls-Royce plc ................................. 1,081
61,900 Sainsbury (J) plc ............................... 281
119,224 Scottish & Southern Energy plc .................. 1,093
324,107 Shell Transport & Trading Co. ................... 2,704
25,448 Smith & Nephew plc .............................. 94
32,900 SmithKline Beecham plc .......................... 431
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
European Equity Portfolio
40
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO (CONT.)
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
UNITED KINGDOM (CONT.)
128,000 SSL International ............................... $ 1,384
653,116 Vodafone Group plc .............................. 2,638
101,300 Wolseley plc .................................... 544
112,110 WPP Group plc ................................... 1,637
----------
39,184
----------
TOTAL COMMON STOCKS (Cost $82,417) .................................. 89,998
----------
PREFERRED STOCKS (2.9%)
GERMANY (2.9%)
6,106 Fresenius AG .................................... 1,398
24,071 Henkel KGaA ..................................... 1,378
----------
TOTAL PREFERRED STOCKS (Cost $2,698) ................................ 2,776
----------
TOTAL FOREIGN SECURITIES (96.3%) (Cost $85,115) ..................... 92,774
----------
<CAPTION>
FACE
AMOUNT
(000)
------------------
<S> <C>
SHORT-TERM INVESTMENT (4.4%)
REPURCHASE AGREEMENT (4.4%)
$ 4,239 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/03/00, to be repurchased at $4,241,
collateralized by U.S. Treasury Notes, 5.875%,
due 11/15/05, valued at $4,330 (Cost $4,239) .... 4,239
----------
FOREIGN CURRENCY (0.1%)
GBP 43 British Pound (Cost $65) ........................ 65
----------
TOTAL INVESTMENTS (100.8%) (COST $89,419) ........................... 97,078
----------
OTHER ASSETS (1.8%)
<S> <C> <C>
Cash ................................................. $ 9
Receivable for Investments Sold ...................... 944
Net Unrealized Gain on Foreign Currency
Exchange Contracts ................................. 392
Dividends Receivable ................................. 217
Foreign Withholding Tax Reclaim Receivable ........... 168
Receivable for Portfolio Shares Sold ................. 3
Interest Receivable .................................. 1
Other ................................................ 1 1,735
----------
LIABILITIES (-2.6%)
Payable for Investments Purchased .................... (2,197)
Investment Advisory Fees Payable ..................... (180)
Custodian Fees Payable ............................... (41)
Directors' Fees and Expenses Payable ................. (20)
Administrative Fees Payable .......................... (16)
Distribution Fees Payable ............................ (1)
Other Liabilities ...................................... (20) (2,475)
---------- ----------
NET ASSETS (100%) ................................................... $ 96,338
=========
NET ASSETS CONSIST OF:
Paid in Capital ..................................................... $ 78,640
Undistributed Net Investment Income ................................. 655
Accumulated Net Realized Gain ....................................... 9,069
Unrealized Appreciation on Investments and
Foreign Currency Translations ..................................... 7,974
----------
NET ASSETS .......................................................... $ 96,338
=========
CLASS A:
--------
NET ASSETS .......................................................... $ 94,361
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 6,086,992 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ............................ $ 15.50
=========
CLASS B:
--------
NET ASSETS .......................................................... $ 1,977
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 127,544 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ............................ $ 15.50
=========
--------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 2000,
the Portfolio is obligated to deliver or is to receive foreign currency as
indicated below:
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN(LOSS)
(000) (000) DATE (000) (000) (000)
------------- -------- ------------ -------------- -------- ----------
<S> <C> <C> <C> <C> <C>
GBP 4,300 $ 6,523 11/15/00 EUR 7,031 $ 6,763 $ 240
GBP 2,000 3,034 11/15/00 EUR 3,313 3,186 152
-------- -------- ----------
$ 9,557 $ 9,949 $ 392
======== ======== ==========
--------------------------------------------------------------------------------
(a) -- Non-income producing security
RNC -- Non-convertible savings shares
--------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
--------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary .......................... $11,310 11.7%
Consumer Staples ................................ 18,003 18.7
Energy .......................................... 6,442 6.7
Financials ...................................... 17,269 17.9
Healthcare ...................................... 11,504 11.9
Industrials ..................................... 6,852 7.2
Information Technology .......................... 1,680 1.7
Materials ....................................... 7,026 7.4
Telecommunication Services ...................... 9,671 10.0
Utilities ....................................... 3,017 3.1
------- ----
$92,774 96.3%
======= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
European Equity Portfolio
41
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-----------------------------------------------------------------------------
INVESTMENT OVERVIEW
-----------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
<TABLE>
<S> <C>
Finland (1.5%)
France (15.0%)
Germany (2.1%)
Ireland (3.5%)
Italy (0.8%)
Netherlands (2.5%)
Norway (0.8%)
Portugal (1.2%)
Spain (9.2%)
Sweden (13.1%)
United Kingdom (46.9%)
Other (3.4%)
</TABLE>
PERFORMANCE COMPARED TO THE GPR GENERAL REAL ESTATE SECURITIES INDEX - EUROPE(1)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION
----- ------ ----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A......... 4.69% -0.66% 0.73%
PORTFOLIO -- CLASS B......... 4.46 -0.96 0.49
INDEX........................ 2.25 -1.05 1.91
</TABLE>
1. The GPR General Real Estate Securities Index - Europe is a market
capitalization weighted index of listed property/real estate securities in
Europe 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. Foreign
investing involves certain risks, including currency fluctuations and
controls, restrictions on foreign investments, less governmental supervision
and regulation, less liquidity and the potential for market volatility and
political instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
4.69% for the Class A shares and 4.46% for the Class B shares compared to
2.25% for the GPR General Real Estate Securities Index - Europe (the
"Index"). For the one year ended June 30, 2000, the Portfolio had a total
return of -0.66% for the Class A shares and -0.96% for the Class B shares
compared to -1.05% for the Index. For the period from inception on October 1,
1997 through June 30, 2000, the Portfolio had an average annual total return
of 0.73% for the Class A shares and 0.49% for the Class B shares compared to
1.91% for the Index.
We are witnessing a continued interest in the defensive real estate sector,
and this has resulted in four consecutive months of outperformance. The main
contributors in the second quarter were the listed property markets in the
Netherlands, Ireland, France and the United Kingdom, returning 15.6%, 13.9%,
7.2% and 7.0%, respectively.
We remain optimistic about the prospects for European real estate securities
in 2000. Most European real estate markets are still in the recovery stage of
the real estate cycle. High occupancy ratios and strong demand are putting
further upward pressure on current rents. In a number of markets, the
development pipeline is building up, but at the same time tight zoning
restrictions and the lengthy building process protect markets from
oversupply. With the positive economic outlook for Europe and accompanying
healthy levels of demand, we do not expect a structural oversupply in the
market in the short-term. The current environment should offer sound capital
value growth, predominantly driven by rental growth as we expect yields to
remain flat with a potential risk of yields to move out in selected sectors
of the real estate markets. Based on relative pricing, currently prevailing
discounts to NAV, and expected NAV growth, our main overweight positions are
in Sweden, Spain and the French commercial sector. We are strongly
underweight in the Netherlands, Belgium and the French apartment sector.
After the Bank of England raised its key interest rate on two occasions
during the first quarter of 2000, the repo rate stands at 6.0% and economic
forecasts now see interest rates peaking at 6.5% in the end of the third
quarter of 2000, ahead of the interest cycles in the U.S. and Europe.
Forecasts for GDP growth were lowered by 0.5% for both 2000
-----------------------------------------------------------------------------
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. 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.
------------------------------------------------------------------------------
European Real Estate Portfolio
42
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-----------------------------------------------------------------------------
INVESTMENT OVERVIEW
-----------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
and 2001 to 2.9% and 2.6%, respectively, but will stay well above trend. The
downgrades have been prompted by a weaker than anticipated outlook for the
manufacturing sector as a strong pound continues to dampen export growth.
The first half of 2000 can be divided into two distinct periods for the U.K.
real estate sector. First, after it became clear that Vodafone would be
successful in its bid for Mannesmann, the re-balancing of U.K. equity
portfolios created a great deal of turmoil. Following the takeover, Vodafone
more than doubled its weight in the FTSE Index and general U.K. equity
managers scrambled to sell stocks to increase their position in the now
largest company in the U.K. A lot of managers raised cash by selling small
cap value investments like property companies, resulting in declines of up to
35%. By mid-February, the U.K. real estate Index was down some 20% since the
beginning of the year, resulting in an average discount of 45% to NAV.
However, towards the end of the first quarter, outside interest in the U.K.
real estate sector picked up as the market rotated out of the growth sectors
and into the more defensive value sectors. This interest continued in the
second quarter as corporate activity in the sector picked up. The Euro 3
billion bid for MEPC by Hermes and GE Capital Real Estate was the most eye
catching as it involved the fourth largest company in the European universe.
A total of seven other companies have succumbed to takeovers, liquidations or
MBOs in 2000, but these were smaller companies, each with a market cap below
Euro 160 million.
Following the rally in the last four months of the second quarter, the U.K.
sector showed a Euro return of 7.3% in the second quarter. Despite the strong
performance, discounts stand at 29% and are still well below their historic
average. We are slightly underweight in the U.K. and continue to focus the
overall Portfolio on consolidation targets and property sectors with higher
than average growth: West End offices and Southeast business space.
The French property shares continued to disappoint the second quarter of
2000. The 3.9% Euro return trailed the European property Index return of 8.0%
over the past six months. Much needed economic reforms in France again faced
obstacles, ultimately leading to the resignation of the finance minister,
after opposition from labor unions sank his modest reform proposals. Also,
the French government opted for one-off tax cuts and increased spending as a
result of stronger than expected growth, giving an extra boost to an economy
that is already growing above 3.5%.
Meanwhile, the recovery in the French real estate market is strengthening.
The vacancy rates in the office markets of La Defense and Paris CBD market
are 1.0% and sub 4.0%, respectively, and a new record rent of FFR 4,800 per
square meters was set at the office development at 7 Place d'Iena in the CBD
of Paris, a level that is only FFR 200 below the top rent in the peak in
1990. We remain positive on the outlook for the commercial real estate market
and we remain overweight.
On the contrary, we have limited faith in the potential returns for the
apartment companies. More and more investors are focusing on the fact that
the apartment companies are valuing their apartment portfolios at vacant
possession value, instead of using investment values, applying net valuation
yields at or below 4.0%. With limited upside potential on rents due to
legislative restrictions, this full vacant possession value can only be
captured through the condominiumisation of the apartment portfolios. This is
a profitable but lengthy process, and none of the apartment companies have
shown the ability and swiftness to capture this potential. Hence, we think
their NAV's are grossly overrated and that their future growth rate will be
subdued, and we therefore remain underweight in the apartment sector.
The Swedish real estate sector was one of the star performers during the
first half of 2000, returning 16.8% in Euros. A high level of corporate
activity sparked the strong performance in Sweden. Rodamco Continental Europe
acquired Piren for cash at approximately SEK 69.5 per share, which was around
NAV. Castellum and Diligentia subsequently unveiled terms for a merger based
on a one-for-one share offer by Castellum for Diligentia shares. Drott
entered the corporate arena by bidding for Balder, with Balder fighting off
the hostile approach by bidding for Diligentia. However, Drott's cash bid was
successful at SEK 140 per share after raising it once from SEK 135,
representing a 37% premium to Balder's share price. The Castellum bid was
unsuccessful as Skandia Life, a financial institution, wanting to increase
its exposure to the real estate market, topped Castellum's offer with a cash
bid at SEK 90, which still represents a discount of 20% to NAV, but a 28%
premium to Diligentia's share price.
The underlying real estate market is still roaring, especially the central
Stockholm office market which has high occupancy ratios and a limited amount
of space in the development pipeline. Rents in central Stockholm grew by 20%
in the first six months of 2000, with growth now also spreading to the
Greater Stockholm and Gothenburg regions. Given this strong rental growth,
combined with the high leverage ratios, we expect strong NAV growth in the
near future. We remain firmly overweight in Sweden, as we believe that the
hefty discounts currently prevailing in the sector are grossly unjustified
considering the strength of the Swedish real estate recovery.
The other countries in the Nordic region all lagged the Swedish performance
during the first half of 2000, with only Finland posting a positive
performance, returning 6.6%
------------------------------------------------------------------------------
European Real Estate Portfolio
43
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-----------------------------------------------------------------------------
INVESTMENT OVERVIEW
-----------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
in Euros. Denmark and Norway posted returns of -2.5% and -3.5% respectively.
In Finland, Merita Bank attempted to dispose of a large part of its real
estate portfolio through the IPO of Aleksia. At the time of the proposed
listing, most European markets were trading at steep discounts, and Aleksia's
peer within Finland, Sponda, was trading at a 45% discount. With general
equity managers focusing on large cap growth companies, it proved impossible
to place the shares in the market at an acceptable price level. The day
before the supposed listing, the Aleksia IPO was pulled and the company was
acquired at an effective discount to NAV of 30% by Ilmarinen, a Finnish
mutual insurer. We maintain our position in Sponda, a Finnish company, and
during the second quarter we have built up a position in Steen & Strom, a
Norwegian shopping center company with projects in the Nordic region and in
Central Europe. The largest shareholder in the company, a Norwegian insurance
company, is rumored to be looking to divest its holding, making the company a
potential take-over candidate.
After a strong second quarter performance in which it returned 15.6% in
Euros, the Dutch sector posted a 10.2% first half of 2000 Euro return, mainly
caused by strong performances of Wereldhave and Rodamco Continental Europe
(Rodamco CE). After Rodamco CE negatively surprised the market in the first
quarter with the replacement of Mr. De Krey by Mr. Van Oordt from RoPro, the
company again stunned the investment community in the second quarter, but
this time in a more positive way. RoPro announced that it will abort the
compulsory outsourcing of the management of the Rodamco Funds and allow them
to have self management. We view this as a positive step as we believe that
companies should be fully integrated and that shareholder and management
interests should be aligned. While the Dutch direct real estate market still
looks reasonably healthy, we think that best performance is behind us, and we
feel that current share pricing is ahead of underlying valuation. Hence, we
have an underweight position in the Dutch market.
The Belgian property stocks lost -3.9% in the second quarter, reducing the
share valuations closer to parity levels. The performance was helped by
Cofinimmo's well received purchase of a Euro 660 million portfolio from AXA
in May, the largest pure real estate deal the Belgian market has ever seen.
The direct real estate market remains stable but unexciting, and with most
stocks trading at or above NAV, we remain underweight.
Spain delivered a respectable 9.2% Euro return during the second quarter,
recovering from the dreadful performance in 1999 when it lost -32.5%. The
fears of oversupply in the housing sector ebbed as companies posted
impressive 1999 results for their residential divisions, and with the record
supply of new houses easily being absorbed by strong demand. The housing
demand in Spain is driven by favorable demographics and unemployment
reduction, and with economic activity expected to remain strong over the next
couple of years, the outlook for the residential sector continues to be
strong. Moreover, the Spanish commercial real estate market still looks
robust, and demand pressure have caused Madrid office rents to rise by an
average of 10% in the first three months of 2000. Spain has also seen
evidence of consolidation in the sector. Vallehermoso agreed to take over
Prima, Spain's fourth largest company and only pure rental asset company. In
addition, Metrovacesa acquired a Euro 155 million office portfolio and Euro
90 million of property services businesses from BBVA, its "reference
shareholder". With the outlook for the underlying markets being positive and
with discounts at historic highs, we remain firmly overweight.
Italy was the best performing market in Europe for the first half of 2000,
returning an impressive 45.5% in Euros, compared to the European Index return
of 8.0%. The strong performance was boosted by further speculation regarding
the take-over of Immobiliare Metanopoli, a company that is 90% held by ENI,
causing the shares to rise by 54% in the first quarter of 2000. In addition,
the property company Aedes announced that it was planning to dispose of its
assets in order to invest the proceeds in internet related business, causing
Aedes' share price to triple. Our difficulty with the Italian market
continues to be the lack of credible vehicles to invest in, and we remain
underweight. In contrast, Portugal posted only a 2.9% return in Euros, and we
remain overweight in Sonae Imobiliaria, the shopping centre company.
The closed end property companies in Germany, Switzerland and Austria showed
mixed returns relative to the European Index in the first quarter of 2000.
Germany and Switzerland underperformed with returns of 0.7% and -0.2%,
respectively, but Austria outperformed, returning 17.4%. In Switzerland we
saw the listing of four new companies during the quarter: Zublin, Allreal,
PSP, and Swiss Prime Sites. However, all four IPOs were brought to the market
at parity or even at small premiums to underlying assets, and accordingly we
did not participate in any of the offerings as we feel that better value can
be found elsewhere in Europe.
Theodore R. Bigman
PORTFOLIO MANAGER
Jan Willem de Geus
PORTFOLIO MANAGER
July 2000
------------------------------------------------------------------------------
European Real Estate Portfolio
44
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-----------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-----------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
VALUE
SHARES (000)
---------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (96.6%)
FINLAND (1.5%)
36,440 Sponda Oyj.................................... $ 137
------------
FRANCE (15.0%)
900 Gecina........................................ 96
4,258 Klepierre..................................... 390
590 Silic......................................... 84
800 Simco (RFD)................................... 58
(a)1,655 Societe Fonciere Lyonnaise.................... 174
3,600 Sophia........................................ 97
3,562 Unibail....................................... 493
------------
1,392
------------
GERMANY (2.1%)
(a)14,900 IVG Holding AG................................. 191
------------
IRELAND (3.5%)
(a)594,050 Dunloe Ewart plc............................... 193
22,800 Green Property plc............................. 134
------------
327
------------
ITALY (0.8%)
48,400 Beni Stabili S.p.A............................. 26
(a)131,800 Bonaparte S.p.A................................ 50
------------
76
------------
NETHERLANDS (2.5%)
7,956 Uni-Invest N.V................................. 100
5,600 VIB N.V........................................ 136
------------
236
------------
NORWAY (0.8%)
8,700 Choice Hotels Scandinavia ASA.................. 28
3,700 Steen & Strom ASA.............................. 48
------------
76
------------
PORTUGAL (1.2%)
8,380 Sonae Imobiliaria S.A.......................... 107
------------
SPAIN (9.2%)
29,540 Inmobiliaria Colonial S.A...................... 394
15,300 Inmobiliaria Metropolitana Vasco Central....... 257
34,030 Vallehermoso................................... 203
------------
854
------------
SWEDEN (13.1%)
30,005 Castellum AB................................... 323
27,080 Drott AB, Class B.............................. 291
16,020 Fastighets AB Tornet........................... 210
(a)20,900 Hufvudstaden International AB.................. 75
13,110 JM AB.......................................... 223
(a)71,500 Wihlborgs Fastigheter AB....................... 89
------------
1,211
------------
UNITED KINGDOM (46.9%)
47,100 Benchmark Group plc............................ 175
92,215 British Land Co. plc........................... 565
136,810 Buford Holdings plc............................ 201
(a)89,460 Canary Wharf Finance plc....................... 501
76,800 Capital & Regional Properties plc.............. 266
49,640 Capital Shopping Centers plc................... 308
39,230 Chelsfield plc................................. 191
(a)40,800 Delancey Estates plc........................... 59
10,000 Derwent Valley Holdings plc.................... 94
59,600 Grantchester Holdings plc...................... 153
110,070 Great Portland Estates plc..................... 388
35,380 Hammerson plc.................................. 237
40,555 Land Securities plc............................ 485
77,529 NHP plc........................................ 50
39,695 Pillar Property plc............................ 201
58,240 Slough Estates plc............................. 323
99,250 Wates City of London Properties plc............ 143
------------
4,340
------------
TOTAL COMMON STOCKS (Cost $9,489)......................... 8,947
------------
<CAPTION>
NO. OF
RIGHTS
(000)
---------------------------------------------------------------------------------
RIGHTS (0.0%)
GERMANY (0.0%)
14,900 IVG Holding AG, expiring 6/30/00 (Cost $--)..... --
------------
<CAPTION>
NO. OF
WARRANTS
(000)
---------------------------------------------------------------------------------
WARRANTS (0.0%)
FRANCE (0.0%)
(a)6,800 Societe Fonciere Lyonnaise, expiring
7/30/02 (Cost $--)................................. 2
------------
TOTAL INVESTMENTS (96.6%) (Cost $9,489)................... 8,949
------------
<CAPTION>
FACE
AMOUNT
(000)
---------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN CURRENCY (0.3%)
EUR 22 European Monetary Unit............................. 21
SEK 24 Swedish Krona...................................... 3
-----
TOTAL FOREIGN CURRENCY (Cost $24)........................... 24
-----
TOTAL INVESTMENTS (96.9%) (Cost $9,513)..................... 8,973
-----
OTHER ASSETS (3.5%)
Cash................................................. $ 70
Receivable for Investments Sold...................... 120
Foreign Withholding Tax Reclaim Receivable........... 101
Dividends Receivable................................. 35 326
-----
LIABILITIES (-0.4%)
Custodian Fees Payable............................... (10)
Investment Advisory Fees Payable..................... (5)
Administrative Fees Payable.......................... (4)
Directors' Fees and Expenses Payable................. (2)
Payable for Investments Purchased.................... (1)
Distribution Fees Payable............................ (1)
Other Liabilities.................................... (17) (40)
----- ------
NET ASSETS (100%)........................................... $9,259
======
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
European Real Estate Portfolio
45
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-----------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-----------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
-----------------------------------------------------------------------------
AMOUNT
(000)
---------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in Capital........................................... $16,579
Undistributed Net Investment Income....................... 33
Accumulated Net Realized Loss............................. (6,799)
Unrealized Depreciation on Investments and
Foreign Currency Translations........................... (554)
-------
NET ASSETS................................................ $ 9,259
=======
CLASS A:
--------
NET ASSETS................................................ $ 7,611
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE
Applicable to 793,784 outstanding $0.001 par value
shares (authorized 500,000,000 shares).................. $ 9.59
=======
CLASS B
-------
NET ASSETS................................................ $ 1,648
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 171,707 outstanding $0.001 par value
shares (authorized 500,000,000 shares).................. $ 9.60
=======
</TABLE>
-------------------------------------------------------------------------
(a) -- Non-income producing security
RFD -- Ranked for Dividend.
-------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
--------------------------------------------------------------------
VALUE PERCENT OF
SECTOR (000) NET ASSETS
--------------------------------------------------------------------
<S> <C> <C>
Apartments........................... $1,035 11.2%
Diversified.......................... 5,005 54.1
Food Service & Lodging............... 27 0.3
Office Buildings..................... 144 1.5
Office and Industrial................ 2,009 21.6
Shopping Centers..................... 729 7.9
------ ----
$8,949 96.6%
====== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
European Real Estate Portfolio
46
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
----------------------------------------------
<TABLE>
<S> <C>
Australia (1.7%)
Belgium (0.6%)
Canada (2.0%)
Denmark (0.5%)
France (7.1%)
Germany (3.1%)
Hong Kong (0.9%)
Ireland (1.5%)
Italy (2.0%)
Japan (12.1%)
Netherlands (4.9%)
Singapore (0.3%)
Spain (2.4%)
Sweden (1.1%)
Switzerland (5.0%)
United Kingdom (15.7%)
United States (29.3%)
Other (9.8%)
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) WORLD INDEX(1)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A ......... 3.77% 3.96% 14.76% 16.42%
PORTFOLIO -- CLASS B ......... 3.68 3.75 N/A 14.65
INDEX -- CLASS A ............. -2.56 12.19 17.07 15.04
INDEX -- CLASS B ............. -2.56 12.19 N/A 16.42
</TABLE>
1. The MSCI World Index is an unmanaged index of common stocks and
includes securities representative of the market structure of 22
developed market countries in North America, Europe, and the
Asia/Pacific region.
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. Foreign investing
involves certain risks, including currency fluctuations and controls,
restrictions on foreign investments, less governmental supervision and
regulation, less liquidity and the potential for market volatility and
political instability.
For the six months ended June 30, 2000, the Portfolio had a total
return of 3.77% for the Class A shares and 3.68% for the Class B shares
compared to -2.56% for the Morgan Stanley Capital International (MSCI)
World Index (the "Index"). For the one year ended June 30, 2000, the
Portfolio had a total return of 3.96% for the Class A shares and 3.75%
for the Class B shares compared to 12.19% for the Index. For the
five-year period ended June 30, 2000, the average annual total return for
the Class A shares was 14.76% compared to 17.07% for the Index. For the
period from inception on July 15, 1992 through June 30, 2000, the
average annual total return for the Class A shares was 16.42% compared
to 15.04% for the Index. For the period from inception on January 2,
1996 through June 30, 2000, the average annual total return for the
Class B shares was 14.65% compared to 16.42% for the Index.
Strong stock selection in selected consumer discretionary was a
positive, indicating that enthusiasm for content and advertising stocks
continued to boost that segment of the market. The Portfolio was
rewarded for its significant overweight in consumer staples - one of
the best performing sectors during the last six months. Philip Morris
produced a comfortable 20%, as legal risks in the tobacco industry
appear to have peaked. Nestle, Danone and Reckitt Benckiser were strong
consumer stocks in Europe. Stock selection in energy was strong, as
TotalFina, Burmah Castrol and Royal Dutch benefited from the surging
price of crude oil.
Our overweight and stock selection in interest rate sensitive
financials was a negative during the first half of 2000. Our
overweight to materials detracted from performance, as stocks such as
Alcoa, Georgia Pacific and Boise Cascade reacted to a slowing U.S.
economy. Despite investor's significant rotation from "new economy" to
"old economy" stocks in the market, our underweight to technology
during the first half of 2000 proved to be a drag on performance. It
is worth noting, however, that our underweight to technology finally
paid-off during the second quarter. Disappointing earnings and lofty
valuations plagued the sector, as heavyweights such as Microsoft and
Cisco actually detracted performance from the Index.
-----------------------------------------------------------------------------
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. 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.
-------------------------------------------------------------------------------
Global Equity Portfolio
47
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
We believe the Portfolio is well positioned, given the ongoing
valuation extremes in the (zero-weighted) mega-cap 'growth' component
of the Index. The Portfolio's price to cash flow ratio is 9 times,
compared to 17 times in the Index, yet we believe its balance sheet
quality and free cash flow generation remain superior to the Index.
Frances Campion
PORTFOLIO MANAGER
Paul Boyne
PORTFOLIO MANAGER
July 2000
-------------------------------------------------------------------------------
Global Equity Portfolio
48
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (89.9%)
AUSTRALIA (1.7%)
218,690 CSR Ltd. ........................................... $ 606
99,239 Westpac Banking Corp. .............................. 714
-----------
1,320
-----------
BELGIUM (0.6%)
7,000 Delhaize-Le Lion.................................... 418
-----------
CANADA (2.0%)
(a)10,880 Potash Corp. of Saskatchewan, Inc. ................. 596
31,062 Telus Corp.......................................... 829
(a)3,448 Telus Corp. (Non-Voting Shares)..................... 92
-----------
1,517
-----------
DENMARK (0.5%)
10,280 Danisco A.S......................................... 343
-----------
FRANCE (7.1%)
(a)9,830 Alcatel Alsthom..................................... 644
16,630 Aventis S.A......................................... 1,213
7,900 Cie Generale des Establissements Michelin,
Class B (Registered)................................ 253
5,760 Groupe Danone....................................... 764
4,450 Lafarge S.A......................................... 345
11,750 Pernod Ricard....................................... 639
9,980 TotalFina S.A., Class B ............................ 1,529
-----------
5,387
-----------
GERMANY (2.8%)
14,894 BASF AG............................................. 604
18,860 Bayer AG............................................ 721
13,390 E.On AG............................................. 645
2,730 Volkswagen AG....................................... 105
-----------
2,075
-----------
HONG KONG (0.9%)
219,180 Hong Kong Electric Holdings Ltd. ................... 706
-----------
IRELAND (1.5%)
952 Bank of Ireland plc................................. 6
80,629 Bank of Ireland plc................................. 508
112,346 Green Property plc.................................. 659
-----------
1,173
-----------
ITALY (2.0%)
75,680 ENI S.p.A........................................... 437
163,293 Telecom Italia S.p.A. (RNC)......................... 1,082
-----------
1,519
-----------
JAPAN (12.1%)
17,000 Daiichi Pharmaceutical Co., Ltd..................... 431
23,000 Fuji Photo Film Ltd................................. 940
6,000 Fujitsu Ltd......................................... 207
75,000 Hitachi Ltd......................................... 1,081
15,000 Matsushita Electric Industrial Co., Ltd............. 389
51,000 Mitsubishi Electric Corp............................ 552
54,000 Mitsui & Co., Ltd................................... 412
143 Nippon Telegraph & Telephone Corp. (NTT)............ 1,899
11,000 Pioneer Electric Corp............................... 428
19,000 Sankyo Co., Ltd..................................... 429
32,000 Sumitomo Bank, Ltd.................................. 392
69,000 Sumitomo Marine & Fire Insurance Co., Ltd........... 401
183,000 Tokyo Gas Co., Ltd.................................. 514
55,000 Toppan Printing Co., Ltd............................ 581
46,000 Toshiba Corp........................................ 519
-----------
9,175
-----------
NETHERLANDS (4.9%)
13,240 Akzo Nobel N.V...................................... 562
11,416 ING Groep N.V....................................... 771
(a)26, 896 Philips Electronics N.V............................. 1,267
17,680 Royal Dutch Petroleum Co............................ 1,089
-----------
3,689
-----------
PORTUGAL (0.0%)
322 Cimentos de Portugal S.A............................ 6
-----------
SINGAPORE (0.3%)
34,000 United Overseas Bank Ltd............................ 222
-----------
SPAIN (2.4%)
46,460 Iberdrola........................................... 598
(a)55,939 Telefonica.......................................... 1,201
-----------
1,799
-----------
SWEDEN (1.1%)
111,290 Nordbanken Holding AB............................... 838
-----------
SWITZERLAND (5.0%)
301 Cie Financiere Richemont AG, Class A................ 810
483 Holderbank Financiere Glarus AG, Class B
(Bearer)............................................ 592
695 Nestle (Registered)................................. 1,389
1,430 Swisscom AG (Registered)............................ 495
(a)3,360 UBS AG.............................................. 492
-----------
3,778
-----------
UNITED KINGDOM (15.7%)
215,810 Allied Domecq plc................................... 1,143
17,610 AstraZeneca Group plc............................... 822
46,200 BAA plc............................................. 370
115,600 BAE Systems plc..................................... 720
117,014 Blue Circle Industries plc.......................... 755
59,400 British Telecommunications plc...................... 767
21,931 Burmah Castrol plc.................................. 553
176,113 Cadbury Schweppes plc............................... 1,156
87,696 Diageo plc.......................................... 787
19,400 Granada Group Plc................................... 194
57,140 Great Universal Stores plc.......................... 367
71,870 Imperial Tobacco Group plc.......................... 688
77,870 Matthews (Bernard) plc.............................. 166
(a,d)653,333 Pentos plc.......................................... --
66,811 Reckitt Benckiser plc............................... 748
114,907 Royal & Sun Alliance Insurance Group plc............ 746
135,618 Sainsbury (J) plc................................... 615
64,000 Vodafone Group plc.................................. 259
68,460 WPP Group plc....................................... 999
-----------
11,855
-----------
UNITED STATES (29.3%)
40,572 Albertson's, Inc.................................... 1,349
35,980 Alcoa, Inc.......................................... 1,043
4,500 American Home Products Corp......................... 264
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Global Equity Portfolio
49
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<C> <S> <C>
UNITED STATES (CONT.)
(a)19,380 BJ's Wholesale Club, Inc............................ $ 640
26,940 Boise Cascade Corp.................................. 697
16,245 Borg-Warner Automotive, Inc......................... 571
6,700 Bristol-Myers Squibb Co............................. 390
(a)22,000 Cadiz Land, Inc. - Restricted Shares................ 176
(a)26,560 Cadiz, Inc.......................................... 213
30,920 Chase Manhattan Bank................................ 1,424
20,087 COMSAT Corp......................................... 472
4,100 Deere & Co.......................................... 152
8,350 First Data Corp..................................... 414
30,500 Fort James Corp..................................... 705
16,400 General Dynamics Corp............................... 857
(a)19,903 GenRad, Inc......................................... 179
15,460 Georgia Pacific Group............................... 406
14,400 Goodrich (BF) Co.................................... 491
19,780 GTE Corp............................................ 1,231
3,410 Honeywell International Inc......................... 115
12,302 Houghton Mifflin Co................................. 574
14,790 MBIA, Inc........................................... 713
29,190 Mellon Bank Corp.................................... 1,064
(a)18,800 Metlife Inc......................................... 396
(a)18,680 NCR Corp............................................ 727
9,080 New York Times Co., Class A......................... 359
13,219 Pharmacia Corp...................................... 683
66,380 Philip Morris Cos., Inc............................. 1,763
7,800 Rockwell International Corp......................... 246
24,950 SBC Communications, Inc............................. 1,079
26,640 Sears, Roebuck & Co................................. 869
21,370 Tupperware Corp..................................... 470
23,400 U.S. Bancorp........................................ 450
25,580 Unicom Corp......................................... 990
-----------
22,172
-----------
TOTAL COMMON STOCKS (Cost $66,692)................................ 67,992
-----------
PREFERRED STOCKS (0.3%)
GERMANY (0.3%)
10,530 Volkswagen AG (Cost $518)........................... 250
-----------
TOTAL FOREIGN AND U.S. SECURITIES (90.2%) (Cost $67,210).......... 68,242
-----------
<CAPTION>
FACE
AMOUNT
(000)
-----------------------
SHORT-TERM INVESTMENT (10.4%)
REPURCHASE AGREEMENT (10.4%)
<C> <S> <C>
$ 7,893 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/03/00, to be repurchased at $7,897,
collateralized by U.S. Treasury Bonds,
13.25%, due 5/15/14, valued at $8,191
(Cost $7,893) .................................... 7,893
----------
FOREIGN CURRENCY - (0.1%)
GBP 48 British Pound..................................... 72
JPY 1,809 Japanese Yen...................................... 17
----------
TOTAL FOREIGN CURRENCY (Cost $89)................................. 89
----------
TOTAL INVESTMENTS (100.7%) (Cost $75,192)......................... 76,224
----------
OTHER ASSETS (1.0%)
Cash.................................................. $ 44
Dividends Receivable.................................. 243
Foreign Withholding Tax Reclaim Receivable............ 229
Receivable for Investments Sold....................... 155
Net Unrealized Gain on Foreign Currency Exchange
Contracts........................................... 46
Receivable for Portfolio Shares Sold.................. 33
Interest Receivable................................... 1
Other................................................. 6 $ 757
--------
LIABILITIES (-1.7%)
Payable for Investments Purchased..................... (788)
Payable for Portfolio Shares Redeemed................. (302)
Investment Advisory Fees Payable...................... (108)
Custodian Fees Payable................................ (35)
Distribution Fees Payable............................. (16)
Directors' Fees and Expenses Payable.................. (14)
Administrative Fees Payable........................... (7)
Other Liabilities..................................... (23) (1,293)
-------- ----------
NET ASSETS (100%)................................................. $ 75,688
==========
NET ASSETS CONSIST OF:
Paid in Capital................................................... $ 68,674
Undistributed Net Investment Income............................... 126
Undistributed Net Realized Gain................................... 5,854
----------
Unrealized Appreciation on Investments and Foreign
Currency Translations........................................... 1,034
==========
NET ASSETS........................................................ $ 75,688
==========
CLASS A:
NET ASSETS........................................................ $ 45,804
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,409,973 outstanding $0.001 par value
shares (authorized 500,000,000 shares)........................ $ 19.01
==========
CLASS B:
NET ASSETS........................................................ $ 29,884
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,584,141 outstanding $0.001 par value
shares (authorized 500,000,000 shares)........................ $ 18.86
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Global Equity Portfolio
50
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30,
2000, the Portfolio is obligated to deliver foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN
(000) (000) DATE (000) (000) (000)
----------- ------ ------------ ------------- ------ ------------
<S> <C> <C> <C> <C> <C>
EUR 3,250 $3,102 7/12/00 U.S.$ 3,148 $3,148 $46
GBP 12 18 7/03/00 U.S.$ 18 18 --
------ ------ ---
$3,120 $3,166 $46
====== ====== ===
</TABLE>
----------------------------------------------------------------------------
(a) -- Non-income producing
RNC -- Non-Convertible Savings Shares
----------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
SECTOR (000) ASSETS
----------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary................................ $ 9,256 12.2%
Consumer Staples...................................... 13,872 18.3
Energy................................................ 3,607 4.8
Financials............................................ 9,796 12.9
Healthcare............................................ 4,232 5.6
Industrials........................................... 4,329 5.7
Materials............................................. 6,933 9.2
Telecommunications.................................... 12,765 16.9
Utilities............................................. 3,452 4.6
------- -------
$68,242 90.2%
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Global Equity Portfolio
51
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
---------------------------------------------
<TABLE>
<S> <C>
Australia (3.3%)
Belgium (0.2%)
Canada (3.3%)
Denmark (1.2%)
Finland (0.2%)
France (9.0%)
Germany (3.2%)
Hong Kong (2.2%)
Italy (1.4%)
Japan (21.8%)
Netherlands (6.8%)
New Zealand (0.4%)
Singapore (2.1%)
Spain (1.8%)
Sweden (2.9%)
Switzerland (7.5%)
United Kingdom (29.5%)
Other (3.2%)
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INVESTMENT (MSCI) EAFE INDEX(1)
--------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------
AVERAGE ANNUAL
--------------------------
ONE FIVE TEN SINCE
YTD YEAR YEARS YEARS INCEPTION
----- ----- ------ ----- ----------
<S> <C> <C> <C> <C> <C>
PORTFOLIO -- CLASS A 8.00% 18.23% 16.75% 12.85% 13.37%
PORTFOLIO -- CLASS B 7.81 17.96 N/A N/A 16.69
INDEX -- CLASS A ..... -4.06 17.16 11.33 7.95 6.60
INDEX -- CLASS B ..... -4.06 17.16 N/A N/A 10.67
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe,
Australasia and the Far East.
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. Foreign investing involves certain risks, including currency
fluctuations and controls, restrictions on foreign investments, less
governmental supervision and regulation, less liquidity and the potential for
market volatility and political instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
8.00% for the Class A shares and 7.81% for the Class B shares compared to -4.06%
for the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index").
For the one year ended June 30, 2000, the Portfolio had a total return of 18.23%
for the Class A shares and 17.96% for the Class B shares compared to 17.16% for
the Index. For the five-year period ended June 30, 2000, the average annual
total return for the Class A shares was 16.75% compared to 11.33% for the Index.
For the ten-year period ended June 30, 2000, the average annual total return for
the Class A shares was 12.85% compared to 7.95% for the Index. For the period
from inception on August 4, 1989 through June 30, 2000, the average annual total
return for the Class A shares was 13.37% compared to 6.60% for the Index. For
the period from inception on January 2, 1996 through June 30, 2000, the average
annual total return of Class B shares was 16.69% compared to 10.67% for the
Index.
While performance in the final quarter of 1999 and the first quarter of 2000
could neatly be explained by an investor's relative weightings in the "new
economy" versus "old economy", this is no longer the case as the market has
become far more discriminating between stocks within these popularly defined
segments of the market. Witness, for example the relative performance of
Unilever against Nestle in the old economy or the telecom equipment manufactures
(Alcatel, Ericsson and Nokia) against the B2C e-tailers in the new economy.
This signals a return to the fundamentals where investors are once again
examining the viability of the business model, the strength and sustainability
of the franchise, cash flow generation and are paying some regard to valuation.
For us, this is a welcome relief from the mindless chasing of anything in the
new economy and the equally indiscriminate dumping of anything in the old
economy so prevalent in the early part of the year.
-------------------------------------------------------------------------------
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.
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.
--------------------------------------------------------------------------------
International Equity Portfolio
52
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
The increasing discrimination between stocks within sectors is reflected in the
performance attribution for the period. While the Portfolio has clearly
benefited from the aggressive underweight in the "TMT" sectors and overweight in
consumer staples, this accounted for just over 40% (538 basis points) of the
outperformance. The balance came from good stock selection across all the other
sector classifications including energy (100 basis points), pharmaceuticals (223
basis points), financials (169 basis points), consumer discretionary (174 basis
points) and even utilities (47 basis points). It is pleasing to note that our
technology investments (3% weighting vs 13% benchmark weighting) actually
managed a positive return of 25% year-to-date against a negative 5% return for
the sector as a whole, largely due to the performance of Alcatel.
In terms of portfolio construction, the large underweight TMT and overweight
consumer non-cyclicals remains largely unchanged. Despite the derating of the
TMT stocks and the rerating of the consumer non cyclicals, we do not feel
compelled to reduce this bet as we think the unraveling of the TMT valuations
still has some way to go as we anticipate the flood of new capital into the
sector will inevitably drive down returns to levels which can no longer support
valuations that still remain well above long term averages.
Elsewhere there have been a few meaningful changes. We finally conceded defeat
with our German utility investments following continuing deterioration in the
pricing environment and have exited RWE and Viag (recently renamed E.On
following the merger with Veba). This has reduced our utility weighting from 7%
at the beginning of the year to less than 4% bringing this more in line with the
benchmark.
Following the very strong relative performance of our pharmaceutical stocks, we
are reducing positions in Novo Nordisk, Schering and our basket of Japanese
pharmaceuticals (Ono, Shionogi, Daiichi) where the large valuation gap with the
western counterparts has now being substantially closed. When complete, this
will bring our overweight in the sector back to a neutral position.
In Japan, we have added two financials, Daiwa Securities as a play on corporate
restructuring and Sumitomo Bank. This is the first time in the history of the
Portfolio we have purchased a Japanese bank having carefully side stepped the
sector over the last decade. We believe Sumitomo has the strongest franchise,
its bad debt problems are adequately provided for and the valuation is
attractive in a global context based on a sustainable return on equity of
8%-10%. Our weighting in Japan has consequently risen to just over 20% compared
to 27% for the benchmark.
In the U.K., we purchased GKN an engineering company which also shares a 50%
interest in CHEP, the world's leading pallet pooling company, with Brambles (a
long standing position in the Portfolio). Based on our valuation of CHEP, we are
getting the remaining GKN business at a very cheap multiple of cash flow. We
also purchased Rentokil, a busted industrial services growth stock, which is now
been priced for minimal growth. Management is withdrawing from low returning
businesses and returning capital to shareholders. Following strong
outperformance, our holding in Carlton was switched into Granada as a cheaper
way of gaining exposure to the ITV television franchise. The U.K. remains our
single largest country exposure accounting for 30% of the Portfolio compared to
20% for the benchmark.
Dominic Caldecott
PORTFOLIO MANAGER
Peter Wright
PORTFOLIO MANAGER
William Lock
PORTFOLIO MANAGER
Walter Riddell
PORTFOLIO MANAGER
July 2000
--------------------------------------------------------------------------------
International Equity Portfolio
53
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.2%)
AUSTRALIA (3.3%)
1,725,381 Brambles Industries Ltd. .................... $ 52,901
10,265,460 Fosters Brewing Group Ltd. .................. 28,816
(c)6,536,672 Westpac Banking Corp. ....................... 47,043
(c)7,780,180 Woolworths Ltd. ............................. 28,647
---------
157,407
---------
BELGIUM (0.2%)
(c)296,046 G.I.B. Holdings Ltd. ........................ 10,868
---------
CANADA (3.3%)
1,760,500 Manulife Financial Corp. .................... 31,061
702,360 Potash Corp. of Saskatchewan, Inc. .......... 38,458
(a)2,973,600 Renaissance Energy Ltd. ..................... 28,846
1,524,839 Telus Corp. ................................. 40,716
(a)563,309 Telus Corp. (A Shares) ...................... 15,022
---------
154,103
---------
DENMARK (1.2%)
637,222 Danisco A/S ................................. 21,259
219,130 Den Danske Bank ............................. 26,330
55,660 Novo-Nordisk A/S, Class B ................... 9,463
---------
57,052
---------
FINLAND (0.2%)
370,200 Huhtamaki Oyj, Series 1 ..................... 11,582
---------
FRANCE (9.0%)
(c)861,200 Alcatel ..................................... 56,431
(c)880,900 Assurances Generales de France (Bearer) ..... 46,505
1,098,980 Aventis S.A. ................................ 80,135
(a,c)244,432 Cie de Saint-Gobain ......................... 33,012
869,222 Groupe Danone ............................... 115,240
(c)614,713 TotalFina, Class B .......................... 94,162
---------
425,485
---------
GERMANY (2.6%)
459,146 BASF AG ..................................... 18,612
(c)1,046,630 Bayer AG .................................... 40,031
251,048 Bayerische Hypo-Und Vereinsbank AG .......... 16,402
(c)434,886 E. On AG .................................... 20,947
462,390 Schering AG ................................. 25,161
---------
121,153
---------
HONG KONG (2.2%)
(c)11,439,920 Hong Kong Electric Holdings Ltd. ............ 36,834
17,138,155 Hong Kong Land Holdings Ltd. ................ 27,421
(c)6,078,600 Swire Pacific Ltd., Class A ................. 35,557
6,002,500 Swire Pacific Ltd., Class B ................. 4,890
---------
104,702
---------
ITALY (1.4%)
(c)4,457,330 ENI S.p.A. .................................. 25,721
(c)5,763,847 Telecom Italia S.p.A. (RNC) ................. 38,208
---------
63,929
---------
JAPAN (21.8%)
(c)240,000 Aisin Seiki Co., Ltd. ....................... 3,260
4,706,000 Asahi Chemical Industry Co. Ltd. ............ 33,252
1,057,000 Canon, Inc. ................................. 52,579
325,000 Chudenko Corp. .............................. 4,574
1,844,000 Daibiru Corp. ............................... 14,888
(c)1,813,000 Daiichi Pharmaceutical Co. Ltd. ............. 45,946
(c)1,947,000 Daiwa Securities Co. Ltd. ................... 25,680
683,000 Fuji Photo Film Ltd. ........................ 27,926
723,000 Fujitsu Ltd. ................................ 24,998
2,459,000 Hitachi Ltd. ................................ 35,445
3,423 Japan Tobacco, Inc. ......................... 30,023
(c)1,901,000 Matsushita Electric Industrial Co. Ltd. ..... 49,251
3,995,000 Mitsubishi Electric Corp. ................... 43,207
3,645,000 Mitsui & Co. Ltd. ........................... 27,815
(c)3,935,000 Nichido Fire & Marine Insurance Co. Ltd. .... 21,502
9,512 Nippon Telegraph & Telephone Corp. (NTT) .... 126,355
701,000 Ono Pharmaceutical Co., Ltd. ................ 30,049
2,039,000 Sankyo Co. Ltd. ............................. 46,007
3,415,000 Shionogi & Co. Ltd. ......................... 64,829
(c)3,762,000 Sumitomo Bank Ltd. .......................... 46,075
(c)9,579,000 Sumitomo Marine & Fire Insurance Co. Ltd. ... 55,681
401,500 Takefuji Corp. .............................. 48,455
(c)13,795,000 Tokyo Gas Co. Ltd. .......................... 38,729
6,144,000 Toppan Printing Co. Ltd. .................... 64,945
2,949,000 Toshiba Corp. ............................... 33,256
701,000 Toyo Seikan Kaisha Ltd. ..................... 13,076
434,000 Yamanouchi Pharmaceutical Co. Ltd. .......... 23,674
---------
1,031,477
---------
NETHERLANDS (6.8%)
1,262,080 Akzo Nobel N.V. ............................. 53,568
1,090,920 CSM N.V. .................................... 21,435
826,060 Hollandsche Beton Groep N.V. ................ 9,730
914,597 ING Groep N.V. .............................. 61,762
(a)1,762,432 Philips Electronics N.V. .................... 83,042
1,482,690 Royal Dutch Petroleum Co. ................... 92,063
---------
321,600
---------
NEW ZEALAND (0.4%)
(c)7,869,900 Lion Nathan Ltd. ............................ 17,538
---------
SINGAPORE (2.1%)
(c)18,174,337 Jardine Strategic Holdings, Inc. ............ 54,341
7,137,328 United Overseas Bank Ltd. (Foreign) ......... 46,687
---------
101,028
---------
SPAIN (1.8%)
(c)3,346,610 Iberdrola ................................... 43,092
(a,c)1,907,892 Telefonica .................................. 40,944
---------
84,036
---------
SWEDEN (2.9%)
3,071,910 ForeningsSparbanken AB ...................... 44,889
7,159,646 Nordbanken Holding AB ....................... 53,933
(c)1,916,626 Svenska Cellulosa AB, Class B ............... 36,365
---------
135,187
---------
SWITZERLAND (7.5%)
13,366 Cie Financiere Richemont AG, Class A ........ 35,971
33,991 Holderbank Financiere Glarus AG,
Class B (Bearer) ........................ 41,627
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
International Equity Portfolio
54
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-----------------------------------------------------------------------
<S> <C> <C>
SWITZERLAND (CONT.)
50,355 Nestle (Registered) ......................... $ 100,673
36,950 Novartis AG (Registered) .................... 58,465
14,259 Schindler Holding AG (Participating
Certificates) ............................ 21,304
(a)13,075 Sulzer AG (Registered) ...................... 8,687
(c)65,720 Swisscom AG (Registered) .................... 22,737
453,170 UBS AG (Registered) ......................... 66,320
---------
355,784
---------
UNITED KINGDOM (29.5%)
10,876,970 Allied Domecq plc ........................... 57,588
2,399,200 Allied Zurich plc ........................... 28,363
1,889,200 Associated British Foods plc ................ 13,032
1,065,800 AstraZeneca Group plc ....................... 49,737
6,008,600 BAA plc ..................................... 48,173
9,185,800 BAE Systems plc ............................. 57,249
1,724,800 Barclays plc ................................ 42,868
3,742,898 BG Group plc ................................ 24,176
8,987,519 Blue Circle Industries plc .................. 57,984
5,201,900 British American Tobacco plc ................ 34,702
5,109,000 British Telecommunications plc .............. 66,000
8,202,800 Bunzl plc ................................... 43,926
2,008,205 Burmah Castrol plc .......................... 50,610
9,081,717 Cadbury Schweppes plc ....................... 59,622
208,100 CGU plc ..................................... 3,463
5,792,559 Diageo plc .................................. 51,961
3,371,700 GKN plc ..................................... 42,996
3,137,000 Granada Group plc ........................... 31,319
7,659,460 Great Universal Stores plc .................. 49,242
6,545,701 Imperial Tobacco Group plc .................. 62,678
5,026,451 John Mowlem & Co. plc ....................... 7,794
2,514,200 Lloyds TSB Group plc ........................ 23,732
1,445,700 Prudential Corp. plc ........................ 21,169
7,093,466 Reckitt Benckiser plc ....................... 79,404
11,257,600 Rentokil Initial plc ........................ 25,544
4,062,340 RMC Group plc ............................... 52,848
3,737,500 Rolls-Royce plc ............................. 13,258
4,238,303 Royal & Sun Alliance Insurance Group plc .... 27,504
11,371,970 Sainsbury (J) plc ........................... 51,607
7,703,880 Scottish & Southern Energy plc .............. 70,621
6,268,100 Tate & Lyle plc ............................. 31,290
7,951,500 Vodafone Group plc .......................... 32,115
8,031,750 Wolseley plc ................................ 43,131
2,842,196 WPP Group plc ............................... 41,489
---------
1,397,195
---------
TOTAL COMMON STOCKS (Cost $3,791,732) ....................... 4,550,126
---------
PREFERRED STOCKS (0.6%)
GERMANY (0.6%)
1,235,130 Volkswagen AG (Cost $29,614) ................ 29,334
---------
TOTAL FOREIGN SECURITIES (96.8%) (Cost $3,821,346) .......... 4,579,460
---------
SHORT-TERM INVESTMENTS (12.6%)
SHORT-TERM INVESTMENTS HELD AS COLLATERAL ON
LOANED SECURITIES (11.8%)
5750 Abbey National Treasury Services,
MTN, 6.50%, 08/04/00 ............................. 5,750
2500 Abbey National Treasury Services,
MTN, 6.52%, 08/04/00 ............................. 2,500
20,000 ABN Amro Bank, TD, 7.125%, 7/03/00 ................. 20,000
20,000 Allied Irish Bank, TD, 7.15%, 7/03/00 .............. 20,000
2,750 Baltimore Gas and Electric, MTN, 6.75%, 9/14/00 .... 2,750
20,000 Banca Commerciale Italiano (London),
TD, 7.25%, 07/03/00 .............................. 20,000
20,000 Banco Santander S.A., TD, 7.125%, 7/03/00 .......... 20,000
20,000 Bank of Austria, TD, 7.25%, 703/00 ................. 20,000
20,000 Banque Bruxelles Lambert, TD, 7.25%, 7/03/00 ....... 20,000
20,000 Barclays Bank Plc., TD, 7.125%, 07/03/00 ........... 20,000
20,000 Bayerische Hypo-Und Vereinsbank, TD,
7.125%, 7/03/00 .................................. 20,000
5,998 Bayerische Landesbank, N.Y., Yankee CD,
6.67%, 12/15/00 .................................. 5,998
2,999 Bayerische Landesbank, N.Y., Yankee CD,
6.68%, 02/22/01 .................................. 2,999
14,000 Bear Stearns, Yankee MTN, 6.72%, 5/04/01 ........... 14,000
750 Bear Stearns, Yankee CP, 7.34%, 10/03/00 ........... 750
1,588 BNP Paribas N.Y., Yankee CD, 6.53%, 1/08/01 ........ 1,588
5,498 BNP Paribas N.Y., Yankee CD, 7.125%, 1/08/01 ....... 5,498
10,000 Commerzbank AG, N.Y., TD, 7.125%, 7/03/00 .......... 10,000
5,998 Commerzbank AG, N.Y., Yankee CD, 6.70%, 5/24/01 .... 5,998
22,739 CIT Group Holdings, MTN, 7.125%, 5/24/01 ........... 22,739
20,000 Citibank Corp.,TD, 7.125%, 7/03/00 ................. 20,000
20,000 Credit Agricole Indozuez, TD, 7.125%, 7/03/00 ...... 20,000
20,000 Credit Commerciale, TD, 7.125%, 7/03/00 ............ 20,000
6,747 Deutsche Bank N.Y., Yankee CD, 6.66%, 12/13/03 ..... 6,747
5,497 Dexia Bank N.Y., Yankee CD, 6.53%, 1/08/01 ......... 5,497
20,000 Dresdner Bank, N.Y., TD, 7.125%, 07/03/00 .......... 20,000
23,000 First Union Bank, CD, 6.68%, 2/20/01 ............... 23,000
20,000 Fortis Bank, TD, 7.19%, 7/03/00 .................... 20,000
5,007 General Motors Acceptance Corp., MTN,
6.78%, 12/15/00 .................................. 5,007
17,023 Goldman Sachs Group, L.P., MTN, 6.27%, 1/09/01 ..... 17,023
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
International Equity Portfolio
55
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
-----------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS HELD AS COLLATERAL ON
LOANED SECURITIES (CONT.)
$20,000 Landesbank Baden Wuerttember, TD,
7.19%, 7/03/00 ................................ $ 20,000
35,000 Lehman Brothers, Inc., 7.025%, dated 6/30/00,
due 7/03/00, to be repurchased at $35,020,
collateralized by U.S. Government Agency Bonds,
having various rates and maturities, valued at
$35,699 (Cost $35,000) ........................ 35,000
20,000 Links Finance Corp., MTN, 6.65%, 5/21/01 ........ 20,000
9,995 Nordeutsche Landesbank, N.Y., Yankee CD,
6.76%, 2/26/01 ................................ 9,995
9,995 Svenska Handelsbank, N.Y., Yankee CD,
6.67%, 2/26/01 ................................ 9,995
20,000 Toronto Dominion- London, TD,
7.125%, 07/03/00 .............................. 20,000
5,996 Toyota Motor Credit Corp., MTN,
6.27%, 1/09/00 ................................ 5,996
20,000 Westdeutsche Landesbank G.C., TD,
7.125%, 7/03/00 ............................... 20,000
19,889 Windmill Funding Corp., CP,
6.71%, 07/28/00 ............................... 19,889
---------
TOTAL SECURITIES HELD FOR COLLATERAL ON LOANED
SECURITIES ............................................ 558,719
---------
REPURCHASE AGREEMENT (0.4%)
18,076 Chase Securities, Inc., 6.15%, dated
6/30/00, due 7/03/00, to be repurchased
at $18,085, collateralized by U.S.
Treasury Bonds, 5.875%, due 11/15/05,
valued at $18,882 ............................. 18,076
---------
TIME DEPOSITS (0.4%)
EUR 20,000 Euro Time Deposit, 12/31/00 ................ 19,066
---------
TOTAL SHORT-TERM INVESTMENTS (Cost $595,861) ............. 595,861
---------
FOREIGN CURRENCY (1.5%)
GBP 7,387 British Pound .............................. 11,175
DKK 78,315 Danish Krone ............................... 10,011
EUR 47,221 European Monetary Unit ..................... 45,039
JPY 201,579 Japanese Yen ............................... 1,899
CHF 366 Swiss Franc ................................ 224
---------
TOTAL FOREIGN CURRENCY (Cost $68,252) .................... 68,348
---------
TOTAL INVESTMENTS (110.9%) (Cost $4,485,459) ............. 5,243,669
---------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (1.9%)
Cash ....................................... $ 6
Receivable for Investments Sold ............ 49,756
Net Unrealized Gain on Foreign Currency
Exchange Contracts ....................... 17,004
Receivable for Portfolio Shares Sold ....... 12,568
Dividends Receivable ....................... 7,179
Foreign Withholding Tax Reclaim
Receivable ............................... 2,954
Interest Receivable ........................ 534
Other ...................................... 131 90,132
-------
AMOUNT
(000)
-----------------------------------------------------------------------
LIABILITIES (-12.8%)
Collateral on Securities Loaned ............ $(558,719)
Payable for Investments Purchased .......... (33,708)
Investment Advisory Fees Payable ........... (8,801)
Payable for Portfolio Shares Redeemed....... (2,973)
Administrative Fees Payable ................ (588)
Custodian Fees Payable ..................... (520)
Directors' Fees and Expenses Payable ....... (301)
Distribution Fees Payable .................. (27)
Other Liabilities .......................... (165) $ (605,802)
------- ----------
NET ASSETS (100%) ......................................... $4,727,999
==========
NET ASSETS CONSIST OF:
Paid in Capital ........................................... $3,413,267
Undistributed Net Investment Income ....................... 37,069
Undistributed Net Realized Gain ........................... 503,107
Unrealized Appreciation on Investments and Foreign
Currency Translations .................................. 774,556
----------
NET ASSETS ................................................ $4,727,999
==========
CLASS A:
--------
NET ASSETS ................................................ $4,679,066
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE
Applicable to 220,815,674 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ................ $ 21.19
==========
CLASS B:
--------
NET ASSETS ................................................ $ 48,933
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE
Applicable to 2,317,544 outstanding $0.001 par value
shares (authorized 500,000,000 shars) ................. $ 21.11
==========
</TABLE>
------------------------------------------------------------------------
(a) -- Non-income producing
(c) -- All or a portion of security on loan at June 30, 2000 -- See
Note A-9 to financial statements.
RNC -- Non-Convertible Savings Shares
------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30,
2000 the Portfolio is obligated to deliver or is to receive foreign
currency or U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN/(LOSS)
(000) (000) DATE (000) (000) (000)
--------------- --------- ---------- -------------- -------- -----------
<S> <C> <C> <C> <C> <C>
DKK 78,315 $ 10,011 7/03/00 U.S.$ 10,05 $ 10,052 $ 41
JPY 11,000,000 105,330 9/27/00 EUR 103,158 98,938 (6,392)
EUR 104,622 100,343 9/27/00 JPY 11,000,000 105,330 4,987
GBP 200,999 304,632 10/04/00 EUR 329,999 316,610 11,978
GBP 80,000 121,246 10/04/00 EUR 133,034 127,636 6,390
--------- -------- -----------
$641,562 $658,566 $17,004
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
International Equity Portfolio
56
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
----------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
SECTOR (000) ASSETS
-----------------------------------------------------------
<S> <C> <C>
Consumer Discretionary .......... $ 465,936 9.8%
Consumer Staples ................ 852,353 18.0
Energy .......................... 291,402 6.2
Financials ...................... 922,520 19.5
Healthcare ...................... 433,465 9.2
Industrials ..................... 353,249 7.5
Information Technology .......... 202,708 4.3
Materials ....................... 441,329 9.3
Telecommunication Services ...... 382,099 8.1
Utilities ....................... 234,400 4.9
----------- -----
$ 4,579,460 96.8%
=========== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
International Equity Portfolio
57
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO
-------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
------------------------------------------------
<TABLE>
<S> <C>
Other (5.4%)
United Kingdom (23.8%)
Switzerland (6.2%)
Sweden (4.2%)
Spain (2.3%)
Singapore (1.4%)
Portugal (0.4%)
New Zealand (0.1%)
Netherlands (4.9%)
Australia (2.0%)
Belgium (0.2%)
Denmark (0.1%)
Finland (1.3%)
France (9.4%)
Germany (4.7%)
Hong Kong (2.0%)
Italy (2.7%)
Japan (28.9%)
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------
AVERAGE
ANNUAL
ONE SINCE
YTD YEAR INCEPTION
------- ------ -----------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A..................... -2.28% 15.07% 10.09%
PORTFOLIO -- CLASS B..................... -2.43 14.78 9.79
INDEX.................................... -4.06 17.16 11.29
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe,
Australasia and the Far East.
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 primarily invest are those comprising
the Morgan Stanley Capital International (MSCI) EAFE Index (the 'Index"),
which includes Australia, Japan, New Zealand, and most nations located in
Western Europe, Hong Kong and Singapore. Foreign investing involves certain
risks, including currency fluctuations and controls, restrictions on foreign
investments, less governmental supervision and regulation, less liquidity and
the potential for market volatility and political instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
-2.28% for the Class A shares and -2.43% for the Class B shares compared to
-4.06% for the Index. For the one year ended June 30, 2000, the Portfolio had
a total return of 15.07% for the Class A shares and 14.78% for the Class B
shares compared to 17.16% for the Index. For the period from inception on
March 15, 1996 through June 30, 2000, the average annual total return for the
Class A shares was 10.09% and 9.79% for the Class B shares compared to 11.29%
for the Index.
The first half of 2000 proved to be a difficult environment for international
investors as market volatility and inflation concerns hampered equity
returns. The new millennium began with a continuation of the theme seen at
the end of 1999. First quarter 2000 returns were dominated by high-flying
technology and telecommunication stocks which soared to unprecedented levels
and valuations. The tide turned during the middle of March as investors took
profits on fears of an overheating U.S. economy and the consequent interest
rate hikes cooled investor enthusiasm for technology, media and telecom (TMT)
and sent these sectors into a nosedive. This theme continued throughout the
entire second quarter. The beneficiaries of this changing tide were the
recently overlooked defensive sectors. International markets reacted to the
volatility evident in the U.S. market, and the sharp NASDAQ declines in April
heightened investor skittishness regarding U.S. interest rates. However,
towards the end of June, most markets rebounded as economic numbers pointed
to a "soft landing" for the U.S. economy, allaying investor fears of sharply
tighter U.S. interest rates. Despite this difficult environment, the
Portfolio outperformed the Index during the second quarter.
Europe was the relative outperformer of all EAFE regions in the first six
months of 2000, falling 3.1% in U.S. dollar terms, but managing to rise 1.6%
in local currency. The
------------------------------------------------------------------------------
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.
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.
-------------------------------------------------------------------------------
International Magnum Portfolio
58
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
U.S. dollar return was negative due primarily to the depreciation of the euro
throughout most of the period. The currency reached its high for the year in
early January at 1.04 and proceeded to depreciate almost 15%, hitting a low
of 0.89 before managing to climb to 0.95 by the end of June. The volatility
of the European markets in the first half of 2000 was influenced in part by
turbulence in the U.S. technology sector. The first two months of the year
saw markets reaching unprecedented levels driven by investor mania over
telecommunication and technology stocks. A major rotation in market
leadership began by the end of the first quarter of 2000 as the "new economy"
TMTs started to suffer exhaustion from their inexorable rise. "Old economy"
sectors like industrial cyclicals, consumer staples and utilities benefited
from concerns about the potential twin impact of rising interest rates and
negative earnings revisions on parts of the "new economy". During the second
quarter of 2000, formerly beaten-up defensives consumer staples and health
care rebounded to post gains for the year-to-date of 2.6% and 9.4%,
respectively.
European merger activity continued during the first half of 2000, with 40% of
all completed global deals attributed to European firms. The combination of
relatively low interest rates, low cost of capital and a growing acceptance
of takeover tactics which focus on core businesses as a way to build
shareholder value and deliver stronger earnings continue to gain acceptance
in Europe. European CEOs increasingly consider Europe to be a single economic
market and recognize the need to be bigger to effectively compete in this
setting. Particular deals to take note of include Unilever's purchase of U.S.
food giant Bestfoods and France Telecom's acquisition of Orange.
The combination of currency weakness and an uncertain economic environment
made for a difficult investment environment during the first half of 2000 in
Japan. The MSCI Japan Index posted returns of -5.4% in U.S. dollars (-2.2%
local currency) for the six-month period. The first quarter saw investor
confidence wane somewhat in response to the release of the fourth quarter
1999 contractionary GDP numbers, which put Japan back into a technical
recession. The contraction was blamed primarily on the fall in spending in
reaction to Y2K concerns as well as the dwindling impact of the government's
stimulus package from last year. The second quarter, however, saw encouraging
evidence of a meaningful economic recovery beginning to emerge. GDP growth
for the January - March period showed Japan's economy growing at a 10%
annualized rate, and the June Tankan survey of business confidence confirmed
a strong positive trend for the Large Manufacturing Diffusion Index, which
was at its highest level during the last three years. Capital expenditures of
these large manufacturers was announced to increase by over 11.3% in 2000,
centering on IT investments. This is a result of a 10 trillion yen free cash
flow generated by Japanese corporations which are now bearing the fruits of
restructuring. Signs of more robust consumption were also evident by June
2000 as automobile sales jumped 8.5% year-over-year.
Despite this infusion of positive news, the stock market was generally weak
during the second quarter of 2000, and at one point fell to levels last seen
in June 1999. Fears of higher U.S. interest rates and the potential slowdown
of exports, coupled with volatility and sharp declines of the NASDAQ caused
the virtual collapse of leading "New" economy Japanese stocks such as
Softbank, NTT DoCoMo and Hikari Tsushin which were the bell-cows of 1999's
Japanese equity market. Foreign investors, particularly momentum players and
sector funds, became large net sellers. The ill-timed change in 30
constituents of the Nikkei 225 at the peak of NASDAQ volatility further
confused many potential buyers, particularly Japanese individual investors.
The countries of non-Japan Asia were the laggards of international developed
markets, falling 9.3% in U.S. dollar terms (-5.1% in local currency). Despite
generally positive economic conditions, these markets fell due to their
sensitivity to interest rates as the U.S. Fed hiked rates 100 basis points
over the course of six months. The financial sector, which represents nearly
half of the Pacific ex-Japan Index, fell 9.7% from the start of the year and
dominated Asian markets' returns. Indeed, the economies of the region
remained strong in the face of market volatility. Singapore reported strong
May exports data thanks to an increase in regional trade, which saw sales to
Asia including Japan growing 32.6%. Overall export growth of 27.8%
year-over-year outpaced import growth of 24.5%, resulting in a
higher-than-expected trade surplus. Manufacturing growth continued to
increase, buoyed by strong demand for semi-conductors, while retail sales
increased in both Hong Kong and Singapore.
INVESTMENT STRATEGY & ATTRIBUTION
The Portfolio began the year overweight versus the Index in Japan and Asia
ex-Japan and underweight relative to the Index in Europe. During the first
half of 2000 we reduced exposure to Asia ex-Japan in the face of a difficult
period for those markets and completely eliminated exposure to Korea and
Taiwan. We maintained our overweight to Japan and underweight to Europe while
decreasing the magnitude of both to finish the period with allocations of
64.2% versus 67.2% in Europe, 29.9% vs. 26.9% in Japan, and 5.4% vs.
-------------------------------------------------------------------------------
International Magnum Portfolio
59
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
5.9% in Asia ex-Japan. Reducing exposure to Asia while simultaneously
increasing our weighting in Europe added to performance on the margin. On
balance, our regional allocation strategies detracted from portfolio
performance as Europe outperformed all other EAFE regions.
As defensive stocks saw a return to favor in Europe during the latter half of
the period, the Portfolio was well positioned to reap the benefits of this
turnaround. Consumer staples companies were the strongest performing sector
in the European market. The Portfolio benefited both from its significant
overweight to and stock selection within consumer staples, with food,
beverage and household product's giants such as Nestle (+12%), Reckitt
Benckiser (+20%) and Danone (+19%) being top contributors to performance. Our
overweight in health care was further enhanced by strong stock selection, as
Aventis (+33%) recently surpassed Merck as the largest pharmaceutical company
in the world. Fresenius (+28%), the world's top dialysis products and
services provider, was also a top contributor.
Stock selection in the Energy sector was positive as companies benefited from
the surge in oil prices. After riding the wave of rising oil prices, we
reduced the Portfolio's exposure to the energy sector in Europe but continued
to maintain an overweight position in French oil major TotalFina (+18%) given
the extensive restructuring opportunities that remain and the stock's modest
valuation relative to the U.S. majors. We trimmed positions in Royal Dutch,
BG Group and BP Amoco. Finally, we switched the Portfolio's holding in Repsol
into ENI. Although our underweight to Telecoms and Technology hurt returns in
the first quarter of 2000, the Portfolio benefited from this strategy as
these sectors corrected during the latter half of the period. However, this
was not enough to outweigh the results of the first quarter of 2000 as the
single largest detractor from portfolio performance was the European
underweight to Information Technology over the six-month period.
In Japan, stock selection in Information Technology was the single largest
contributor to performance. NEC (+32.3%) reached a new high due to the strong
DRAM business and its management strategy. Our sector allocation decision,
especially overweighting of Machinery and underweighting of Banks, was a
contributor to performance. We will maintain current holdings in select world
class technology companies, economically sensitive stocks, and deep value
cyclical stocks as we believe these will be the main beneficiaries to
improving business conditions in Japan. Our strategy in Asia ex- Japan was
not as successful as in other regions due to its extreme sensitivity to U.S.
interest rates; consequently, our overweight and stock selection within the
Banking sector was a drag on returns.
OUTLOOK
The global economy remains vigorous and growth has begun to shift from the
U.S. to international markets. Revised earnings estimates point to a positive
operating environment in Europe and we expect to selectively add exposure to
this region. A slower U.S. economy implies a weaker dollar relative to the
euro, which should benefit the region in general and European equities in
particular. European fundamentals look quite solid, with the main risk to
European equities appearing to be the potential for a slowdown in the U.S.
economy. EMU domestic demand has been revised upwards to 0.9% for both the
fourth quarter of 1999 and the first quarter of 2000 (from 0.6% and 0.7%,
respectively). There are signs that the recent laggards in core Europe may
soon start catching up to their peers; Germany saw stronger-than- expected
retail sales growth in May with retail sales jumping an impressive 10.3%
year-over-year compared to a year earlier. Broad retail sales, including car
sales, now stand 2.1% higher than their first quarter average. This bodes
well for a rebound in consumer spending in the second quarter of this year,
after a surprising 0.6% quarterly decline in the first quarter of 2000.
Since March, the sheer pace of earnings forecast upgrades has been a support
for equities in the face of rising European and U.S. short interest rates and
the bursting of the speculative TMT bubble. Although we are optimistic about
the general environment, we remain cautious as there is the possibility of a
slowdown toward the end of the summer and into the fall. A topping out of
earnings upgrades remains a possibility after experiencing the strength seen
recently. In such an environment, software, technology hardware and luxury
goods would most likely be the most sensitive on the downside, while food,
beverages and other consumer staples would be defensive. The Portfolio would
therefore be well positioned if such a scenario were to develop.
Japan seems to be on the verge of a self-sustaining economic recovery. The
key assumption to our outlook is that the U.S. will have a "soft landing" and
that Japan's economic recovery will become self sustaining during the second
half of 2000. Japan's Government leaders are expected to use the July Summit
in Okinawa as a means of show-casing concrete plans for a self sustaining
recovery and will pledge to continue Mr. Obuchi's plan for a domestic led
recovery. Many Japanese companies are beginning to generate free cash flow
and IT spending as a percent of CAPEX is expected to grow significantly
during the next year. In response to this trend, the Japanese
-------------------------------------------------------------------------------
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60
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INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
Government has created a new "Minister of Information Technology" within the
ruling cabinet. Global demand for Japan's digital products is also expected
to contribute to corporate earnings where companies have become highly geared
to top line growth. We expect earnings surprises because of this gearing in
earnings. Finally, we believe a modest rise in interest rates will actually
be positive to spur consumption and accelerate restructuring, an event that
the Bank of Japan has hinted at for several months. We expect our Portfolio
will maintain the current holdings in select world class technology
companies, economic sensitive stocks and deep value cyclicals.
Our outlook for Asia ex-Japan remains somewhat tentative due to the regions'
interest rate sensitivity. Assuming that the U.S. experiences a
"soft-landing" which appears increasingly likely, and rate increases abate,
the region should experience solid performance. Specifically, as we near the
end of the tightening phase, we could see markets trend higher as domestic
fundamentals come to the forefront. Hong Kong looks poised to benefit in
the near-term from the likely boost to banking and property stocks, with
increasing Chinese monetary reflation, (which correlates well with the Hang
Seng Index) working as an additional catalyst. Recent data show increases in
retail sales and export growth in Singapore and Hong Kong, and we expect this
trend to continue. In Australia, we anticipate the demand for equities will
remain robust while little supply is coming through the pipeline, which
should work to push the market higher.
Francine J. Bovich
PORTFOLIO MANAGER
July 2000
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61
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-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (93.2%)
AUSTRALIA (2.0%)
12,050 AMP Ltd............................................ $ 122
6,250 Brambles Industries Ltd............................ 192
28,250 Broken Hill Proprietary Co., Ltd................... 333
(c)25,950 Commonwealth Bank of Australia..................... 429
5,350 CSL Ltd............................................ 105
102,200 Fosters Brewing Group Ltd.......................... 287
14,860 Lend Lease Corp., Ltd.............................. 189
(a)119,000 Macquarie Corporate Telecommunications
Holdings Ltd..................................... 146
32,780 National Australia Bank Ltd........................ 546
56,650 News Corp., Ltd.................................... 778
254,200 Normandy Mining Ltd................................ 137
51,900 Qantas Airways Ltd................................. 105
20,950 Rio Tinto Ltd...................................... 345
(a)86,450 Solution 6 Holdings Ltd............................ 168
90,350 Telstra Corp., Ltd................................. 366
53,050 Westpac Banking Corp............................... 382
-----------
4,630
-----------
BELGIUM (0.2%)
(a)13,980 Mobistar S.A....................................... 464
-----------
DENMARK (0.1%)
4,040 Tele Danmark A/S................................... 272
-----------
FINLAND (1.3%)
(a)48,700 Nokia OY........................................... 2,483
13,055 Sampo Insurance Co. plc, Class A.................. 529
-----------
3,012
-----------
FRANCE (9.4%)
(a)40,360 Alcatel............................................ 2,644
60,597 Aventis S.A........................................ 4,419
13,168 AXA................................................ 2,072
16,415 BNP Paribas........................................ 1,578
(c)1,710 Castorama Dubois Investissement S.A................ 423
(c)18,472 Michelin "B" (Registered).......................... 592
40,510 CNP Assurances..................................... 1,379
1,720 France Telecom..................................... 240
(c)9,960 Groupe Danone...................................... 1,321
14,360 Pernod Ricard...................................... 781
7,710 Sanofi Synthelabo S.A.............................. 367
(c)18,010 Schneider S.A...................................... 1,254
(a)2,590 Societe Television Francaise 1..................... 180
(a)5,750 Thomson Multimedia S.A............................. 372
26,907 TotalFina, Class B................................. 4,122
-----------
21,744
-----------
GERMANY (3.3%)
9,470 Adidas-Salomon AG.................................. 520
13,010 BASF AG............................................ 527
6,603 Bayer AG........................................... 253
17,204 Bayerische Hypo Uno Vereinsbank AG................. 1,124
16,800 Bayerische Motoren Werke AG........................ 511
35,243 Deutsche Telekom................................... 2,030
6,710 SAP AG............................................. 1,014
8,745 Schering AG........................................ 476
6,000 Siemens AG......................................... 897
3,580 Software AG........................................ 326
-----------
7,678
-----------
HONG KONG (2.0%)
74,000 Asia Satellite Telecommunications Holdings Ltd..... 253
168,300 Cable & Wireless HKT Ltd........................... 370
95,000 Cathay Pacific Airways Ltd......................... 176
27,600 Cheung Kong Holdings Ltd........................... 305
(a)87,600 China Telecom Ltd.................................. 773
174,900 Hong Kong & China Gas Co., Ltd..................... 196
23,700 HSBC Holdings plc.................................. 271
81,840 Hutchison Whampoa Ltd.............................. 1,029
102,100 Li & Fung Ltd...................................... 511
40,000 SmarTone Telecommunications Holdings Ltd........... 88
40,500 Sun Hung Kai Properties Ltd........................ 291
16,000 Swire Pacific Ltd., Class A........................ 94
25,000 Television Broadcasts Ltd.......................... 167
-----------
4,524
-----------
ITALY (2.7%)
52,065 Banca Popolare Di Bergamo S.p.A.................... 962
(c)214,430 ENI S.p.A.......................................... 1,237
17,860 Marzotto (Gaetano) S.p.A........................... 146
(c)32,500 Mediaset S.p.A..................................... 496
(c)56,700 Telecom Italia Mobile S.p.A........................ 579
(c)147,500 Telecom Italia S.p.A............................... 2,026
151,410 UniCredito Italiano S.p.A.......................... 723
-----------
6,169
-----------
JAPAN (28.9%)
25,500 Aiwa Co., Ltd...................................... 408
105,000 Amada Co., Ltd..................................... 890
19,000 Bank of Tokyo-Mitsubushi Ltd....................... 229
44,000 Canon, Inc......................................... 2,189
92,000 Casio Computer Co., Ltd............................ 1,031
63,000 Dai Nippon Printing Co., Ltd....................... 1,109
161,000 Daicel Chemical Industries Ltd..................... 519
94,000 Daifuku Co., Ltd................................... 1,041
82,000 Daikin Industries Ltd.............................. 1,904
22,700 FamilyMart Co., Ltd................................ 872
25,000 Fuji Machine Manufacturing Co...................... 1,312
45,000 Fuji Photo Film Ltd................................ 1,840
54,000 Fujitec Co., Ltd................................... 469
73,000 Fujitsu Ltd........................................ 2,524
43,000 Furukawa Electric Co............................... 897
56,000 Hitachi Credit Corp................................ 1,514
149,000 Hitachi Ltd........................................ 2,148
20,000 House Foods Corp................................... 309
(c)122,000 Kaneka Corp........................................ 1,344
41,000 Kurita Water Industries Ltd........................ 902
</TABLE>
The accompanying notes are an integral part of the financial statements.
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62
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<S> <C>
JAPAN (CONT.)
10,500 Kyocera Corp....................................... $ 1,780
33,000 Kyudenko Corp., Ltd................................ 99
(c)70,000 Lintec Corp........................................ 729
76,000 Matsushita Electric Industrial Co., Ltd............ 1,969
(c)73,000 Minebea Co., Ltd................................... 915
138,000 Mitsubishi Chemical Industries..................... 565
57,000 Mitsubishi Estate Co., Ltd......................... 670
236,000 Mitsubishi Heavy Industries Ltd.................... 1,045
40,000 Mitsubishi Logistics Corp.......................... 362
44,000 Mitsumi Electric Co., Ltd.......................... 1,617
93,000 NEC Corp........................................... 2,918
58,000 Nifco, Inc......................................... 740
13,600 Nintendo Co., Ltd.................................. 2,373
42,000 Nippon Meat Packers, Inc........................... 613
151 NTT DoCoMo......................................... 2,006
178,000 Nissan Motors...................................... 1,048
18,000 Nissei Sangyo Co., Ltd............................. 263
43,000 Nissha Printing Co., Ltd........................... 297
32,000 Ono Pharmaceutical Co., Ltd........................ 1,372
94,000 Ricoh Co., Ltd..................................... 1,988
26,700 Rinnai Corp........................................ 595
5,000 Rohm Co., Ltd...................................... 1,460
26,000 Ryosan Co., Ltd.................................... 588
16,000 Sangetsu Co., Ltd.................................. 264
55,000 Sankyo Co., Ltd.................................... 1,241
123,000 Sanwa Shutter Corp................................. 399
134,000 Sekisui Chemical Co................................ 515
98,000 Sekisui House Co., Ltd............................. 906
93,000 Shin-Etsu Polymer Co., Ltd......................... 769
26,200 Sony Corp.......................................... 2,444
59,000 Suzuki Motor Co., Ltd.............................. 760
16,000 TDK Corp........................................... 2,297
20,000 Tokyo Electric Power Co., Inc...................... 487
233,000 Toshiba Corp....................................... 2,627
31,000 Toyota Motor Corp.................................. 1,411
108,000 Tsubakimoto Chain Co............................... 549
64,000 Yamaha Corp........................................ 699
34,000 Yamanouchi Pharmaceutical Co., Ltd................. 1,855
-----------
66,686
-----------
NETHERLANDS (4.9%)
17,720 ABN Amro Holding N.V............................... 434
28,835 Akzo Nobel N.V..................................... 1,224
(a)7,350 ASM Lithography Holding N.V........................ 316
19,923 Buhrmann N.V....................................... 569
16,590 Fortis (NL) N.V.................................... 482
(a)23,960 Getronics N.V...................................... 370
6,020 Heineken N.V....................................... 366
22,165 ING Groep N.V...................................... 1,497
(a)11,400 Koninklijke KPN N.V................................ 509
(a)74,932 Koninklijke (Royal) Philips Electronics N.V........ 3,531
51,550 Laurus N.V......................................... 617
13,340 Royal Dutch Petroleum Co........................... 828
3,320 Royal KPN N.V...................................... 148
(a)11,760 United Pan-Europe Communications NV................ 307
-----------
11,198
-----------
NEW ZEALAND (0.1%)
(c)55,500 Telecom Corp. of New Zealand Ltd................... 194
-----------
PORTUGAL (0.4%)
(c)82,550 Banco Commercial Portugues (Registered)............ 429
(a)33,470 Telecel Comunicacoes Pessoais S.A.................. 508
-----------
937
-----------
SINGAPORE (1.4%)
(a)22,000 Chartered Semiconductor Manufacturing Ltd.......... 192
(a)600 Chartered Semiconductor Manufacturing Ltd. ADR..... 54
39,000 City Developments Ltd.............................. 151
46,965 DBS Group Holdings Ltd............................. 604
42,000 Keppel Corp., Ltd.................................. 91
37,000 Natsteel Electronics Ltd........................... 113
(a)105,000 Neptune Orient Lines Ltd........................... 97
27,800 Oversea-Chinese Banking Corp....................... 191
20,816 Overseas Union Bank Ltd............................ 81
35,000 Sembcorp Logistics Ltd............................. 197
22,000 Singapore Airlines Ltd............................. 218
22,000 Singapore Press Holdings Ltd....................... 344
124,000 Singapore Telecommunications Ltd................... 182
(a,c)65,000 ST Assembly Test Services.......................... 167
33,792 United Overseas Bank Ltd. (Foreign)................ 221
39,000 Venture Manufacturing Ltd.......................... 397
-----------
3,300
-----------
SPAIN (2.3%)
(a,c)48,200 Amadeus Global Travel Distribution S.A............. 549
56,720 Banco Bilbao Vizcaya Argentaria.................... 847
17,070 Banco Popular Espanol.............................. 527
42,250 Endesa S.A......................................... 818
(a)7,890 Telefonica Publicidad.............................. 74
(a,c)110,991 Telefonica S.A..................................... 2,382
-----------
5,197
-----------
SWEDEN (4.2%)
47,422 Assa Abloy AB..................................... 951
31,590 Autoliv, Inc. SDR................................. 773
43,790 ForeningsSparbanken AB............................ 640
246,659 Nordbanken Holding AB............................. 1,858
40,070 Scandic Hotels AB................................. 481
(c)56,580 Securitas AB...................................... 1,199
13,000 Skandia Forsakrings AB............................ 343
(c)33,580 Svedala Intrustri AB.............................. 639
(c)21,200 Svenska Cellulosa AB, Class B..................... 402
58,980 Svenska Handelsbanken, Class A................... 855
(a,c)7,750 Tele1 Europe AB................................... 95
(a)75,400 Ericsson LM....................................... 1,490
-----------
9,726
-----------
SWITZERLAND (6.2%)
780 Adecco S.A........................................ 662
1,058 Cie Financiere Richemont AG, Class A.............. 2,847
(a)452 Givaudan.......................................... 137
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
International Magnum Portfolio
63
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<S> <C>
SWITZERLAND (CONT.)
852 Holderbank Financiere Glarus AG,
Class B (Bearer)................................ $ 1,043
2,150 Nestle S.A. (Registered).......................... 4,299
1,205 Novartis AG (Registered).......................... 1,907
82 Roche Holding AG (Registered)..................... 797
405 Schindler Holding AG (Registered)................. 620
(a)13,435 UBS AG (Registered)............................... 1,967
-----------
14,279
-----------
UNITED KINGDOM (23.8%)
442,650 Allied Domecq plc................................. 2,344
52,750 Allied Zurich plc................................. 624
54,500 AstraZeneca Group plc............................. 2,537
77,900 BAA plc........................................... 625
109,400 BAE Systems plc................................... 682
53,792 Bank of Scotland.................................. 511
75,240 Barclays plc...................................... 1,870
70,400 BBA Group plc..................................... 461
168,760 BG plc............................................ 1,090
111,900 Blue Circle Industries plc........................ 722
42,240 BOC Group plc..................................... 607
136,200 BP Amoco plc...................................... 1,306
129,800 British American Tobacco plc...................... 866
220,350 British Telecom plc............................... 2,847
197,100 Cadbury Schweppes plc............................. 1,294
6,290 Capital Radio plc................................. 147
137,000 Centrica plc...................................... 457
201,241 Diageo plc........................................ 1,805
(a)110,800 Egg Plc........................................... 288
21,200 EMAP plc.......................................... 341
36,300 GKN plc........................................... 463
91,060 Glaxo Wellcome plc................................ 2,654
212,100 Granada Group plc................................. 2,118
144,020 Great Universal Stores plc........................ 926
147,310 Halma plc......................................... 227
149,760 Imperial Tobacco Group plc........................ 1,434
33,400 Kingfisher plc.................................... 304
54,300 Lloyds TSB Group plc.............................. 513
64,700 Marconi plc....................................... 842
181,440 Prudential Corp., plc............................ 2,657
260,056 Reckitt Benckiser plc............................. 2,911
67,700 Reed International plc............................ 589
227,500 Rentokil Initial plc.............................. 516
29,600 RMC Group plc..................................... 385
251,800 Rolls-Royce plc................................... 893
48,040 Sainsbury (J) plc................................. 218
110,040 Scottish & Southern Energy plc.................... 1,009
287,150 Shell Transport & Trading Co. plc................. 2,396
61,474 Smith & Nephew plc................................ 227
83,500 Smithkline Beecham plc............................ 1,093
40,000 Smiths Industries plc............................. 520
117,100 SSL International plc............................. 1,266
(a)144,666 Telewest Communications plc....................... 499
140,600 Tesco plc......................................... 437
1,406,667 Vodafone Airtouch plc............................. 5,681
89,400 Wolseley plc...................................... 480
89,400 Woolwich Plc...................................... 378
132,690 WPP Group plc..................................... 1,937
-----------
54,997
-----------
TOTAL COMMON STOCKS (Cost $182,488)............................ 215,007
-----------
PREFERRED STOCKS (1.4%)
GERMANY (1.4%)
5,562 Fresenius Medical Care AG......................... 1,274
21,520 Henkel KGaA-Vorzug................................ 1,232
3,741 Hugo Boss AG...................................... 649
-----------
TOTAL PREFERRED STOCKS (Cost $2,894)........................... 3,155
-----------
TOTAL FOREIGN SECURITIES (94.6%) (Cost $185,382)............... 218,162
-----------
FACE
AMOUNT
(000)
----------------
SHORT-TERM INVESTMENTS (11.8%)
SHORT-TERM INVESTMENTS HELD AS COLLATERAL ON
LOANED SECURITIES (6.5%)
$ 500 ABN Amro Bank, TD, 7.125%, 7/03/00................. 500
500 Abbey National Treasury Services,
TD, 7.19%, 7/03/00............................... 500
500 Allied Irish Bank, TD, 7.15%, 7/03/00.............. 500
500 Banca Commerciale Italiano (London),
TD, 7.25%, 07/03/00.............................. 500
500 Banco Bilbao Viz Argentaria, TD,
7.22%, 7/03/00................................... 500
500 Banco Santander S.A., TD, 7.125%, 7/03/00.......... 500
500 Bank of Austria, TD, 7.25%, 703/00................. 500
500 Bank of Ireland, TD, 7.125%, 7/03/00............... 500
500 Bank of Scotland, TD, 7.16%, 7/03/00............... 500
500 Banque Bruxelles Lambert, TD, 7.25%, 7/03/00....... 500
500 Barclays Bank Plc., TD, 7.125%, 7/03/00............ 500
500 Bayerische Hypo-Und Vereinsbank, TD,
7.125%, 7/03/00................................. 500
500 BNP Paribas N.Y., Yankee CD, 6.53%, 1/08/01........ 500
500 Commerzbank AG, N.Y., Yankee CD, 6.55%, 1/08/01.... 500
500 Citibank Corp., TD, 7.125%, 7/03/00................ 500
500 Credit Commerciale, TD, 7.125%, 7/03/00............ 500
500 Credit Agricole Indozuez, TD, 7.125%, 7/03/00...... 500
500 Dresder Bank Tokyo, TD, 7.125%, 7/03/00............ 500
500 First Union Bank, CD, 6.68%, 2/20/01............... 500
500 Fortis Bank, TD, 7.19%, 7/03/00.................... 500
500 Halifax Plc, TD, 7.125%, 7/03/00................... 500
500 Landesbank Baden Wuerttember, TD, 7.19%, 7/03/00... 500
</TABLE>
The accompanying notes are an integral part of the financial statements.
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International Magnum Portfolio
64
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS HELD AS COLLATERAL ON
LOANED SECURITIES (CONT.)
$ 1,899 Lehman Brothers, Inc., 7.025%, dated
6/30/00, due 7/03/00, to be repurchased at
$1,900, collateralized by U.S. Government
Agency Bonds, having various rates and maturities,
valued at $1,937 (Cost $1,899)................... $ 1,899
500 Nordeutsche Landesbank, N.Y., Yankee CD,
6.76%, 2/26/01................................... 500
500 Societe Generale, TD, 7.125%, 7/03/00.............. 500
500 Toronto Dominion Bank, TD, 7.125%, 7/03/00......... 500
500 Westdeutsche Landesbank G.C., TD, 7.125%, 7/03/00.. 500
-----------
TOTAL SECURITIES HELD FOR COLLATERAL ON LOANED SECURITIES...... 14,899
-----------
REPURCHASE AGREEMENT (5.3%)
12,291 Chase Securities, Inc., 6.15%, dated
6/30/00, due 7/03/00, to be repurchased at
$12,297, collateralized by U.S. Treasury Notes,
5.875%, due 11/15/03, valued at $12,542.......... 12,291
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $27,190).................... 27,190
-----------
FOREIGN CURRENCY (0.2%)
GBP 207 British Pound....................................... 313
HKD 12 Hong Kong Dollar.................................... 2
JPY 15,146 Japanese Yen........................................ 143
SGD 14 Singapore Dollar ................................... 8
-----------
TOTAL FOREIGN CURRENCY (Cost $466)............................. 466
-----------
TOTAL INVESTMENTS (106.6%) (Cost $213,038)..................... 245,818
-----------
OTHER ASSETS (1.8%)
Cash............................................. $ 1,430
Receivable for Portfolio Shares Sold............. 1,619
Receivable for Investments Sold.................. 844
Foreign Withholding Tax Reclaim Receivable....... 211
Dividends Receivable............................. 181
Interest Receivable.............................. 16
Other............................................ 3 4,304
----------
<CAPTION>
AMOUNT
(000)
--------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES (-8.4%)
Collateral on Securities Loaned.................. $(14,899)
Payable for Investments Purchased................ (3,282)
Payable for Portfolio Shares Redeemed............ (461)
Investment Advisory Fees Payable................. (433)
Payable for Variation on Futures Contracts....... (157)
Custodian Fees Payable........................... (52)
Administrative Fees Payable...................... (30)
Directors' Fees and Expenses Payable............. (17)
Net Unrealized Loss on Foreign Currency
Exchange Contracts............................ (17)
Distribution Fees Payable........................ (17)
Other Liabilities................................ (52) $ (19,417)
---------- ------------
NET ASSETS (100%).............................................. $ 230,705
============
NET ASSETS CONSIST OF:
Paid in Capital................................................ $ 192,296
Undistributed Net Investment Income............................ 1,129
Undistributed Net Realized Gain................................ 5,344
Unrealized Appreciation on Investments, Foreign Currency
Translations and Futures Contracts........................... 31,936
------------
NET ASSETS..................................................... $ 230,705
============
CLASS A:
--------
NET ASSETS..................................................... $ 201,493
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 15,137,234 outstanding $0.001 par value
shares (authorized 500,000,000 shares)....................... $ 13.31
============
CLASS B:
--------
NET ASSETS..................................................... $ 29,212
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,204,261 outstanding $0.001 par value
shares (authorized 500,000,000 shares)....................... $ 13.25
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
International Magnum Portfolio
65
<PAGE>
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 2000,
the Portfolio is obligated to receive foreign currency in exchange for U.S.
dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN(LOSS)
(000) (000) DATE (000) (000) (000)
------------ -------- ------------ -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
U.S.$ 2,067 $2,067 9/18/00 EUR 2,143 $2,044 $(23)
U.S.$ 621 621 9/18/00 EUR 662 634 13
U.S.$ 934 934 9/18/00 EUR 970 930 (4)
U.S.$ 932 932 9/18/00 JPY 97,790 921 (11)
U.S.$ 733 733 9/18/00 JPY 76,220 729 (4)
U.S.$ 2,449 2,449 9/18/00 JPY 1,628 2,462 13
U.S.$ 864 864 9/18/00 GBP 569 863 (1)
-------- --------- ---------
$8,600 $8,583 $(17)
======== ========= ==========
</TABLE>
-------------------------------------------------------------------------------
(a) -- Non-income producing
ADR -- American Depositary Receipt
CD -- Certificate of Deposit
PCL -- Public Company Limited
TD -- Time Deposit
-------------------------------------------------------------------------------
FUTURES CONTRACTS:
At June 30, 2000 the following futures contracts were open:
<TABLE>
<CAPTION>
NET
NUMBER NOTIONAL UNREALIZED
OF VALUE EXPIRATION APPRECIATION
LONG CONTRACTS (000) DATE (000)
---- --------- ------------ --------- ------------
<S> <C> <C> <C> <C>
CAC 40 Index (France) 24 U.S.$1.475 Sept-00 $(30)
DAX Index (Germany) 10 U.S.$1,669 Sept-00 (80)
FT-SE Index
(United Kingdom) 34 U.S.$3,270 Sept-00 (73)
MIB30 (Italy) 44 U.S.$ 901 Sept-00 (1)
Topix Index (Japan) 10 U.S.$1,541 Sept-00 36
------
$(148)
=======
</TABLE>
-------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
SECTOR (000) ASSETS
-------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary......................... $36,161 15.7%
Consumer Staples............................... 23,758 10.3
Energy......................................... 9,889 4.3
Financials..................................... 32,065 13.9
Healthcare..................................... 21,590 9.4
Industrials.................................... 24,213 10.5
Information Technology......................... 31,448 13.6
Materials...................................... 10,884 4.7
Telecommunication Services..................... 23,395 10.1
Utilities...................................... 4,759 2.1
--------- ---------
$218,162 94.6%
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statments.
-------------------------------------------------------------------------------
International Magnum Portfolio
66
<PAGE>
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
---------------------------------------------------
<TABLE>
<S> <C>
Australia (4.3%)
Denmark (0.9%)
Finland (7.3%)
France (5.4%)
Germany (6.9%)
Hong Kong (3.5%)
Ireland (2.3%)
Italy (0.5%)
Japan (26.5%)
Netherlands (8.2%)
New Zealand (3.5%)
Norway (1.6%)
Singapore (0.3%)
Spain (2.5%)
Sweden (4.2%)
Switzerland (7.3%)
United Kingdom (14.0%)
Other (0.8%)
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL
INTERNATIONAL (MSCI) EAFE SMALL CAP INDEX(1)
--------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
--- ---- ---------- -----------
<S> <C> <C> <C>
PORTFOLIO....... 5.03% 27.32% 12.26% 14.66%
INDEX........... 5.45 10.72 0.40 4.89
</TABLE>
1. The MSCI EAFE Small Cap Index is an unmanaged market valued weighted
average of the performance of over 900 securities of companies listed on the
stock exchanges of countries in Europe, Australasia and the Far East.
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 small non-U.S. issuers. The
Portfolio applies a disciplined bottom-up value approach to identify and
invest in small capitalization companies which it believes are both
attractive businesses and available at cheap prices. A market capitalization
generally less than U.S. $2 billion is used as our definition of "small."
Investments in small- to medium-sized corporations are more vulnerable to
financial risks and other risks than larger corporations and may involve a
higher degree of price volatility than investments in the general equity
markets. Foreign investing involves certain risks, including currency
fluctuations and controls, restrictions on foreign investments, less
governmental supervision and regulation, less liquidity and the potential for
market volatility and political instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
5.03% compared to 5.45% for the Morgan Stanley Capital International (MSCI)
EAFE Small Cap Index (the "Index"). For the one year ended June 30, 2000, the
Portfolio had a total return of 27.32% compared to 10.72% for the Index. For
the five-year period ended June 30, 2000, the average annual total return for
the Portfolio was 12.26% compared to 0.40% for the Index. For the period from
inception on December 15, 1992 through June 30, 2000, the average annual
total return for the Portfolio was 14.66% compared to 4.89% for the Index.
Following the technology, media and telecom (TMT) correction, international
small caps again outperformed international large caps during the second
quarter, as the MSCI EAFE fell 4.0% compared to an increase of 0.4% in EAFE
small caps. Materials (8%) and Utilities (5%) were the strongest small cap
sectors during the quarter. Technology (-13%) was the weakest international
small cap sector, underperforming large cap Tech by 5%. On a country level,
Italy (+10%), New Zealand (+8%) and Belgium (+6%) were the strongest small
cap markets, while Ireland (-16%), Germany (-10%) and U.K. (-9%) exhibited
negative performance.
The Portfolio outperformed the Index by 1.4% in second quarter of 2000.
Materials were once again a key driver of performance in the Portfolio, where
we were rewarded for both our overweight and strong stock selection.
Sumitomo Osaka Cement, Pacific Metals and Nitta Corp were evidence of a
Japanese economy that continues to strengthen. Our underweight in technology
(4% vs. 11% in the Index) was an important contributor to performance during
the second quarter of 2000. Our overweight and stock selection in consumer
staples was a positive, driven once again by Reckitt Benckiser and Mathews
(Bernard).
--------------------------------------------------------------------------------
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A
RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY
SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY THE MSCI EAFE SMALL
CAP INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED
AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. 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.
-------------------------------------------------------------------------------
International Small Cap Portfolio
67
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-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
Selection in health care was also positive with strong moves in SSL and
Alliance Unichem.
Poor stock selection in media and services proved to be the biggest detractor
from performance during the second quarter of 2000, particularly E-New Media
(Hong Kong; internet billing, -60%) which recently resolved internal
management disputes. Media exposure (Edipresse, Asia Securities Printing and
Publigroupe) weakened in sympathy with the large cap Media correction rather
than any change in individual company fundamentals. Zero exposure to
utilities and energy, two of the strongest performing sectors in the market,
was also a negative during the second quarter of 2000.
After reaching fair value, we sold Li & Fung, Capital Radio, Banco Popular,
Disco and Teleste. We increased our exposure to Japan by adding Daibiru, a
premiere real estate company, that is one of Japan's most profitable
companies. Additionally, Hurxley, a takeaway 'lunch box' company, was added
to the Portfolio. Hurxley has similar growth potential, returns and
operating structure as its leading peers, yet trades at a significant
discount. We added to E-New Media on weakness.
We anticipate that our weighting to Japanese small caps will continue to
rise. Relative valuations are attractive, and micro economic reform is
helping to increase transparency and crystallize value. The Portfolio
continues to trade at a significant discount to large caps, especially in the
U.K. Reflecting this anomaly, new issuance, LBO and M & A activity remains at
high levels in the small cap arena. However, IPO quality has declined and
pricing is too aggressive and so our interest is guarded. Cyclicals offer
attractive value, but given the maturity of the current cycle, we need not
add to our existing overweight.
Margaret Naylor
PORTFOLIO MANAGER
Willem Vinke
PORTFOLIO MANAGER
Nathalie Degans
PORTFOLIO MANAGER
Arthur Pollack
PORTFOLIO MANAGER
July 2000
-------------------------------------------------------------------------------
International Small Cap Portfolio
68
<PAGE>
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (97.1%)
AUSTRALIA (4.3%)
2,439,895 Ausdoc Group Ltd....................................... $ 3,704
465,882 BRL Hardy Ltd.......................................... 1,999
733,775 E.R.G. Ltd............................................. 5,684
1,008,400 Neverfail Springwater Ltd.............................. 1,989
2,061,065 Ramsay Health Care Ltd................................. 1,022
1,573,111 Skilled Engineering Ltd................................ 1,865
(a)250,560 Solution 6 Holdings Ltd................................ 486
--------
16,749
--------
DENMARK (0.9%)
102,315 Sydbank A/S............................................ 3,466
--------
FINLAND (7.3%)
125,418 KCI Konecranes International........................... 4,187
93,709 Kone Oyj, Class B...................................... 5,631
141,945 Metsa Tissue Oyj....................................... 1,841
345,222 Metso Oyj.............................................. 4,149
121,420 Perlos Oyj............................................. 3,833
773,708 Rapala Normark Corp.................................... 4,576
(a)216,120 Uponor Oyj............................................. 4,071
--------
28,288
--------
FRANCE (5.4%)
58,287 Algeco................................................. 3,892
38,680 Chargeurs.............................................. 2,214
5,086 Coface................................................. 485
32,523 De Dietrich et Compagnie............................... 2,088
(a)132,887 Europeene d'Extincteurs................................ 3,802
100,273 Legris Industries...................................... 4,399
(a)128,660 Neopost S.A............................................ 4,166
--------
21,046
--------
GERMANY (4.8%)
149,802 Beru AG................................................ 4,501
(a)2,588 Escada AG.............................................. 299
509,859 FAG Kugelfischer Georg Schaefer AG..................... 3,754
212,891 Marseille-Kliniken AG.................................. 1,706
540,698 Sartorius AG........................................... 5,106
(a)66,281 Techem AG.............................................. 1,580
117,349 Winkler & Duennebier AG................................ 1,813
--------
18,759
--------
HONG KONG (3.5%)
1,365,000 Asia Satellite Telecommunications Holdings Ltd......... 4,666
(a)36,086,000 e-New Media Company Ltd................................ 4,722
1,729,985 Hysan Development Co., Ltd............................. 1,820
11,695,000 Vitasoy International Holdings Ltd..................... 2,325
--------
13,533
--------
IRELAND (2.3%)
1,610,627 Anglo Irish Bank Corp. plc (British Pound Shares)...... 3,472
966,936 Green Property plc..................................... 5,672
--------
9,144
--------
ITALY (0.5%)
771,630 Sogefi S.p.A........................................... $ 1,884
--------
JAPAN (26.5%)
32,450 Aiful Corp............................................. 2,990
155,000 Arisawa Manufacturing Co., Ltd......................... 4,125
343,000 Asia Securities Printing Co., Ltd...................... 4,653
466,400 Chiyoda Co., Ltd....................................... 2,421
274,000 Daibiru Corp........................................... 2,212
47,400 H.I.S. Co., Ltd........................................ 2,340
568,000 Hankyu Realty Co., Ltd................................. 2,007
440,000 Hanshin Department Stores Ltd.......................... 1,774
446,000 Hitachi Cable, Ltd..................................... 4,929
(a)68,000 Hurxley Corp........................................... 1,775
359,600 Maezawa Kasei Industries............................... 3,998
(a)79,200 Megane TOP Co., Ltd.................................... 2,388
177,000 Mirai Industry Co., Ltd................................ 2,201
377,600 Nichiha Corp........................................... 3,024
76,000 Nippon Broadcasting System, Inc........................ 4,675
654,000 Nissan Fire & Marine Insurance Co...................... 1,879
263,000 Nissei Industries...................................... 2,480
359,500 Nitta Corp............................................. 4,640
545,800 Osaka Steel Co., Ltd................................... 2,340
(a)758,000 Osaki Electric Co., Ltd................................ 4,427
(a)3,718,000 Pacific Metals Co., Ltd................................ 11,104
(a)294,000 S.T Chemical Co., Ltd.................................. 2,016
(a)132,000 Shidax Community Corp.................................. 2,064
2,673,000 Sumitomo Osaka Cement Co., Ltd......................... 15,815
476,000 Tasaki Shinju Co., Ltd................................. 2,153
765,000 Toc Co................................................. 5,117
(a)480,000 Tokyo Kikai Seisakusho Ltd............................. 2,103
464,000 Yomiuri Land Co., Ltd.................................. 1,683
--------
103,333
--------
NETHERLANDS (8.2%)
121,806 Ahrend Groep N.V...................................... 1,557
80,860 Apothekers Cooperatie OPG............................. 2,044
197,246 Buhrmann N.V.......................................... 5,634
195,650 CSM N.V............................................... 3,844
126,104 Hollandsche Beton Groep N.V........................... 1,485
(a)58,383 IFCO Systems N.V...................................... 1,537
123,710 IHC Caland N.V........................................ 6,018
138,800 International Muller N.V.............................. 2,383
109,196 Nutreco Holding N.V................................... 4,166
208,248 Samas Groep N.V....................................... 3,317
--------
31,985
--------
NEW ZEALAND (3.5%)
1,367,500 Auckland International Airport Ltd.................... 1,617
1,259,378 Fisher & Paykel Industries Ltd........................ 3,958
4,043,043 Fletcher Challenge Building........................... 4,287
(a)2,165,200 Frucor Beverages Group Ltd............................ 1,656
(a,d)228,020 Oceanor............................................... --
663,040 Sky City Ltd.......................................... 1,991
--------
13,509
--------
NORWAY (1.6%)
113,260 Kverneland ASA, Class B............................... 1,714
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
International Small Cap Portfolio
69
<PAGE>
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<S> <C>
NORWAY (CONT.)
208,118 Sparebanken........................................... $ 4,666
--------
6,380
--------
SINGAPORE (0.3%)
521,000 Avimo Group Ltd....................................... 983
--------
SPAIN (2.5%)
(a)402,520 Amadeus Global Travel Distribution S.A., Class A...... 4,588
212,215 Miquel y Costas & Miquel, S.A......................... 5,192
--------
9,780
--------
SWEDEN (4.2%)
234,950 Haldex AB............................................. 2,276
220,610 Nobel Biocare AB...................................... 4,873
416,290 Scandic Hotels AB..................................... 4,998
1,424,710 Swedish Match AB...................................... 4,390
--------
16,537
--------
SWITZERLAND (7.3%)
2,652 Bobst AG (Bearer)..................................... 4,263
9,351 Edipresse (Bearer).................................... 4,403
(a)3,235 Logitech International S.A. (Registered).............. 2,300
3,145 PubliGroupe........................................... 2,349
(a)4,695 Saurer AG............................................. 2,927
18,990 Sulzer Medica AG (Registered)......................... 4,593
13,969 Valora Holding AG..................................... 3,875
6,320 Zehnder Holding AG, Class B........................... 3,854
--------
28,564
--------
UNITED KINGDOM (14.0%)
742,785 Alliance Unichem plc.................................. 5,051
(a)276,600 British Vita plc...................................... 1,027
2,858,157 Devro plc............................................. 2,508
(a,d)2,540,850 Donelon Tyson plc..................................... --
1,076,300 Glynwed International plc............................. 3,859
1,024,665 John Mowlem & Co. plc................................. 1,589
(a,d)33,795,100 Kendell plc........................................... --
676,800 Litho Supplies plc.................................... 865
3,878,600 Matthews (Bernard) plc................................ 8,273
1,083,160 NHP plc............................................... 704
868,300 Northern Leisure plc.................................. 2,312
(a,d)2,659,393 Pentos plc............................................ --
583,100 Reckitt & Colman plc.................................. 6,527
1,061,100 SIG plc............................................... 3,740
(a)884,516 SMG plc............................................... 4,770
594,200 Spirax-Sarco Engineering plc.......................... 3,604
737,400 SSL International plc................................. 7,975
1,952,800 The 600 Group plc..................................... 1,772
--------
54,576
--------
TOTAL COMMON STOCKS (Cost $353,497)................................... 378,516
--------
PREFERRED STOCKS (2.1%)
GERMANY (2.1%)
155,153 Dyckerhoff AG......................................... 3,951
179,757 Moebel Walther AG..................................... 2,058
158,213 Wuerttembergische Metallwarenfabrik AG................ 2,052
--------
TOTAL PREFERRED STOCKS (Cost $10,448)................................. 8,061
--------
<CAPTION>
Face
Amount Value
(000) (000)
--------------------------------------------------------------------------------
<S> <C>
TOTAL FOREIGN SECURITIES (99.2%) (Cost $363,945)...................... $ 386,577
FOREIGN CURRENCY (2.4%)
EUR 8,943 European Union............................................ 8,530
JPY 30,011 Japanese Yen.............................................. 283
CHF 1,111 Swiss Franc............................................... 680
--------
TOTAL FOREIGN CURRENCY (Cost $9,470).................................. 9,493
--------
TOTAL INVESTMENTS (101.6%) (Cost $373,415)............................ 396,070
--------
OTHER ASSETS (0.5%)
Receivable for Portfolio Shares Sold...................... $ 97
Receivable for Investments Sold........................... 731
Dividends Receivable...................................... 526
Foreign Withholding Tax Reclaim Receivable................ 399
Other..................................................... 11 1,764
-------
LIABILITIES (-2.1%)
Bank Overdraft Payable.................................... (5,836)
Payable for Investments Purchased......................... (835)
Investment Advisory Fees Payable.......................... (825)
Payable for Portfolio Shares Redeemed..................... (496)
Custodian Fees Payable.................................... (77)
Administrative Fees Payable............................... (51)
Directors' Fees and Expenses Payable...................... (27)
Other Liabilities......................................... (39) (8,186)
------- --------
NET ASSETS (100%)..................................................... $389,648
========
NET ASSETS CONSIST OF:
Paid in Capital....................................................... $319,231
Undistributed Net Investment Income................................... 3,409
Undistributed Net Realized Gain....................................... 44,390
Unrealized Appreciation on Investments and Foreign
Currency Translations............................................... 22,618
--------
NET ASSETS............................................................ $389,648
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 18,855,408 outstanding $0.001 par value
shares (authorized 500,000,000 shares).............................. $ 20.67
========
--------------------------------------------------------------------------------
(a) -- Non-income producing
(d) -- Securities were valued at fair value -- See Note A-1 to financial
statements.
--------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
--------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary.............................. $ 76,482 19.6%
Consumer Staples.................................... 39,506 10.1
Financials.......................................... 39,212 10.1
Healthcare.......................................... 26,203 6.7
Industrials......................................... 119,159 30.6
Information Technology.............................. 23,417 6.0
Materials........................................... 60,609 15.6
Utilities........................................... 1,989 0.5
-------- ----
$386,577 99.2%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
International Small Cap Portfolio
70
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
----------------------------------------------------
<TABLE>
<S> <C>
Other (2.4%)
Semiconductor Equipment
& Products (2.1%)
Real Estate (1.1%)
Pharmaceuticals (6.1%)
Office Electronics (6.4%)
Marine (0.6%)
Machinery (11.8%)
Leisure Equipment & Products (6.9%)
Household Durables (11.7%)
Food Products (1.5%)
Food & Drug Retailing (1.2%)
Auto Components (1.0%)
Automobiles (4.9%)
Banking (0.4%)
Building Products (0.5%)
Chemicals (5.9%)
Commercial Services & Supplies (1.9%)
Computers & Peripherals (13.9%)
Construction & Engineering (1.4%)
Distributors (0.5%)
Diversified Financials (2.2%)
Diversified Telecommunication
Services (3.1%)
Electric Utilities (1.0%)
Electrical Equipment (1.3%)
Electrical Equipment &
Instruments (10.2%)
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) JAPAN INDEX(1)
----------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
----- ------ --------- -----------
<S> <C> <C> <C> <C>
PORTFOLIO - CLASS A...... 3.26% 33.63% 13.75% 7.45%
PORTFOLIO - CLASS B...... 3.19 33.42 N/A 11.38
INDEX - CLASS A.......... -5.37 26.62 2.61 0.99
INDEX - CLASS B.......... -5.37 26.62 N/A 0.96
</TABLE>
1. The MSCI Japan 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 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. Foreign investing involves certain risks, including currency
fluctuations and controls, restrictions on foreign investments, less
governmental supervision and regulation, less liquidity and the potential for
market volatility and political instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
3.26% for the Class A shares and 3.19% for the Class B shares compared to
-5.37% for the Morgan Stanley Capital International (MSCI) Japan Index (the
"Index"). For the one year ended June 30, 2000, the Portfolio had a total
return of 33.63% for the Class A shares and 33.42% for the Class B shares
compared to 26.62% for the Index. For the five-year period ended June 30,
2000, the average annual total return for the Class A shares was 13.75%
compared to 2.61% for the Index. For the period from inception on April 25,
1994 through June 30, 2000, the average annual total return for the Class A
shares was 7.45% compared to 0.99% for the Index. For the period from
inception on January 2, 1996 through June 30, 2000, the average annual total
return for the Class B shares was 11.38% compared to 0.96% for the Index.
Encouraging evidence of a meaningful economic recovery began to emerge during
the second quarter of 2000. GDP growth for the January - March period showed
Japan's economy growing at a 10% annualized rate, while the latest Tankan
survey confirmed a strong positive trend for the Large Manufacturing
Diffusion Index, at the highest level during the last 3 years. Capital
Expenditures (CAPEX) at these Large Manufacturers was announced to increase
by over 11.3% in 2000, centering on Information Technology (I.T.)
investments. This is a result of a 10 trillion yen free cash flow generated
by Japanese corporations that are now bearing the fruits of restructuring. In
addition, corporate profits for non-financial Tokyo Stock Exchange first
section companies for fiscal year March 2000 rose 26% in aggregate versus the
consensus estimate of 21%. The "0" interest rate environment as well as the
recovery in Asian economies during this year also contributed positively to
these bright statistics. Signs of more robust consumption was also evidenced
by June automobile sales, which jumped 8.5% year-over-year.
Despite all of the above mentioned factors, the stock market was generally
weak during this review period and at one point fell to levels last seen in
June 1999. Reasons for the weakness include fears that Greenspan will prevail
and therefore exports to the U.S. will slow; volatility and sharp
-------------------------------------------------------------------------
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 PORFOLIO'S 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.
--------------------------------------------------------------------------------
Japanese Equity Portfolio
71
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--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO (CONT.)
declines of the NASDAQ and the virtual collapse of leading "New" economy
Japanese stocks such as Hikari Tsushin, Softbank and NTT DoCoMo, which were
the bell-cows of 1999's Japanese equity market. Foreign investors,
particularly momentum players and sector funds, became large net sellers. The
ill-timed change in 30 constituents of the Nikkei 225 at the peak of NASDAQ
volatility further confused any potential buyers, particularly Japanese
individual investors. Our Portfolio, however, performed well as many of our
holdings were reasonably valued versus the overall market.
OUTLOOK
The key assumption to our outlook is that the U.S. will have a "soft
landing" and that Japan's economic recovery will become self sustaining
during the second half of 2000. Japan's Government leaders are expected to
use the upcoming July Summit in Okinawa as a means of show-casing concrete
plans for a self sustaining recovery and will pledge to continue Mr. Obuchi's
plan for a domestic led recovery.
Many Japanese companies, as mentioned earlier, are beginning to generate free
cash flow and I.T. spending as a percent of CAPEX is expected to grow
significantly during the next year. In fact, the Japanese Government actually
created a new "Minister of Information Technology" within the ruling cabinet.
Global demand for Japan's digital products are also expected to contribute to
corporate earnings where companies have become highly geared to top line
growth. We expect earnings surprises because of this gearing in earnings.
Finally, we believe a modest rise in interest rates will actually be positive
to spur consumption and accelerate restructuring, an event that the Bank of
Japan has hinted at for several months. We anticipate our Portfolio will
maintain the current holdings in select world class technology companies,
economic sensitive stocks and deep value cyclicals.
John R. Alkire
PORTFOLIO MANAGER
Kunihiko Sugio
PORTFOLIO MANAGER
July 2000
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INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------
<S> <C>
COMMON STOCKS (97.6%)
AUTO COMPONENTS (1.0%)
68,000 Nifco, Inc.................................... $ 867
---------
AUTOMOBILES (4.9%)
250,000 Nissan Motor Co., Ltd........................ 1,472
88,000 Suzuki Motor Co., Ltd........................ 1,134
35,000 Toyota Motor Corp............................ 1,593
---------
4,199
---------
BANKS (0.4%)
25,000 Bank of Tokyo-Mitsubishi, Ltd................. 302
---------
BUILDING PRODUCTS (0.5%)
136,000 Sanwa Shutter Corp............................ 441
---------
CHEMICALS (5.9%)
250,000 Daicel Chemical Industries Ltd................ 805
153,000 Kaneka Corp................................... 1,685
77,000 Lintec Corp................................... 802
193,000 Mitsubishi Chemical Corp...................... 791
116,000 Shin-Etsu Polymer Co., Ltd.................... 960
---------
5,043
---------
COMMERCIAL SERVICES & SUPPLIES (1.9%)
71,000 Dai Nippon Printing Co., Ltd.................. 1,250
50,000 Nissha Printing Co., Ltd...................... 345
---------
1,595
---------
COMPUTERS & PERIPHERALS (13.9%)
94,000 Fujitsu Ltd................................... 3,250
53,000 Mitsumi Electric Co., Ltd..................... 1,947
117,000 NEC Corp...................................... 3,671
261,000 Toshiba Corp.................................. 2,943
---------
11,811
---------
CONSTRUCTION & ENGINEERING (1.4%)
56,000 Kurita Water Industries Ltd................... 1,232
---------
DISTRIBUTORS (0.5%)
30,000 Nissei Sangyo Co., Ltd........................ 438
---------
DIVERSIFIED FINANCIALS (2.2%)
70,000 Hitachi Credit Corp........................... 1,893
---------
DIVERSIFIED TELECOMMUNICATION SERVICES (3.1%)
199 NTT DoCoMo.................................... 2,643
---------
ELECTRIC UTILITIES (1.0%)
34,000 Tokyo Electric Power Co....................... 828
---------
ELECTRICAL EQUIPMENT (1.3%)
52,000 Furukawa Electric Co., Ltd.................... 1,085
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS (10.2%)
195,000 Hitachi Ltd................................... 2,811
14,200 Kyocera Corp.................................. 2,406
34,000 Ryosan Co..................................... 769
19,000 TDK Corp...................................... 2,728
---------
8,714
---------
FOOD & DRUG RETAILING (1.2%)
27,400 FamilyMart Co., Ltd........................... 1,053
---------
FOOD PRODUCTS (1.5%)
35,000 House Foods Corp.............................. 541
52,000 Nippon Meat Packers, Inc...................... 759
---------
1,300
---------
HOUSEHOLD DURABLES (11.7%)
34,000 Aiwa Co., Ltd................................. $ 544
102,000 Casio Computer Co., Ltd....................... 1,143
96,000 Matsushita Electric Industrial Co., Ltd....... 2,487
38,000 Rinnai Corp................................... 847
21,000 Sangetsu Co., Ltd............................. 346
166,000 Sekisui Chemical Co........................... 638
122,000 Sekisui House Co., Ltd........................ 1,128
30,400 Sony Corp..................................... 2,835
---------
9,968
---------
LEISURE EQUIPMENT & PRODUCTS (6.9%)
55,000 Fuji Photo Film Ltd........................... 2,249
16,000 Nintendo Corp., Ltd........................... 2,792
74,000 Yamaha Corp................................... 808
---------
5,849
---------
MACHINERY (11.8%)
136,000 Amada Co., Ltd................................ 1,153
118,000 Daifuku Co., Ltd.............................. 1,307
93,000 Daikin Industries Ltd......................... 2,160
29,000 Fuji Machine Manufacturing Co., Ltd........... 1,522
64,000 Fujitec Co., Ltd.............................. 557
99,000 Minebea Co., Ltd.............................. 1,240
308,000 Mitsubishi Heavy Industries Ltd............... 1,364
148,000 Tsubakimoto Chain Co.......................... 753
---------
10,056
---------
MARINE (0.6%)
60,000 Mitsubishi Logistics Corp..................... 543
---------
OFFICE ELECTRONICS (6.4%)
57,000 Canon, Inc.................................... 2,835
123,000 Ricoh Co., Ltd................................ 2,602
---------
5,437
---------
PHARMACEUTICALS (6.1%)
37,000 Ono Pharmaceutical Co., Ltd................... 1,586
67,000 Sankyo Co., Ltd............................... 1,512
38,000 Yamanouchi Pharmaceutical Co., Ltd............ 2,073
---------
5,171
---------
REAL ESTATE (1.1%)
77,000 Mitsubishi Estate Co., Ltd.................... 905
---------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (2.1%)
6,000 Rohm Co., Ltd................................. 1,752
---------
TOTAL COMMON STOCKS (COST $55,408)...................... 83,125
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
-----------------
<S> <C>
SHORT-TERM INVESTMENT (2.4%)
REPURCHASE AGREEMENT (2.4%)
$ 2,020 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/03/00, to be repurchased at $2,021,
collateralized by U.S. Treasury Bonds,
6.00%, due 2/15/26, valued at $2,060
(Cost $2,020)....................................... 2,020
-------
FOREIGN CURRENCY (0.2%)
JPY 18,806 Japanese Yen (Cost $177)........................... 177
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Japanese Equity Portfolio
73
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO (CONT.)
<TABLE>
<CAPTION>
AMOUNT
(000)
----------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (100.2%) (Cost $57,605)........................ $ 85,322
----------
OTHER ASSETS (0.1%)
Cash............................................ $ 1
Receivable for Portfolio Shares Sold............ 13
Dividends Receivable............................ 67
Other........................................... 3 84
------
LIABILITIES (-0.3%)
Investment Advisory Fees Payable................ (140)
Payable for Portfolio Shares Redeemed........... (54)
Directors' Fees and Expenses Payable............ (13)
Administrative Fees Payable..................... (13)
Custodian Fees Payable.......................... (9)
Distribution Fees Payable....................... (4)
Other Liabilities............................... (31) (264)
------ -----------
NET ASSETS (100%)................................................ $ 85,142
===========
NET ASSETS CONSIST OF:
Paid in Capital.................................................. $ 96,317
Accumulated Net Investment Loss.................................. (460)
Accumulated Net Realized Loss.................................... (38,432)
Unrealized Appreciation on Investments and
Foreign Currency Translations.................................. 27,717
-----------
NET ASSETS....................................................... $ 85,142
===========
CLASS A:
--------
NET ASSETS....................................................... $ 80,731
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 7,724,669 outstanding $0.001 par value
shares (authorized 500,000,000 shares)......................... $ 10.45
===========
CLASS B:
--------
NET ASSETS....................................................... $ 4,411
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 426,754 outstanding $0.001 par value
shares (authorized 500,000,000 shares)......................... $ 10.34
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Japanese Equity Portfolio
74
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
<TABLE>
<S> <C>
Other (3.0%)
Venezuela (1.6%)
Argentina (3.5%)
Mexico (42.8%)
Brazil (42.4%)
Chile (6.5%)
Colombia (0.2%)
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS
FREE LATIN AMERICA INDEX(1)
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
----- ------ ------- ---------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A............. -0.71 22.33% 18.46% 14.10%
PORTFOLIO -- CLASS B............. -0.88 22.15 N/A 18.41
INDEX-CLASS A.................... -3.75 16.71 9.75 7.38
INDEX-CLASS B.................... -3.75 16.71 N/A 10.38
</TABLE>
1. The MSCI Emerging Markets Free Latin America Index is a broad based market
cap weighted composite index covering at least 60% of markets in Argentina,
Brazil, Chile, Colombia, Mexico, Peru, and Venezuela. The Index takes into
account local market restrictions for specific securities or classes of
shares that may be excluded from or limited for foreign investor ownership.
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. Foreign
investing involves certain risks, including currency fluctuations and
controls, restrictions on foreign investments, less governmental supervision
and regulation, less liquidity and the potential for market volatility and
political instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
-0.71% for the Class A shares and -0.88% for the Class B shares compared to
-3.75% for the Morgan Stanley Capital International (MSCI) Emerging Markets
Free Latin America Index (the "Index"). For the one year ended June 30, 2000,
the Portfolio had a total return of 22.33% for the Class A shares and 22.15%
for the Class B shares compared to 16.71% for the Index. For the five-year
period ended June 30, 2000, the Portfolio had a total return of 18.46% for
the Class A shares compared to 9.75% for the Index. For the period from
inception on January 18, 1995 through June 30, 2000, the average annual total
return of Class A shares was 14.10% compared to 7.38% for the Index. For the
period from inception on January 2, 1996 through June 30, 2000, the average
annual total return of Class B shares was 18.41% compared to 10.38% for the
Index.
Outperformance relative to the Index was attributable to both stock selection
and country allocation. Strong stock selection in Argentina and Brazil,
notably telecommunications services providers, contributed positively to
performance. Our underweight stance in Chile (country index total return was
-7.3%) and Colombia (-35.2%) also added to performance. Stock selection in
Chile and Mexico detracted from performance.
Latin American markets advanced at the beginning of the year as investors
rewarded continued signs of macroeconomic improvements in the region and
steps towards increasing fiscal responsibility. However, many first quarter
gains were given back during the second quarter of 2000, amidst the backdrop
of poor performance and massive volatility in the developed markets.
Technology stocks were particularly hit, declining in sympathy with some of
the NASDAQ's sharp falls during the quarter. Latin American markets declined
as the region's positive economic fundamentals were overshadowed by investor
concerns over higher U.S. interest rates and tighter global liquidity. The
markets rebounded towards quarter end as good U.S. economic numbers allayed
investor concerns surrounding inflation and necessary interest rate hikes.
-------------------------------------------------------------------------------
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION
TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC
PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS MEASURED BY THE MSCI
EMERGING MARKETS COUNTRY OR REGIONAL INDICES, ARE FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S 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.
--------------------------------------------------------------------------------
Latin American Portfolio
75
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO (CONT.)
Notable events during these past six months included Telefonica de Espana's
(TEF) tender offers for its Latin American subsidiaries and changes in
ownership within the Mexican banking sector. We are encouraged by signs of
economic recovery and we believe corporate restructuring and the possibility
for lower real interest rates should lead to improved earnings for many Latin
companies.
Equities in Brazil were relatively flat during the first half of 2000, as
positive economic fundamentals and the country's commitment to adopt greater
fiscal discipline and to meet IMF targets were eclipsed by investor
skittishness and the volatile performance of technology and telecom stocks.
During the second quarter, Brazil's performance on the fiscal primary
surplus, inflation, and industrial production figures surpassed expectations.
The government demonstrated perseverance towards fiscal constraint and
improving corporate governance, as evidenced by Congress' passage of the
Minimum Wage Bill and Lower House approval of a corporate legislation bill.
Investor sentiment during the second quarter was aggravated by a Supreme
Court case on retroactive monetary readjustment to workers' accounts, with a
potential fiscal cost to the government of U.S.$30 billion. Investor
sentiment was also weighed down by the sharp declines in NASDAQ, but market
confidence was restored in June 2000 as investor concerns regarding sharp
U.S. interest rate hikes were allayed and Brazil continued to reveal positive
economic developments. The Central Bank proved aggressive in June, surprising
the market by lowering the benchmark Selic rate by 100 basis points to 17.5%.
It also lowered reserve requirements while adopting an easing bias for its
monetary stance. We continue to overweight Brazil, as we are encouraged by
positive economic fundamentals, improving corporate governance and fiscal
responsibility, and Brazil's likelihood of meeting IMF targets.
The Portfolio is overweight Mexico, based on promising trends in consumer
spending and consumer lending. Investor fears induced by higher U.S. interest
rates and a U.S. economic slowdown (more than 80% of Mexico's exports are to
the U.S.) and uncertainty regarding the presidential election on July 2, 2000
weighed down equities during the first half of 2000. Equities rallied during
June as investor concerns regarding higher U.S. rates were allayed and
sentiment focused on continued signs of a robust domestic economic recovery.
Recent highlights include the approved takeover of Mexican bank GF Bancomer
by Spain's Banco Bilbao Vizcaya Argentaria (BBVA), which we believe may
foster an expansion of bank credit, spearheading further GDP growth. Strong
U.S. economic performance and high oil prices have also benefited Mexico, as
the U.S. is the largest market for Mexican exports and oil is one of Mexico's
largest exports. The Mexican peso was increasingly volatile during the second
quarter and lost ground prior to the presidential elections on July 2, 2000.
Although we are cautiously monitoring pressures on the peso, we believe a
weaker peso may help Mexico's trade balance, which remains vulnerable when
oil exports are excluded. We anticipate equities should fare well following a
more certain scenario post the elections, which should restore investor
confidence. We are likely to add to equities in Mexico, notably to media,
telecom and conglomerate industries, as we believe equities shall continue to
be supported by positive economic trends coupled with attractive valuations
and companies with great earnings growth potential.
Argentine equities fell 3.4%, as economic growth remained limited and market
sentiment depressed. Market confidence was boosted toward the end of May when
the government announced a set of measures to improve the country's fiscal
woes. These initiatives included spending cuts (e.g. public sector payroll)
and structural reforms (e.g. healthcare system). However, the practical
application of the government's proposed spending cuts remains circumspect.
Our underweight position in Argentina is based on our preference for better
risk-reward profiles at both the stock and country level in other Latin
American markets.
Chile's market declined 7.3%, despite some support from the government's removal
of capital controls (abolition of the one- year holding period on foreign
capital) and tax incentives. Equities fell as the market seemed to have
already priced in recent measures towards opening the economy. We remain
underweight Chile as we believe Chilean equities are relatively expensive
compared to other Latin American assets.
Venezuelan equities led the Latin American region during the first half of 2000,
gaining 19.0%. Equities have been supported by strong oil prices, positive
trends in GDP and industrial production growth for the first quarter of 2000.
However, we believe the current high oil price environment and related
revenues coupled with higher government expenditure may threaten inflation
and foreign exchange targets. We find it difficult to be enthusiastic about
present investment opportunities in Venezuela and maintain an underweight
position in this market.
Turning to other markets, we remain underweight Colombia and Peru. Colombian
equities lost 35.2%, as rising interest rates and possible shortfalls in
privatization revenues have been the main threats to economic recovery. A
sharp deterioration in the political environment, including
--------------------------------------------------------------------------------
Latin American Portfolio
76
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO (CONT.)
allegations of improper campaign financing by President Pastrana, have
stymied the passage of important fiscal reforms. Although assets are
attractively valued, our interest is tempered by a lack of positive catalysts
for the equity market in the near term. Equities in Peru fell 3.1%, as
contentious presidential elections during the second quarter, including the
still contested run-off election on May 28, 2000 seems to have dampened
investor sentiment. A delegation from the Organization of American States
(OAS) has arrived in Peru and shall likely suggest political reforms for
implementation in the near future. We maintain an underweight stance and find
limited opportunities in this market, particularly as telecom services
provider Telefonica del Peru (TDP) shall leave the benchmark indices
following the close of parent company TEF's tender for TDP shares.
Michael L. Perl
PORTFOLIO MANAGER
Robert L. Meyer
PORTFOLIO MANAGER
Andy B. Skov
PORTFOLIO MANAGER
July 2000
--------------------------------------------------------------------------------
Latin American Portfolio
77
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (97.8%)
ARGENTINA (3.5%)
4,736 Banco Rio de La Plata ADR.......................... $ 69
15,405 Quilmes Industrial ADR............................. 172
10,627 Telecom Argentina ADR.............................. 292
---------
533
---------
BRAZIL (42.4%)
8,626 Aracruz Celulose ADR............................... 167
21,716,052 Banco Bradesco (Preferred)......................... 189
500 Banco Bradesco ADR (Preferred)..................... 4
2,189,150 Banco Itau (Preferred)............................. 192
(a,d)11,847,000 Banco Nacional (Preferred)......................... --
74,000 Brahma (Preferred)................................. 63
5,336 Brahma ADR (Preferred)............................. 91
309,600 Brazil Telecom S.A................................. 106
(a)1,065,277 Celular CRT........................................ 467
4,541,386 CEMIG (Preferred).................................. 79
(e)3,094 CEMIG ADR (Preferred).............................. 53
1,275 CEMIG ADR (Preferred).............................. 22
(a)416,736,600 Cia Electric Est Rio Janeiro....................... 162
6,117,400 Cia Siderurgica Nacional........................... 192
700 Cia Siderurgica Nacional ADR....................... 22
(a)493,277 Companhia Riograndense de Telecomunicacoes
(Preferred)....................................... 167
12,149 Copel ADR (Preferred).............................. 113
8,067,180 Copel, Class B ADR (Preferred)..................... 76
239,830 Coteminas.......................................... 14
(d,e)9,105 Coteminas ADR...................................... 26
5,000 CVRD............................................... 125
34,986 CVRD (Bonus Shares)................................ --
7,165 CVRD ADR (Preferred)............................... 202
5,135 CVRD, Class A (Preferred).......................... 145
834,761 Electrobras, Class B (Preferred)................... 18
852,000 Eletrobras......................................... 17
370 Eletrobras ADR..................................... 4
1,850 Eletrobras, Class B ADR (Preferred)................ 20
10,480,800 Embratel........................................... 250
10,525 Embratel ADR....................................... 249
12,195,864 Gerdau (Preferred)................................. 149
4,736 Globex Utilidades (Preferred)...................... 45
120,270 Itausa-Investimentos Itau S.A. (Preferred)......... 117
(a,d)10,009,300 Lojas Arapua (Preferred)........................... --
(a,d,e)13,460 Lojas Arapua ADR (Preferred)....................... --
17,998 Petrobras (Preferred).............................. 544
6,100 Petrobras ADR (Preferred).......................... 184
2,000 Petroleo Brasileiro S.A............................ 58
79,474 Rossi GDR.......................................... 79
4,534,632 Tele Centro Sul (Preferred)........................ 66
860 Tele Centro Sul ADR................................ 63
48,162,173 Tele Leste Celular (Preferred)..................... 43
550 Tele Leste Celular ADR............................. 24
(a)2,439,000 Tele Nordeste Celular Participacoes (Preferred).... 9
250 Tele Nordeste Celular Participacoes S.A. ADR....... 17
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<S> <C>
33,170,000 Tele Norte Celular (Preferred)..................... $ 34
500 Tele Norte Celular S.A. ADR......................... 25
14,664,566 Tele Norte Leste (Preferred)....................... 344
9,006 Tele Norte Leste ADR............................... 213
3,765 Telebras ADR (Preferred)........................... 366
9,490 Telesp Celular..................................... 426
3,632,883 Telesp Celular (Preferred)......................... 66
6,085 Unibanco GDR (Preferred)........................... 175
1,400 Usiminas........................................... 6
9,050 Usiminas (Preferred)............................... 42
(a)3,740 Votorantim Celulose e Papel S.A.................... 69
---------
6,399
---------
CHILE (6.5%)
(a)6,688 Banco Edwards ADR.................................. 90
1,170 Banco Santander ADR................................ 19
2,903 Banco Santiago ADR................................. 52
5,644 CCU ADR............................................ 128
9,604 Chilectra ADR...................................... 152
12,329 Cia. de Telecomunicaciones de Chile ADR............ 224
3,706 D&S ADR............................................ 64
5,235 Endesa ADR......................................... 58
(a)4,996 Enersis ADR........................................ 100
5,519 Quinenco ADR....................................... 54
(a),172 Santa Isabel ADR................................... 40
---------
981
---------
COLOMBIA (0.2%)
9,010 Bavaria............................................ 28
---------
MEXICO (42.8%)
(a)83,149 Alfa, Class A...................................... 190
(a)72,246 Banacci, Class L................................... 292
(a)1,015 Banacci, Class O................................... 4
(a)311,711 Bancomer, Class O.................................. 158
(a)69,443 Banorte, Class O................................... 96
(a)84,636 Carso Global Telecom............................... 241
(a)44,584 Carso, Class A1.................................... 158
25,664 Cemex CPO ADR...................................... 600
(a)3,872 Cemex S.A.......................................... 18
(a)17,700 Corporacion Interamericana de Entretenimiento S.A.. 69
6,597 Empresas ICA ADR................................... 11
(a)34,388 Empresas ICA S.A................................... 10
11,765 Femsa ADR.......................................... 507
21,569 Grupo Industrial Bimbo, Class A.................... 34
(a)15,720 Grupo Mexico S.A., Class B......................... 44
51,714 Grupo Modelo, Class C.............................. 116
(a)17,700 Grupo Sanborns S.A................................. 28
123,660 Kimberly-Clark, Class A............................ 352
(a)32,865 Organizacion Soriana SA............................ 131
(a)3,400 Pepsi-Gemex S.A.................................... 15
(a)5,955 Seminis, Inc., Class A............................. 16
4,199 Tamsa ADR.......................................... 58
(a)9,384 Televisa CPO GDR................................... 647
38,403 Telmex, Class L ADR................................ 2,194
11,123 Vitro ADR.......................................... 35
(a)2,880 Walmart de Mexico ADR.............................. 68
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Latin American Portfolio
78
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<S> <C>
MEXICO (CONT.)
101,300 Walmart de Mexico, Class C......................... $ 234
(a)62,953 Walmart de Mexico, Class V......................... 148
---------
6,474
---------
UNITED STATES (0.8%)
3,950 Panamerican Beverages, Inc., Class A............... 59
(a)3,050 StarMedia Network Inc.............................. 58
---------
117
---------
VENEZUELA (1.6%)
8,858 CANTV ADR.......................................... 241
TOTAL COMMON STOCKS (Cost $14,705).................................... 14,773
---------
TOTAL FOREIGN SECURITIES (97.8%) (Cost $14,705)....................... 14,773
---------
FOREIGN CURRENCY (0.3%)
BRL 73 Brazilian Real..................................... 41
MXP 43 Mexican Pesos...................................... 4
---------
TOTAL FOREIGN CURRENCY (Cost $45)..................................... 45
---------
TOTAL INVESTMENTS (98.1%) (Cost $14,750).............................. 14,818
---------
OTHER ASSETS (3.3%)
Cash......................................................... $ 182
Receivable for Investments Sold.............................. 300
Dividends Receivable......................................... 25 507
-----
LIABILITIES (-1.4%)
Payable for Investments Purchased............................ (144)
Custodian Fees Payable....................................... (25)
Investment Advisory Fees Payable............................. (17)
Directors' Fees and Expenses Payable......................... (5)
Administrative Fees Payable.................................. (4)
Distribution Fees Payable.................................... (1)
Other Liabilities............................................ (17) (213)
------ ---------
NET ASSETS (100%)..................................................... $ 15,112
=========
NET ASSETS CONSIST OF:
Paid in Capital....................................................... $ 36,422
Undistributed Net Investment Income................................... 242
Accumulated Net Realized Loss......................................... (21,621)
Unrealized Appreciation on Investments and Foreign
Currency Translations................................................ 69
---------
NET ASSETS............................................................ $ 15,112
=========
<CAPTION>
AMOUNT
(000)
-------------------------------------------------------------------------------
<S> <C>
CLASS A:
--------
NET ASSETS............................................................ $ 13,682
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,217,739 outstanding $0.001 par value
shares (authorized 500,000,000 shares)............................... $ 11.24
=========
CLASS B:
--------
NET ASSETS............................................................ $ 1,430
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 127,034 outstanding $0.001 par value
shares (authorized 500,000,000 shares)............................... $ 11.26
=========
</TABLE>
-----------------------------------------------------------------------
(a) -- Non-income producing
(d) -- Security valued at fair value -- See Note A-1 to financial
statements.
(e) -- 144A Security -- certain conditions for public sale may exist.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
-----------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
PERCENT
VALUE OF NET
SECTOR (000) ASSETS
-------------------------------------------------------------------------------
Consumer Discretionary.................................. $ 1,409 9.3%
Consumer Staples........................................ 1,332 8.8
Energy.................................................. 787 5.2
Financials.............................................. 1,422 9.4
Industrials............................................. 598 4.0
Information Technology.................................. 58 0.4
Materials............................................... 2,168 14.4
Telecommunication Services.............................. 6,124 40.5
Utilities............................................... 875 5.8
------- ----
$14,773 97.8%
======= ====
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Latin American Portfolio
79
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--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
<TABLE>
<S> <C>
Consumer Discretionary (14.9%)
Consumer Staples (4.5%)
Financials (7.0%)
Health Care (14.6%)
Industrials (16.7%)
Information Technology (34.0%)
Technology (1.4%)
Telecommunications Services (4.4%)
Utilities (0.2%)
Other (2.3%)
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
--------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
------ ------- ------- ---------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A.. 6.14% 28.56% 29.08% 20.80%
PORTFOLIO -- CLASS B.. 6.06 28.38 N/A 27.61
INDEX -- CLASS A...... -0.42 7.25 23.80 18.16
INDEX -- CLASS B...... -0.42 7.25 N/A 22.86
</TABLE>
1. The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies
with market capitalization of $1 billion or more. These 500 companies
represent approximately 100 industries chosen mainly for market size,
liquidity and industry group representation.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Equity Growth Portfolio employs a growth-oriented investment strategy
seeking long-term capital appreciation. The Portfolio seeks to accomplish its
objective by investing primarily in equities of medium and large capitalization
companies exhibiting strong earnings growth.
For the six months ended June 30, 2000, the Portfolio had a total return of
6.14% for the Class A shares and 6.06% for the Class B shares compared to -0.42%
for the S&P 500 Index (the "Index"). For the one year ended June 30, 2000, the
Portfolio had a total return of 28.56% for the Class A shares and 28.38% for the
Class B shares compared to 7.25% for the Index. For the five-year period ended
June 30, 2000, the average annual total return for the Class A shares was 29.08%
compared to 23.80% for the Index. For the period from inception on April 2, 1991
through June 30, 2000, the average annual total return for Class A shares was
20.80% compared to 18.16% for the Index. For the period from inception on
January 2, 1996 through June 30, 2000, the average annual total return for the
Class B shares was 27.61% compared to 22.86% for the Index.
The market's relatively flat first half return masked significant volatility,
particularly in February (S&P declined 8%), March (up 10%) and April (down 3%).
Volatility was heightened, in our view, by Federal Reserve interest rate
increases, a more uncertain corporate earnings outlook and heightened investor
attention to valuation.
Growth continued to outperform value as the Russell 1000 Growth index
appreciated 6.8% versus a decline of 0.2% for the Russell 1000 Value index. As
was the case in 1999, a handful of Large Cap stocks had the most positive effect
on market results. Two stocks, Cisco and Intel, contributed over 100% of the S&P
500's return. At the end of the first quarter investors rotated from favoring
new economy stocks to old economy stocks. Many growth favorites, including
Microsoft, Lucent, Yahoo! and America Online declined.
Value dominated growth in the markets through April and May, and technology
stocks were most severely affected in the downturn. June was a great month for
growth stocks, as the Russell 1000 Growth recovered 7% of the return lost in the
first two months of the second quarter of 2000. The June recovery in growth was
led by technology and healthcare, two of our best performing sectors
year-to-date.
Our top positions continue to reflect a mix of classic growth stocks such as
Cisco Systems, General Electric, Pfizer, Microsoft, Intel, and Home Depot as
well as less well known growth names such as Tyco International and United
Technologies. We remain pleased with the success of our bottom-up stock picking
approach. Over 80% of the Portfolio's outperformance relative to the S&P 500 was
driven by stockpicking versus sector allocation. We ended the period slightly
overweight in technology, after
---------------------------------------------------------------------------
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. 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
80
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INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
temporarily reducing our technology position for a couple months mostly due
to excessive valuations. However, stock selection in this sector accounted
for over 40% of the Portfolio's total outperformance for the first half of
2000. Over 85% of that relative outperformance was attributable to successful
stock picking within the group. The absence of a large overweight bet in
technology helped our relative performance versus many other large
capitalization growth funds that carried an overweight in the sector from
year-end. The Portfolio's positions in such "old economy" names as Tyco, and
Pfizer/Warner Lambert helped us sustain strong performance during this period.
Major contributors to the strong performance results year-to-date were Intel,
Warner Lambert, Tyco International, Cisco, and Pfizer. We were especially
pleased with the performance of Tyco given the major downward move sustained by
that stock in the fourth quarter. Major detractors to performance were Clear
Channel, Motorola, Procter & Gamble, Home Depot and Microsoft.
Tyco's continued strong business fundamentals and excitement regarding the
announced value-enhancing subsidiary-IPO of TyCom, the company's undersea
fiberoptic cable business, and the close of the SEC inquiry, drove appreciation
of 22% for the period. This more than offset the stock's fourth quarter decline.
We continue to believe in the company's ability to meet or exceed consensus
earnings expectations and, this, coupled with additional strategic moves (such
as the potential subsidiary-IPO of M/A-Com, the leading manufacturer of Gallium
Arsenide semiconductor substrate used in wireless communication devices and the
acquisition of Mallinckrodt in the health services segment) should drive
additional outperformance in future quarters.
We made a strategic decision to continue to add to our already overweight
position in healthcare from late in the first quarter. This was based on our
belief that the group's consistent earnings growth will be increasingly valuable
to investors as overall S&P 500 earnings growth moderates from unsustainably
high levels. The decision proved prudent, as healthcare was our second best
performing sector for the period. Large positions in American Home Products,
Pfizer/Warner Lambert and Johnson & Johnson drove strong performance.
Although large-cap pharmaceutical stocks dramatically outperformed the market,
Pfizer outperformed its peers. The acquisition of Warner Lambert was formally
completed in mid-June, but integration planning was already well underway and we
believe cost-cutting targets will be accomplished earlier than expected and
could be more significant than expected. Prescription volume growth for most of
the company's major drugs remains robust. Consensus earnings expectations do not
fully reflect the faster than expected cost-cutting or the growth in sales
volumes, in our view. A supposed lack of pipeline depth is a frequent criticism
of skeptics, but we believe Pregabalin, Valdocoxib and inhaled insulin all have
tremendous market potential. With no major patent expirations until 2006, the
sector's fastest projected earnings growth rate over the next several years, a
strong potential for additional co-marketing deals with other drug companies and
for non-core asset divestitures once pooling accounting restrictions are lifted
in two years, and the sectors lowest price-to-earnings-to-growth ratio, we
believe Pfizer/Warner Lambert remains a compelling investment and is a core
holding in our portfolio.
Consumer cyclicals, one of our weakest performing sectors year-to-date, resulted
from the downturn of the retail sector during the second quarter of 2000. Our
investments in Home Depot, down 22% and Costco, down 37%, were our largest
detractors from performance is this sector.
Home Depot, the leading home improvement retailer, was among several retail
stocks punished by the market despite no change in its fundamentals. Although
the company met Wall Street consensus numbers, many sell side analysts became
concerned about a potential earnings shortfall. Issues such as labor and
infrastructure expenses growing faster than the company anticipated, as well
as rising interest rates, slower housing turnover, and the rising cost of
gas, created pressure in the stock, as well as the sector. Further due
diligence led us to the conclusion that this was an overreaction to
short-term issues, in fact we viewed this as a buying opportunity.
With the Fed expected to be in the seventh inning stretch on interest rate hikes
and the surge of growth stocks late in the second quarter of 2000, we are
extremely optimistic about the long-term prospect for large capitalization
growth stocks going forward. Signs of a soft landing, as well as strong
fundamentals and compelling business opportunities create a favorable
environment for growth.
Philip W. Friedman
PORTFOLIO MANAGER
William S. Auslander
PORTFOLIO MANAGER
July 2000
------------------------------------------------------------------------------
Equity Growth Portfolio
81
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (97.7%)
CAPITAL GOODS (0.0%)
ELECTRICAL EQUIPMENT (0.0%)
(a)14,900 Capstone Turbine Corp. ............................... $ 671
--------
CONSUMER DISCRETIONARY (14.9%)
HOTELS RESTAURANTS & LEISURE (0.2%)
(a)80,900 Brinker International, Inc. .......................... 2,366
--------
MEDIA (9.2%)
(a)192,300 AMFM, Inc. ........................................... 13,269
(a)813,400 AT&T Corp., Liberty Media Group,
Class A-Common ................................... 19,725
(a)251,900 Clear Channel Communications, Inc. ................... 18,893
(a)63,500 Comcast Corp., Class A-Common ........................ 2,469
(a)248,700 Comcast Corp., Class A-Special ....................... 10,072
(a)238,200 MediaOne Group, Inc. ................................. 15,838
78,800 Omnicom Group, Inc. .................................. 7,018
387,600 Time Warner, Inc. .................................... 29,458
(a)97,000 TV Guide, Inc. ....................................... 3,322
(a)177,180 Viacom, Inc., Class B ................................ 12,081
--------
132,145
--------
MULTILINE RETAIL (1.7%)
(a)186,200 Costco Wholesale Corp. ............................... 6,145
322,500 Wal-Mart Stores, Inc. ................................ 18,584
--------
24,729
--------
SPECIALTY RETAIL (3.8%)
809,300 Home Depot, Inc. ..................................... 40,415
363,300 Intimate Brands, Inc. ................................ 7,175
135,000 The Limited, Inc. .................................... 2,919
75,100 Tiffany & Co. ....................................... 5,069
--------
55,578
--------
TOTAL CONSUMER DISCRETIONARY ........................................ 214,818
--------
CONSUMER STAPLES (4.5%)
BEVERAGES (2.0%)
190,400 Anheuser Busch Cos., Inc. ............................ 14,221
321,000 PepsiCo, Inc. ........................................ 14,264
--------
28,485
--------
FOOD & DRUG RETAILING (0.7%)
(a)212,300 Safeway, Inc. ........................................ 9,580
--------
FOOD PRODUCTS (0.5%)
64,200 Keebler Foods Co. .................................... 2,383
73,700 Quaker Oats Co. ...................................... 5,537
--------
7,920
--------
HOUSEHOLD PRODUCTS (0.5%)
137,200 Procter & Gamble Co. ................................. 7,855
--------
TOBACCO (0.8%)
426,100 Philip Morris Cos., Inc. ............................. 11,318
--------
TOTAL CONSUMER STAPLES .............................................. 65,158
--------
FINANCIALS (7.0%)
BANKS (2.3%)
500,700 Bank of New York Co., Inc. ........................... 23,283
290,300 Fleet Boston Financial Corp. ......................... 9,870
--------
33,153
--------
DIVERSIFIED FINANCIALS (3.6%)
312,900 American Express Co. ................................. 16,310
419,275 Citigroup, Inc. ...................................... 25,261
210,700 Federal National Mortgage Association ................ 10,996
--------
52,567
--------
INSURANCE (1.1%)
131,800 American International Group, Inc. ................... 15,486
--------
TOTAL FINANCIALS .................................................... 101,206
--------
HEALTH CARE (14.6%)
BIOTECHNOLOGY (0.9%)
(a)90,850 Amgen, Inc. .......................................... 6,382
(a)12,900 Genentech, Inc. ...................................... 2,219
(a)58,600 MedImmune, Inc. ...................................... 4,336
--------
12,937
--------
HEALTH CARE EQUIPMENT & SUPPLIES (0.3%)
73,600 PE Corp.-PE Biosystems Group ......................... 4,848
--------
HEALTH CARE PROVIDERS & SERVICES (0.4%)
(a)162,300 HCA - The Healthcare Company ......................... 4,930
--------
PHARMACEUTICALS (13.0%)
119,100 Abbott Laboratories .................................. 5,307
360,500 American Home Products Corp. ......................... 21,179
179,000 Bristol-Myers Squibb Co. ............................. 10,427
63,300 Eli Lilly & Co. ...................................... 6,322
216,300 Johnson & Johnson .................................... 22,036
199,200 Merck & Co., Inc. .................................... 15,264
1,712,000 Pfizer, Inc. ......................................... 82,176
355,289 Pharmacia Corp. ...................................... 18,364
97,200 Schering-Plough Corp. ................................ 4,909
(a)33,900 Tularik, Inc. ........................................ 1,000
--------
186,984
--------
TOTAL HEALTH CARE ................................................... 209,699
--------
INDUSTRIALS (16.7%)
AEROSPACE & DEFENSE (5.2%)
350,300 General Dynamics Corp. ............................... 18,303
962,900 United Technologies Corp. ............................ 56,691
--------
74,994
--------
COMMERCIAL SERVICES & SUPPLIES (0.2%)
(a)11,900 VeriSign, Inc. ....................................... 2,100
--------
INDUSTRIAL CONGLOMERATES (11.3%)
1,215,600 General Electric Co. ................................. 64,427
208,000 Textron, Inc. ........................................ 11,297
1,835,500 Tyco International Ltd. .............................. 86,957
--------
162,681
--------
TOTAL INDUSTRIALS ................................................... 239,775
--------
INFORMATION TECHNOLOGY (34.0%)
COMMUNICATION EQUIPMENT (0.1%)
(a)31,700 Exfo Electro Optical Engineering, Inc. ............... 1,391
--------
COMMUNICATIONS EQUIPMENT (14.2%)
(a)346,500 American Tower Corp., Class A ........................ 14,445
(a)53,000 CIENA Corp. .......................................... 8,834
(a)976,500 Cisco Systems, Inc. .................................. 62,069
45,300 Corning, Inc. ........................................ 12,225
(a)58,800 General Motors Corp., Class H ........................ 5,160
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Equity Growth Portfolio
82
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------------------------------------------------------------------------------
<S> <C>
INFORMATION TECHNOLOGY (CONT.)
COMMUNICATIONS EQUIPMENT (CONT.)
(a)157,100 JDS Uniphase Corp................................... $ 18,832
(a)54,800 Juniper Networks, Inc............................... 7,977
245,300 Lucent Technologies, Inc............................ 14,534
644,700 Motorola, Inc....................................... 18,737
508,700 Nortel Networks Corp................................ 34,719
(a)89,700 Pinnacle Holdings, Inc.............................. 4,844
(a)65,600 Spectrasite Holdings, Inc........................... 1,861
(a)24,300 Stratos Lightwave, Inc.............................. 677
-----------
204,914
-----------
COMPUTERS & PERIPHERALS (3.4%)
(a)122,500 EMC Corp............................................ 9,425
119,600 International Business Machines Corp................ 13,104
(a)68,100 Seagate Technology, Inc............................. 3,745
(a)40,000 StorageNetworks, Inc................................ 3,610
(a)217,900 Sun Microsystems, Inc............................... 19,815
-----------
49,699
-----------
INTERNET SOFTWARE & SERVICES (0.5%)
(a)148,400 Genuity, Inc........................................ 1,359
(a)42,000 YAHOO!, Inc......................................... 5,203
-----------
6,562
-----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (10.9%)
(a)312,300 Applied Materials, Inc.............................. 28,302
(a)35,100 Broadcom Corp., Class A............................. 7,685
(a)66,800 Infineon Technologies AG............................ 5,294
465,100 Intel Corp.......................................... 62,178
(a)118,200 Intersil Holding Corp............................... 6,390
(a)259,800 Maxim Integrated Products, Inc...................... 17,650
(a)15,600 PMC-Sierra, Inc..................................... 2,772
379,600 Texas Instruments, Inc.............................. 26,074
-----------
156,345
-----------
SOFTWARE (4.9%)
(a)39,100 Inktomi Corp........................................ 4,624
507,400 Microsoft Corp...................................... 40,592
(a)307,800 Oracle Corp......................................... 25,874
-----------
71,090
-----------
TOTAL INFORMATION TECHNOLOGY ................................... 490,001
-----------
TECHNOLOGY (1.4%)
COMPUTERS (SOFTWARE & SERVICES) (0.2%)
(a)132,726 Global Crossing Ltd................................. 3,492
-----------
MINI & MAINFRAME COMPUTER MFG. (0.7%)
74,400 Hewlett Packard Co.................................. 9,291
-----------
SEMICONDUCTOR MFG. (0.5%)
(a)37,600 Analog Devices, Inc................................. 2,858
(a)88,300 ASM Lithography Holding N.V......................... 3,896
-----------
6,754
-----------
TOTAL TECHNOLOGY................................................ 19,537
-----------
TELECOMMUNICATION SERVICES (4.4%)
DIVERSIFIED TELECOMMUNICATION SERVICES (3.2%)
69,100 BellSouth Corp...................................... 2,945
332,300 GTE Corp............................................ 20,686
(a)38,800 NEXTLINK Communications, Inc........................ 1,472
164,400 Sprint Corp......................................... 8,384
(a)272,800 Worldcom, Inc....................................... 12,515
-----------
46,002
-----------
WIRELESS TELECOMMUNICATION SERVICES (1.2%)
(a)117,800 AT&T Wireless Group................................. 3,284
(a)236,200 Crown Castle International Corp..................... 8,621
(a)84,600 Nextel Communications, Inc., Class A................ 5,177
-----------
17,082
-----------
TOTAL TELECOMMUNICATION SERVICES ............................... 63,084
-----------
UTILITIES (0.2%)
ELECTRIC UTILITIES (0.2%)
93,800 Montana Power Co. ............................... 3,312
-----------
TOTAL COMMON STOCKS (Cost $971,275) .............................. 1,407,261
-----------
<CAPTION>
FACE
AMOUNT
(000)
----------
<S> <C> <C>
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT (2.7%)
$ 39,049 Chase Securities, Inc., 6.15%, dated
6/30/00, due 7/03/00, to be
repurchased at $39,069, collateralized
by U.S. Treasury Bonds, 10.375%, due
11/15/16, valued at $21,124 and
7.50%, due 11/15/16, valued at
$18,832 (Cost $39,049)....................... 39,049
-----------
TOTAL INVESTMENTS (100.4%) (Cost $1,010,324) ..................... 1,446,310
-----------
OTHER ASSETS (0.5%)
Cash ................................................. $ 1
Receivable for Investments Sold ...................... 5,339
Dividends Receivable ................................. 746
Receivable for Portfolio Shares Sold ................. 620
Interest Receivable .................................. 7
Other ................................................ 18 6,731
-------
LIABILITIES (-0.9%)
Payable for Investments Purchased .................... (9,954)
Investment Advisory Fees Payable ..................... (2,054)
Distribution Fees Payable ............................ (207)
Administrative Fees Payable .......................... (174)
Directors' Fees and Expenses Payable ................. (63)
Payable for Portfolio Shares Redeemed ................ (61)
Custodian Fees Payable ............................... (46)
Other Liabilities .................................... (109) (12,668)
------- -----------
NET ASSETS (100%) ................................................ $1,440,373
===========
NET ASSETS CONSIST OF:
Paid in Capital .................................................. $ 915,433
Accumulated Net Investment Loss .................................. (1,047)
Undistributed Net Realized Gain .................................. 90,001
Unrealized Appreciation on Investments ........................... 435,986
-----------
NET ASSETS ....................................................... $1,440,373
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Equity Growth Portfolio
83
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INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
------------------------------------------------------------------------------
<S> <C>
CLASS A:
--------
NET ASSETS ....................................................... $1,072,755
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 40,296,678 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ......................... $ 26.62
===========
CLASS B:
--------
NET ASSETS ....................................................... $ 367,618
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 13,905,461 outstanding $0.001 par value
shares (authorized 500,000,000 shares).......................... $ 26.44
===========
-------------------------------------------------------------------------------
(a) -- Non-income producing
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Equity Growth Portfolio
84
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
INVESTMENT OVERVIEW
------------------------------------------------------------------------------
FOCUS EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
<TABLE>
<S> <C>
Other (2.3%)
Telecommunications Services (5.8%)
Information Technology (34.9%)
Industrials (18.7%)
Health Care (14.2%)
Financials (6.8%)
Consumer Staples (3.2%)
Consumer Discretionary (14.1%)
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500 INDEX
AND THE LIPPER LARGE CAP GROWTH INDEX(1)
------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
----- ----- -------- ---------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A............................ 6.45% 25.71% 32.16% 34.18%
PORTFOLIO -- CLASS B............................ 6.31 25.38 N/A 30.61
S&P 500 INDEX -- CLASS A........................ -0.42 7.25 23.80 25.25
LIPPER LARGE CAP GROWTH INDEX -- CLASS A........ 0.23 20.67 26.20 27.84
S&P 500 INDEX -- CLASS B........................ -0.42 7.25 N/A 22.86
LIPPER LARGE CAP GROWTH INDEX -- CLASS B........ 0.23 20.67 N/A 26.06
</TABLE>
1. The S&P 500 Index is an unmanaged stock index comprised of 500 large-cap
U.S. companies with market capitalization of $1 billion or more. The Lipper
Large Cap Growth Index is a composite of mutual funds managed for maximum
capital gains.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Focus Equity Portfolio seeks capital appreciation through a concentrated,
non-diversified portfolio of corporate equity securities. 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.
For the six months ended June 30, 2000, the Portfolio had a total return of
6.45% for the Class A shares and 6.31% for the Class B shares compared to -0.42%
for the S&P 500 Index and 0.23% for the Lipper Large Cap Growth Index. For the
one year ended June 30, 2000, the Portfolio had a total return of 25.71% for the
Class A shares and 25.38% for the Class B shares compared to 7.25% for the S&P
500 Index and 20.67% for the Lipper Large Cap Growth Index. For the five-year
period ended June 30, 2000, the Portfolio had a total return of 32.16% for the
Class A shares compared to 23.80% for the S&P 500 Index and 26.20% for the
Lipper Large Cap Growth Index. For the period from inception on March 8, 1995
through June 30, 2000, the average annual total return for the Class A shares
was 34.18% compared to 25.25% for the S&P 500 Index and 27.84% for the Lipper
Large Cap Growth Index. For the period from inception on January 2, 1996 through
June 30, 2000, the average annual total return for the Class B shares was 30.61%
compared to 22.86% for the S&P 500 Index and 26.06% for the Lipper Large Cap
Growth Index.
The Portfolio generated excellent returns in the first half of 2000,
significantly outperforming both the S&P 500 Index and the Lipper Large Cap
Growth Index. The market's relatively flat first half return masked significant
volatility, particularly in February (S&P declined 8%), March (up 10%) and April
(down 3%). Volatility was heightened, in our view, by Federal Reserve interest
rate increases, a more uncertain corporate earnings outlook and heightened
investor attention to valuation.
Growth continued to outperform value as the Russell 1000 Growth Index
appreciated 6.8% versus a decline of 0.2% for the Russell 1000 Value Index. As
was the case in 1999, a handful of Large Cap Stocks had the most positive effect
on market results. Two stocks, Cisco and Intel, contributed over 100% of the
Index's return. At the end of the first quarter investors rotated from favoring
new economy stocks to old economy stocks. Many growth favorites, including
Microsoft, Lucent, Yahoo! and America Online declined.
Value dominated growth in the markets through April and May, and technology
stocks were most severely affected in the downturn. June was a great month for
growth stocks, as the Russell 1000 Growth recovered 7% of the return lost in the
first two months of the quarter. The June recovery in growth was led by
technology and healthcare, two of our best performing sectors year-to-date.
------------------------------------------------------------------------------
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. 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.
------------------------------------------------------------------------------
Focus Equity Portfolio
85
<PAGE>
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INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
INVESTMENT OVERVIEW
------------------------------------------------------------------------------
FOCUS EQUITY PORTFOLIO (CONT.)
Our top positions continue to reflect a mix of classic growth stocks such as
Cisco Systems, General Electric, Pfizer, Microsoft, Intel, and Home Depot as
well as less well known growth names such as Tyco International and United
Technologies.
We remain pleased with the success of our bottom-up stock picking approach. We
ended the period slightly overweight in technology, after temporarily reducing
our technology position for a couple months mostly due to excessive valuations.
However stock selection in this sector accounted for over 30% of the Portfolio's
total outperformance for the first half of 2000. Over 75% of that relative
outperformance was attributable to successful stock picking within the group.
The absence of a large overweight bet in technology helped our relative
performance versus many other large capitalization growth funds that carried an
overweight in the sector from year-end. The Portfolio's positions in such "old
economy" names as Tyco, and Pfizer/Warner Lambert helped us sustain strong
performance during this period.
Major contributors to the strong performance results year to date were Intel,
Warner Lambert, Tyco International, Cisco, and Nortel Networks. We were
especially pleased with the performance of Tyco given the major downward move
sustained by that stock in the fourth quarter. Major detractors to performance
were Clear Channel, Motorola, Procter & Gamble, Home Depot, and Microsoft.
Tyco's continued strong business fundamentals and excitement regarding the
announced value-enhancing subsidiary-IPO of TyCom, the company's undersea
fiberoptic cable business, and the close of the SEC inquiry, drove appreciation
of 22% for the period. This more than offset the stock's fourth quarter decline.
We continue to believe in the company's ability to meet or exceed consensus
earnings expectations and, this, coupled with additional strategic moves (such
as the potential subsidiary-IPO of M/A-Com, the leading manufacturer of Gallium
Arsenide semiconductor substrate used in wireless communication devices and the
acquisition of Mallinckrodt in the health services segment) should drive
additional outperformance in future quarters.
We made a strategic decision to continue to add to our already overweight
position in healthcare from late in the first quarter. This was based on our
belief that the group's consistent earnings growth will be increasingly valuable
to investors as overall Index earnings growth moderates from unsustainably high
levels. The decision proved prudent, as healthcare was our second best
performing sector for the period. Large positions in American Home Products,
Pfizer and Johnson & Johnson drove strong performance.
Although large-cap pharmaceutical stocks dramatically outperformed the
market, Pfizer outperformed its peers. The acquisition of Warner Lambert was
formally completed in mid-June, but integration planning was already well
underway and we believe cost-cutting targets will be accomplished earlier
than expected and could be more significant than expected. Prescription
volume growth for most of the company's major drugs remains robust. Consensus
earnings expectations do not fully reflect the faster than expected
cost-cutting or the growth in sales volumes, in our view. A supposed lack of
pipeline depth is a frequent criticism of skeptics, but we believe
Pregabalin, Valdocoxib, and inhaled insulin all have tremendous market
potential. With no major patent expirations until 2006, the sector's fastest
projected earnings growth rate over the next several years, a strong
potential for additional co-marketing deals with other drug companies and for
non-core asset divestitures once pooling accounting restrictions are lifted
in two years, and the sectors lowest price to earnings-to-growth ratio, we
believe Pfizer remains a compelling investment and is a core holding in our
Portfolio.
Consumer cyclicals, one of our weakest performing sectors year-to-date, resulted
from the down turn of the retail sector during the second quarter. Our
investments in Home Depot, down 22% and Costco, down 37%, were our largest
detractors from performance is this sector.
Home Depot, the leading home improvement retailer, was among several retail
stocks punished by the market despite no change in its fundamentals. Although
the company met Wall Street consensus numbers, many sell side analysts became
concerned about a potential earnings shortfall. Issues such as labor and
infrastructure expenses growing faster than the company anticipated, as well as
rising interest rates, slower housing turnover, and the rising cost of gas,
created pressure in the stock; as well as the sector. Further due diligence led
us to the conclusion that this was an overreaction to short-term issues, in fact
we viewed this as a buying opportunity.
With the Fed expected to be in the seventh inning stretch on interest rate hikes
and the surge of growth stocks late in the second quarter, we are extremely
optimistic about the long-term prospect for large capitalization growth stocks
going forward. Signs of a soft landing, as well as strong fundamentals and
compelling business opportunities create a favorable environment for growth.
Philip W. Friedman
PORTFOLIO MANAGER
William S. Auslander
PORTFOLIO MANAGER
July 2000
------------------------------------------------------------------------------
Focus Equity Portfolio
86
<PAGE>
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INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
------------------------------------------------------------------------------
FOCUS EQUITY PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-----------------------------------------------------------------------
<S> <C>
COMMON STOCKS (97.7%)
CONSUMER DISCRETIONARY (14.1%)
MEDIA (8.4%)
(a)24,400 AMFM, Inc. .................................... $ 1,684
(a)231,414 AT&T- Liberty Media Corp., Class A ............ 5,612
(a)29,500 Clear Channel Communications, Inc. ............ 2,212
58,300 Time Warner, Inc. ............................. 4,431
---------
13,939
---------
SPECIALTY RETAIL (5.7%)
141,850 Home Depot, Inc. .............................. 7,083
67,800 Intimate Brands, Inc. ......................... 1,339
47,900 Limited, Inc. ................................. 1,036
---------
9,458
---------
TOTAL CONSUMER DISCRETIONARY .............................. 23,397
---------
CONSUMER STAPLES (3.2%)
BEVERAGES (1.0%)
22,500 Anheuser Busch Cos., Inc. ..................... 1,680
---------
FOOD & DRUG RETAILING (1.1%)
(a)39,600 Safeway, Inc. ................................. 1,787
---------
FOOD PRODUCTS (1.1%)
23,400 Quaker Oats Co. ............................... 1,758
---------
TOTAL CONSUMER STAPLES .................................... 5,225
---------
FINANCIALS (6.8%)
BANKS (2.4%)
84,500 Bank of New York Co., Inc. ................... 3,929
---------
DIVERSIFIED FINANCIALS (4.4%)
35,500 American Express Co. .......................... 1,851
57,700 Citigroup, Inc. ............................... 3,476
38,800 Federal National Mortgage Association ......... 2,025
---------
7,352
---------
TOTAL FINANCIALS .......................................... 11,281
---------
HEALTH CARE (14.2%)
PHARMACEUTICALS (14.2%)
68,700 American Home Products Corp. .................. 4,036
30,200 Johnson & Johnson ............................. 3,077
22,700 Merck & Co., Inc. ............................. 1,739
232,450 Pfizer, Inc. .................................. 11,158
69,700 Pharmacia Corp. ............................... 3,603
---------
TOTAL HEALTH CARE ......................................... 23,613
---------
INDUSTRIALS (18.7%)
AEROSPACE & DEFENSE (6.6%)
40,600 General Dynamics Corp. ........................ 2,121
151,500 United Technologies Corp. ..................... 8,920
---------
11,041
---------
INDUSTRIAL CONGLOMERATES (12.1%)
167,500 General Electric Co. .......................... 8,878
237,200 Tyco International Ltd. ....................... 11,237
---------
20,115
---------
TOTAL INDUSTRIALS ......................................... 31,156
---------
INFORMATION TECHNOLOGY (34.9%)
COMMUNICATIONS EQUIPMENT (15.0%)
(a)45,000 American Tower Corp., Class A ................. $ 1,876
(a)132,900 Cisco Systems, Inc. ........................... 8,448
(a)22,000 JDS Uniphase Corp. ............................ 2,637
31,900 Lucent Technologies, Inc. ..................... 1,890
111,900 Motorola, Inc. ................................ 3,252
101,700 Nortel Networks Corp. ......................... 6,941
---------
25,044
---------
COMPUTERS & PERIPHERALS (2.9%)
12,900 Hewlett Packard Co. ........................... 1,611
(a)35,000 Sun Microsystems, Inc. ........................ 3,183
---------
4,794
---------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (12.4%)
(a)41,500 Applied Materials, Inc. ....................... 3,761
56,100 Intel Corp. ................................... 7,500
(a)82,500 Maxim Integrated Products, Inc. ............... 5,605
54,500 Texas Instruments, Inc. ....................... 3,743
---------
20,609
---------
SOFTWARE (4.6%)
(a)56,700 Microsoft Corp. ............................... 4,536
(a)37,300 Oracle Corp. .................................. 3,135
---------
7,671
---------
TOTAL INFORMATION TECHNOLOGY .............................. 58,118
---------
TELECOMMUNICATION SERVICES (5.8%)
DIVERSIFIED TELECOMMUNICATION SERVICES (4.9%)
46,437 AT&T Corp. .................................... 1,469
63,100 GTE Corp. ..................................... 3,928
20,500 Sprint Corp. .................................. 1,045
(a)36,900 Worldcom, Inc. ................................ 1,693
---------
8,135
---------
WIRELESS TELECOMMUNICATION SERVICES (0.9%)
(a)41,400 Crown Castle International Corp. .............. 1,511
---------
TOTAL TELECOMMUNICATION SERVICES .......................... 9,646
---------
TOTAL COMMON STOCKS (cost $127,822) ......................... 162,436
---------
<CAPTION>
FACE
AMOUNT
(000)
---------------
<S> <C>
SHORT-TERM INVESTMENT (3.4%)
REPURCHASE AGREEMENT (3.4%)
$ 5,669 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/03/00, to be repurchased at $5,672,
collateralized by U.S. Treasury Notes, 4.25%,
due 11/15/03, valued at $5,787 (Cost $5,669)... 5,669
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------
Focus Equity Portfolio
87
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
------------------------------------------------------------------------------
FOCUS EQUITY PORTFOLIO (CONT.)
<TABLE>
<CAPTION>
AMOUNT
(000)
-----------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS (101.1%) (cost $133,491) .................. $ 168,105
---------
OTHER ASSETS (0.4%)
Cash .............................................. $ 1
Receivable for Investments Sold ................... 534
Dividends Receivable .............................. 79
Interest Receivable ............................... 1
Other ............................................. 2 617
------
LIABILITIES (-1.5%)
Payable for Investments Purchased ................. (1,651)
Payable for Portfolio's Shares Redeemed ........... (435)
Investment Advisory Fees Payable .................. (309)
Administrative Fees Payable ....................... (20)
Distribution Fees Payable ......................... (14)
Directors' Fees and Expenses Payable .............. (13)
Custodian Fees Payable ............................ (13)
Other Liabilities ................................. (25) (2,480)
------ ---------
NET ASSETS (100%) .......................................... $ 166,242
=========
NET ASSETS CONSIST OF:
Paid in Capital ............................................ $ 113,894
Accumulated Net Investment Loss ............................ (269)
Undistributed Net Realized Gain ............................ 18,003
Unrealized Appreciation on Investments ..................... 34,614
---------
NET ASSETS ................................................. $ 166,242
=========
CLASS A:
NET ASSETS ................................................. $ 142,315
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 6,784,850 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .................. $ 20.98
=========
CLASS B:
NET ASSETS ................................................. $ 23,927
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,153,866 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ..................... $ 20.74
=========
-----------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing
The accompanying notes are an integral part of the financial statements.
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Focus Equity Portfolio
88
<PAGE>
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
<TABLE>
<S> <C>
Auto & Transportation (2.4%)
Capital Equipment (0.6%)
Consumer Discretionary (23.1%)
Financial Services (6.0%)
Health Care (9.6%)
Information Technology (4.1%)
Materials & Processing (0.1%)
Product Durables (8.6%)
Real Estate (2.2%)
Services (1.0%)
Technology (34.2%)
Utilities (6.9%)
Other (1.2%)
</TABLE>
PERFORMANCE COMPARED TO THE RUSSELL 2000 GROWTH
INDEX AND THE RUSSELL 2000 INDEX(1)
-----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------------
AVERAGE AVERAGE AVERAGE
ANNUAL ANNUAL ANNUAL
ONE FIVE TEN SINCE
YTD YEAR YEARS YEARS INCEPTION
------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C>
PORTFOLIO -- CLASS A ........................ 18.62% 80.64% 32.24% 20.19% 20.69%
PORTFOLIO -- CLASS B ........................ 18.52 80.22 N/A N/A 31.21
RUSSELL 2000 GROWTH INDEX -- CLASS A ........ 1.23 28.39 15.80 13.26 12.97
RUSSELL 2000 INDEX -- CLASS A ............... 3.04 14.32 14.27 13.57 12.93
RUSSELL 2000 GROWTH INDEX -- CLASS B ........ 1.23 28.39 N/A N/A 14.55
RUSSELL 2000 INDEX -- CLASS B ............... 3.04 14.32 N/A N/A 12.99
</TABLE>
1. The Russell 2000 Growth Index is a market capitalization-weighted index
comprised of those companies of the Russell 2000 Index with higher forcasted
growth values and higher price-to-book ratios. 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 Small Company Growth Portfolio invests primarily in growth-oriented equity
securities of small U.S. and, to a limited extent, foreign companies. Such
companies generally have market capitalizations less than $2.5 billion.
Investments in small- to medium-sized corporations are more vulnerable to
financial risks and other risks than larger corporations and may involve a
higher degree of price volatility than investments in the general equity
markets.
For the six months ended June 30, 2000, the Portfolio had a total return of
18.62% for the Class A shares and 18.52% for the Class B shares compared to
1.23% for the Russell 2000 Growth Index and 3.04% for the Russell 2000 Index.
For the one year ended June 30, 2000, the Portfolio had a total return of 80.64%
for the Class A shares and 80.22% for the Class B shares compared to 28.39% for
the Russell 2000 Growth Index and 14.32% for the Russell 2000 Index. For the
five-year period ended June 30, 2000, the average annual total return for the
Class A shares was 32.24% compared to 15.80% for the Russell 2000 Growth Index
and 14.27% for the Russell 2000 Index. For the ten-year period ended June 30,
2000, the average annual total return for the Class A shares was 20.19% compared
to 13.26% for the Russell 2000 Growth Index and 13.57% for the Russell 2000
Index. For the period from inception on November 1, 1989 through June 30, 2000,
the average annual total return for the Class A shares was 20.69% compared to
12.97% for the Russell 2000 Growth Index and 12.93% for the Russell 2000 Index.
For the period from inception on January 2, 1996 through June 30, 2000, the
average annual total return for the Class B shares was 31.21% compared to 14.55%
for the Russell 2000 Growth Index and 12.99% for the Russell 2000 Index.
Our investment process continues to be focused on bottom up, fundamental
research. We tend to favor companies with exceptional earnings and cash flow
growth potential, strong leadership positions within their industries, high
levels of profitability and top notch management teams. In addition, we closely
monitor the quality of our companies' reported earnings to confirm that earnings
growth is directly correlated to operating cash flow growth. Year-to-date, the
Portfolio's performance has been strong on both an absolute and relative basis.
The first half of 2000 was marked by increased volatility for U.S. equity
markets primarily due to rising interest rates. After a period of strong
appreciation in the first quarter of the year, many of the best performing small
growth cap names corrected significantly in April and May. In June, the
-------------------------------------------------------------------------------
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. 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.
-------------------------------------------------------------------------------
Small Company Growth Portfolio
89
<PAGE>
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO (CONT.)
category bounced back with the Russell 2000 Growth appreciating 13%.
The Portfolio's relative outperformance continues to be largely the result of
stock selection as opposed to sector allocation. During the first six months of
the year, well over 100% of our outperformance compared to the Russell 2000
Growth Index came from individual stock selection. On a sector basis, our
underweighting of both healthcare and energy related issues negatively impacted
our performance as these areas were strong relative to the overall benchmark.
Our top performers for the first half of the year included several current and
several former top ten holdings. SBA Communications and Micromuse are current
top ten positions which have been key contributors to this year's results.
Terayon Communications, RF Microdevices, and IPC Information Systems were all
top ten positions at one point during the year and have also added meaningfully
to our returns. On the negative side, one former top ten position- Harmonic
Lightwaves- was our worst performing issue during the period.
Harmonic Lightwaves is a leading supplier of optical and broadband access
equipment to the cable industry. While the company is well positioned to
capitalize on the continued build out of broadband access networks, two issues
recently caused investor concerns about the future fundamentals of the company.
First of all, the company's largest customer, AT&T, had a pause in their
investment cycle. Secondly, Divicom, a recent acquisition, has seen a slowdown
in its business. After prudent due diligence we have concluded that these
problems are of a temporary nature, and remain confident in the long-term
prospects of the company.
Independent communication tower companies continue to be among our favorite
investment ideas. During the first six months we added a new tower company,
Spectrasite, to the portfolio and sold another, American Tower, because its
market capitalization had grown into "mid cap" territory. We believe that
independent tower companies are a great way to the play the exploding growth of
wireless communications in the U.S. and around the world. Communication towers
are monopolistic assets because local zoning restrictions create barriers to
entry by making the installation of competing structures extremely difficult. As
a result, companies that own and acquire these assets are able to negotiate very
favorable leases with wireless service providers (such as AT&T and Sprint) that
are trying to increase the network coverage they provide to consumers. Typical
tower leases are at least 5 years in maturity, require regular monthly cash
payments and have built in 3-5% price increases per year. In addition, the
incremental cost to the tower company of placing a new "tenant" or antenna on
its tower is minimal, so such "same tower growth" is highly additive to returns
on invested capital and cash flow. As a result, we continue to favor Pinnacle
Holdings, SBA Communications and Spectrasite as a way of gaining exposure to the
wireless explosion.
"New economy" stocks underperformed "old economy" stocks for most of the second
quarter. While we continue to view the internet as an exciting new medium with
the potential to fundamentally change the way businesses operate, our exposure
to "pure play" internet and new economy stocks remains minimal due to the
extremely dynamic and unpredictable nature of these business models.
Furthermore, we tend to seek exposure to "new economy" businesses by investing
in "old economy" companies with "new economy" type subsidiaries. We believe that
by investing in companies with such hidden assets, we can limit the volatility
of the portfolio relative to our competitors.
With the Fed expected to be in the seventh inning stretch on interest rate hikes
and the surge of growth stocks late in the second quarter, we are optimistic
about the prospect for small capitalization growth stocks going forward. Signs
of a steady economy, as well as strong fundamentals and compelling business
opportunities create a favorable environment for growth.
Alexander L. Umansky
PORTFOLIO MANAGER
Dennis P. Lynch
PORTFOLIO MANAGER
July 2000
-------------------------------------------------------------------------------
Small Company Growth Portfolio
90
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (98.4%)
AUTO & TRANSPORTATION (2.4%)
TRANSPORTATION MISCELLANEOUS (2.4%)
(a)83,200 C.H. Robinson Worldwide, Inc. ......................... $ 4,118
--------
CAPITAL EQUIPMENT (0.6%)
ELECTRICAL & ELECTRONICS (0.5%)
12,300 Gilat Satellite Networks Ltd. ......................... 854
--------
ENERGY EQUIPMENT & SERVICES (0.1%)
3,400 Capstone Turbine Corp. ................................ 153
--------
TOTAL CAPITAL EQUIPMENT ......................................... 1,007
--------
CONSUMER DISCRETIONARY (23.1%)
ADVERTISING AGENCIES (1.5%)
(a)130,262 R.H. Donnelly Corp. ................................... 2,524
--------
CABLE TELEVISION SERVICES (0.3%)
(a)7,500 Liberty Livewire Corp. ................................ 527
--------
CASINOS & GAMBLING (0.5%)
(a)31,000 Station Casinos, Inc. ................................. 775
--------
COMMUNICATIONS & MEDIA (0.2%)
(a)39,300 Radio Unica Corp. ..................................... 275
--------
EDUCATION SERVICES (0.6%)
(a)41,000 DeVry, Inc. ........................................... 1,084
--------
HOTEL/MOTEL (0.9%)
24,000 Four Seasons Hotels, Inc. ............................. 1,493
--------
HOUSEHOLD FURNISHINGS (0.3%)
(a)31,600 Furniture Brands International, Inc. .................. 478
--------
LEISURE TIME (2.1%)
(a)71,900 American Classic Voyages Co. .......................... 1,483
(a)52,600 Championship Auto Racing Teams, Inc. .................. 1,341
(a)29,800 Ducati Motor Holdings, Inc. ........................... 768
--------
3,592
--------
RADIO & TV BROADCASTERS (5.3%)
(a)61,700 Acme Communications, Inc. ............................. 1,126
(a)15,600 ACTV, Inc. ............................................ 233
(a)61,600 Pegasus Communications Corp. .......................... 3,022
(a)39,800 Radio One, Inc. ....................................... 1,177
(a)100,400 Radio One, Inc., Class A .............................. 2,215
(a)7,000 Sirius Satellite Radio, Inc. .......................... 310
(a)66,800 TCI Satellite Entertainment, Inc. ..................... 580
(a)9,800 XM Satellite Radio Holdings, Inc. ..................... 366
--------
9,029
--------
RESTAURANTS (1.9%)
(a)42,600 P.F. Chang's China Bistro, Inc. ....................... 1,360
(a)80,800 Papa John's International, Inc. ....................... 1,980
--------
3,340
--------
RETAIL (4.1%)
(a)78,600 Chico's FAS, Inc. ..................................... 1,572
(a)98,700 David's Bridal, Inc. .................................. 1,141
(a)60,700 InterTAN, Inc. ........................................ 713
(a)27,900 PurchasePro.com, Inc. ................................. 1,144
(a)171,300 Tuesday Morning Corp. ................................. 1,799
(a)24,700 Tweeter Home Entertainment Group, Inc. ................ 750
--------
7,119
--------
SERVICES: COMMERCIAL (5.0%)
(a)33,300 Martha Stewart Living Omnimedia, Inc. Class A ......... $ 733
(a)131,400 The Corporate Executive Board Co. ..................... 7,867
--------
8,600
--------
SHOES (0.4%)
(a)18,950 Kenneth Cole Productions, Inc. ........................ 758
--------
TOTAL CONSUMER DISCRETIONARY .................................... 39,594
--------
CONSUMER STAPLES (0.0%)
BROADCASTING (TV, RADIO, CABLE) (0.0%)
(a)2 AT&T Corp. Class A .................................... --
--------
FINANCIAL SERVICES (6.0%)
INSURANCE: MULTI-LINE (1.3%)
76,300 Reinsurance Group of America, Inc. (Non-Voting) ....... 2,299
--------
REAL ESTATE INVESTMENT TRUSTS (REIT) (4.7%)
(a)148,000 Pinnacle Holdings, Inc. ............................... 7,992
--------
TOTAL FINANCIAL SERVICES ........................................ 10,291
--------
HEALTH CARE (9.6%)
BIOTECHNOLOGY RESEARCH & PRODUCTION (1.8%)
(a)17,200 Aclara BioSciences, Inc. .............................. 876
(a)21,200 Corixa Corp. .......................................... 910
(a)18,400 Exelixis, Inc. ........................................ 614
(a)16,300 Sequenom, Inc. ........................................ 740
--------
3,140
--------
HEALTH CARE FACILITIES (1.5%)
(a)83,100 Community Health Systems, Inc. ........................ 1,345
(a)50,700 Triad Hospitals, Inc. ................................. 1,227
--------
2,572
--------
HEALTH CARE SERVICES (1.1%)
(a)56,400 Accredo Health, Inc. .................................. 1,949
--------
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (3.3%)
(a)45,100 Biosource International, Inc. ......................... 1,003
31,400 Cooper Cos., Inc. ..................................... 1,142
(a)23,500 Molecular Devices Corp. ............................... 1,626
2,300 Priority Healthcare Corp. ............................. 171
(a)13,000 Techne Corp. .......................................... 1,690
--------
5,632
--------
MISCELLANEOUS HEALTH CARE (1.9%)
(a)18,600 CV Therapeutics, Inc. ................................. 1,289
(a)49,100 NPS Pharmaceuticals, Inc. ............................. 1,314
(a)21,200 Tularik, Inc. ......................................... 625
--------
3,228
--------
TOTAL HEALTH CARE ............................................... 16,521
--------
INFORMATION TECHNOLOGY (4.1%)
COMMUNICATIONS EQUIPMENT (2.9%)
(a)3,700 Exfo Electro Optical Engineering, Inc. ................ 162
48,600 FLAG Telecom Holdings Ltd. ............................ 723
140,600 Spectrasite Holdings, Inc. ............................ 3,990
2,800 Stratos Lightwave, Inc. ............................... 78
--------
4,953
--------
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Small Company Growth Portfolio
91
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<S> <C>
INFORMATION TECHNOLOGY (CONT.)
INTERNET SOFTWARE & SERVICES (1.2%)
(a)81,200 Genuity, Inc. ......................................... $ 743
(a)44,900 Netratings, Inc. ...................................... 1,151
(a)2,300 Smartserv Online, Inc. ................................ 162
--------
2,056
--------
TOTAL INFORMATION TECHNOLOGY .................................... 7,009
--------
MATERIALS & PROCESSING (0.1%)
BUILDING: ROOFING & WALLBOARD (0.1%)
4,000 Elcor Corp. ........................................... 92
--------
PRODUCER DURABLES (8.6%)
IDENTIFICATION CONTROL & FILTER DEVICES (0.6%)
(a)27,500 Asyst Technologies, Inc. .............................. 942
--------
PRODUCTION TECHNOLOGY EQUIPMENT (1.2%)
(a)29,800 Credence Systems Corp. ................................ 1,644
(a)13,300 LTX Corp. ............................................. 465
--------
2,109
--------
TELECOMMUNICATIONS EQUIPMENT (6.8%)
(a)14,000 C-COR.net Corp. ....................................... 378
(a)29,600 L-3 Communications Corp. .............................. 1,689
(a)6,400 Plantronics, Inc. ..................................... 739
(a)149,600 SBA Communications Corp. .............................. 7,770
(a)18,198 Terayon Communication Systems, Inc. ................... 1,169
--------
11,745
--------
TOTAL PRODUCER DURABLES ......................................... 14,796
--------
REAL ESTATE (2.2%)
OFFICE (0.5%)
41,200 Arden Realty, Inc. REIT ............................... 968
--------
RESIDENTIAL APARTMENTS (0.6%)
41,400 Amli Residential Properties Trust REIT ................ 976
--------
RETAIL STRIP CENTERS (0.5%)
44,000 Federal Realty Investment Trust REIT .................. 880
--------
SELF STORAGE (0.6%)
42,800 Public Storage, Inc. REIT ............................. 1,003
--------
TOTAL REAL ESTATE ............................................... 3,827
--------
SERVICES (1.0%)
MERCHANDISING (1.0%)
(a)52,800 BJ's Wholesale Club, Inc. ............................. 1,742
--------
TECHNOLOGY (33.8%)
BIOTECHNOLOGY (0.3%)
14,200 Luminex Corp. ......................................... 591
--------
COMMUNICATIONS TECHNOLOGY (6.9%)
(a)28,400 Advanced Fibre Communications, Inc. ................... 1,287
(a)12,600 AudioCodes Ltd. ....................................... 1,512
(a)17,200 Clearnet Communications, Inc., Class A ................ 477
(a)31,400 Efficient Networks, Inc. .............................. 2,310
(a)102,900 Harmonic Lightwaves, Inc. ............................. 2,547
(a)17,200 Northeast Optic Network, Inc. ......................... 1,060
(a)26,800 Proxim, Inc. .......................................... 2,652
--------
11,845
--------
COMPUTER SERVICES SOFTWARE & SYSTEMS (8.4%)
(a)22,300 Allaire Corp. ......................................... 820
(a)2,950 eSpeed, Inc., Class A ................................. 128
(a)39,100 Informatica Corp. ..................................... $ 3,204
(a)38,600 Mediaplex, Inc. ....................................... 745
(a)28,400 Micromuse, Inc. ....................................... 4,700
(a)320,000 SAGA Systems, Inc. .................................... 3,980
(a)93,300 Voyager.net, Inc. ..................................... 746
--------
14,323
--------
COMPUTER TECHNOLOGY (3.4%)
(a)67,500 Accord Networks Ltd. .................................. 625
(a)16,100 Interlink Electronics, Inc. ........................... 674
(a)15,800 Netegrity, Inc. ....................................... 1,190
(a)41,900 SanDisk Corp. ......................................... 2,564
(a)47,900 Vertel Corp. .......................................... 838
--------
5,891
--------
DATA STORAGE & PROCESSING (0.3%)
(a)4,700 StorageNetworks, Inc. ................................. 424
--------
ELECTRONIC EQUIPMENT (0.6%)
(a)43,500 Universal Electronics, Inc. ........................... 1,069
--------
ELECTRONICS (2.2%)
(a)87,700 Ancor Communications, Inc. ............................ 3,137
(a)24,400 DDI Corp./CA .......................................... 695
--------
3,832
--------
ELECTRONICS (DEFENSE) (0.5%)
(a)20,000 Litton Industries, Inc. ............................... 840
--------
ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS (8.4%)
(a)51,900 ASM International N.V. ................................ 1,375
(a)5,100 ASM International N.V. ................................ 135
(a)12,200 Bookham Technology plc ................................ 723
(a)36,300 Cirrus Logic, Inc. .................................... 581
(a)11,600 HI/FN, Inc. ........................................... 515
(a)12,600 Lattice Semiconductor Corp. ........................... 871
(a)33,500 Micrel, Inc. .......................................... 1,455
(a)59,800 Powerwave Technologies, Inc. .......................... 2,631
(a)79,825 TranSwitch Corp. ...................................... 6,162
--------
14,448
--------
ELECTRONICS: TECHNOLOGY (0.7%)
(a)73,100 Sensormatic Electronics Corp. ......................... 1,156
--------
SOFTWARE PRODUCTS (1.2%)
(a)11,900 Cacheflow, Inc. ....................................... 732
(a)6,700 Documentum, Inc. ...................................... 599
2,400 Precision Software Solutions Ltd. ..................... 58
30,000 Virage, Inc. .......................................... 542
(d)21,700 Zi Corp. .............................................. 120
--------
2,051
--------
TEST, ANALYSIS & INSTRUMENTATION EQUIPMENT (0.9%)
21,753 Veeco Instruments, Inc. ............................... 1,593
--------
TOTAL TECHNOLOGY ................................................ 58,063
--------
UTILITIES (6.9%)
UTILITIES: ELECTRICAL (0.2%)
(a)19,800 Avista Corp. .......................................... 345
--------
UTILITIES: TELECOMMUNICATIONS (6.7%)
(a)9,500 Airgate PCS, Inc. ..................................... 499
87,500 CFW Communications Co. ................................ 3,281
(a)37,750 CoreComm Ltd. ......................................... 736
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
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92
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<S> <C>
UTILITIES (CONT.)
UTILITIES: TELECOMMUNICATIONS (CONT.)
(a)125,500 CTC Communications Group, Inc. ........................ $ 4,518
(a)21,400 Microcell Telecommunications, Inc. .................... 773
(a)61,400 NET2000 Communications, Inc. .......................... 1,006
(a)8,800 Rural Cellular Corp. .................................. 674
--------
11,487
--------
Total Utilities ................................................. 11,832
--------
TOTAL COMMON STOCKS (Cost $156,932) ............................... 168,892
--------
PREFERRED STOCKS (0.4%)
TECHNOLOGY (0.4%)
INTERNET SOFTWARE & SERVICES (0.4%)
(a,d,e)134,000 Warp 10 Technologies, Inc. (Cost $402).............. 670
--------
FACE
AMOUNT
(000)
---------
<S> <C> <C>
SHORT-TERM INVESTMENT (4.8%)
REPURCHASE AGREEMENT (4.8%)
$ 8,337 Chase Securities, Inc., 6.15%, dated 6/30/00, due
7/03/00, to be repurchased at $8,341, collateralized
by U.S. Treasury Bonds, 13.875%, due 5/15/11, valued
at $8,591 (Cost $8,337) .............................. 8,337
--------
TOTAL INVESTMENTS (103.6%) (Cost $165,671) ........................ 177,899
--------
OTHER ASSETS (2.0%)
Receivable for Investments Sold ....................... $ 3,128
Receivable for Portfolio Shares Sold .................. 219
Dividends Receivable .................................. 44
Interest Receivable ................................... 1
OTHER ................................................ 6 3,398
--------
LIABILITIES (-5.6%)
Payable for Investments Purchased ..................... (9,151)
Investment Advisory Fees Payable ...................... (336)
Distribution Fees Payable ............................. (42)
Custodian Fees Payable ................................ (27)
Administrative Fees Payable ........................... (22)
Directors' Fees and Expenses Payable .................. (8)
Bank Overdraft Payable ................................ (3)
Other Liabilities ..................................... (33) (9,622)
-------- --------
NET ASSETS (100%) ................................................. $171,675
========
AMOUNT
(000)
------
NET ASSETS CONSIST OF:
Paid in Capital ................................................... $125,166
Accumulated Net Investment Loss ................................... (646)
Undistributed Net Realized Gain ................................... 34,928
Unrealized Appreciation on Investments ............................ 12,227
--------
NET ASSETS ........................................................ $171,675
========
CLASS A:
--------
NET ASSETS ........................................................ $ 91,527
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 5,796,843 outstanding $0.001 par value shares
(authorized 500,000,000 shares) $ 15.79
========
CLASS B:
--------
NET ASSETS ........................................................ $ 80,148
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 5,200,616 outstanding $0.001 par value shares
(authorized 500,000,000 shares) $ 15.41
========
-------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing security
(d) -- Security valued at fair value -- See Note A-1 to financial statements.
(e) -- 144A Security -- certain condition for public sale may exist.
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Small Company Growth Portfolio
93
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INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
<TABLE>
<S> <C>
Capital Equipment (0.4%)
Capital Goods (0.6%)
Consumer Discretionary (2.6%)
Health Care (4.3%)
Information Technology (7.3%)
Techonology (82.7%)
Utilities (1.5%)
Other (0.6%)
</TABLE>
PERFORMANCE COMPARED TO THE NASDAQ COMPOSITE INDEX AND THE S&P 500 INDEX(1)
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------
AVERAGE
ANNUAL
ONE SINCE
YTD YEAR(3) INCEPTION
------- --------- ---------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A .................... 18.27% 114.23% 67.02%
PORTFOLIO -- CLASS B .................... 18.14 113.82 66.69
NASDAQ COMPOSITE INDEX .................. -2.54 47.65 37.31
S&P 500 INDEX ........................... -0.42 7.25 23.92
</TABLE>
1. The Nasdaq Composite Index is a market capitalization-weighted index
comprised of all common stocks listed on Nasdaq Stock Market. The S&P 500
Index is comprised of the stocks of 500 large-cap U.S. companies with market
capitalization of $1 billion or more. These 500 companies represent
approximately 100 industries chosen mainly for market size, liquidity, and
industry group representation.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
3. The Portfolio's performance was attributable to unusually favorable market
conditions, especially in the technology sector, that are likely not
sustainable, and as a result, the quoted performance probably will not be
repeated in the future.
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's concentration in the technology sector makes it subject to greater
risk and volatility than portfolios that are more diversified, and the value of
its shares may be substantially affected by economic events. In addition, the
Portfolio may invest up to 35% of its assets in securities of foreign issuers.
For the six months ended June 30, 2000, the Portfolio had a total return of
18.27% for the Class A shares and 18.14% for the Class B shares compared to
-2.54% for the Nasdaq Composite Index and -0.42% for the S&P 500 Index. For the
one year ended June 30, 2000, the Portfolio had a total return of 114.23% for
the Class A shares and 113.82% for the Class B shares compared to 47.65% for the
Nasdaq Composite Index and 7.25% for the S&P 500 Index. For the period from
inception on September 16, 1996 through June 30, 2000, the Portfolio had an
average annual total return of 67.02% for the Class A shares and 66.69% for the
Class B shares compared to 37.31% for the Nasdaq Composite Index 23.92% for the
S&P 500 Index.
The first half of 2000 was marked by increased volatility for U.S. equity
markets primarily due to rising interest rates. After a period of strong
appreciation in the first quarter of the year, many of the best performing
technology names corrected significantly in April and May. In June, the category
bounced back with the Nasdaq appreciating about 17%.
Consistent with our strategy, we increased exposure to higher quality, more
proven companies during the first half of the year and reduced weightings in
others we felt were more vulnerable in tougher market environments. For example,
during April we added to our positions in companies such as Nortel, Texas
Instruments, Oracle, and Sun Microsystems. When the market rebounded in June,
our emphasis on higher quality, less speculative companies helped the Portfolio,
as they were the first to benefit from the recovery.
Despite heightened stock market volatility this year, our companies continued to
experience strong underlying business fundamentals. Specifically, we continue to
favor companies that supply components needed to build out next
--------------------------------------------------------------------------------
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. 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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94
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INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO (CONT.)
generation telecommunications networks. Nortel Networks has been one of the top
contributors to the Portfolio's performance and remains a top 10 position. The
company is a leader in optical networking, broadband access systems, and
wireless data networks. Given that service providers such as Qwest
Communications and Vodaphone Airtouch need to significantly upgrade their
current networks in order to maintain service quality customer satisfaction, we
anticipate Nortel's business momentum to remain strong for the foreseeable
future regardless of the interest rate environment.
Terayon Communication Systems, another significant contributor to recent
performance, also has the "arms dealer" type business model we prefer. The
company is the premier manufacturer of cable internet access equipment. As a
result, Terayon has and should continue to benefit from increased capital
spending by cable companies such as Time Warner, who need to enhance their
networks in order to offer broadband services such as internet access to their
customers. Year-to-date, Terayon's stock has appreciated 261%.
Our largest detractor from performance during the first half of the year was
Harmonic Lightwaves; however, we remain bullish on its long-term outlook. The
company is a leading supplier of optical and broadband access equipment to the
cable industry. Like Nortel and Terayon, Harmonic is well positioned to
capitalize on the continued build out of broadband access networks; however, two
issues recently caused investor concerns and stock price volatility. First of
all, the company's largest customer, AT&T, had a pause in their investment
cycle. Secondly, Divicom, a recent acquisition, has seen a slowdown in its
business. After prudent due diligence we have concluded that these problems are
of a temporary nature, and remain confident in Harmonic's long-term prospects.
With the Fed expected to be in the seventh inning stretch on interest rate hikes
and the surge of growth stocks late in the second quarter, we are very
optimistic about the long-term prospects for technology stocks going forward.
Signs of a soft landing, as well as strong fundamentals, and compelling business
opportunities create a favorable environment for long-term investing.
Alexander L. Umansky
PORTFOLIO MANAGER
Stephen C. Sexauer
PORTFOLIO MANAGER
July 2000
--------------------------------------------------------------------------------
Technology Portfolio
95
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--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (98.5%)
CAPITAL EQUIPMENT (0.4%)
ELECTRICAL & ELECTRONICS (0.3%)
(a)6,250 Gilat Satellite Networks Ltd. ................. $ 434
-------------
ELECTRONIC COMPONENTS, INSTRUMENTS (0.1%)
(a)3,740 Taiwan Semiconductor Manufacturing Co., Ltd. .. 145
-------------
ENERGY EQUIPMENT & SERVICES (0.0%)
(a)1,600 Capstone Turbine Corp. ........................ 72
-------------
TOTAL CAPITAL EQUIPMENT .................................... 651
-------------
CAPITAL GOODS (0.6%)
MANUFACTURING (DIVERSIFIED)(0.6%)
19,150 Tyco International Ltd. ....................... 907
-------------
CONSUMER DISCRETIONARY (2.6%)
RADIO & TV BROADCASTERS (0.7%)
(a)20,400 Pegasus Communications Corp. .................. 1,001
-------------
RADIO & TV BROADCASTING (0.6%)
(a)27,100 TV Guide, Inc. ................................ 928
-------------
RETAIL (0.6%)
(a)22,950 PurchasePro.com, Inc. ......................... 941
-------------
SERVICES: COMMERCIAL (0.7%)
(a)16,700 The Corporate Executive Board Co. ............. 1,000
-------------
TOTAL CONSUMER DISCRETIONARY ............................... 3,870
-------------
HEALTH CARE (4.3%)
BIOTECHNOLOGY RESEARCH & PRODUCTION (2.4%)
(a)9,350 Aclara Biosciences, Inc. ...................... 476
(a)16,300 Corixa Corp. .................................. 700
(a)14,400 Exelixis, Inc. ................................ 481
(a)12,300 Gilead Sciences, Inc. ......................... 875
(a)8,700 MedImmune, Inc. ............................... 644
(a)14,050 Tularik, Inc. ................................. 414
-------------
3,590
-------------
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (0.5%)
(a)37,350 BioSource International, Inc. ................. 831
-------------
MISCELLANEOUS HEALTH CARE (1.4%)
(a)14,750 CV Therapeutics, Inc. ......................... 1,022
(a)40,800 NPS Pharmaceuticals Inc. ...................... 1,092
-------------
2,114
-------------
TOTAL HEALTH CARE .......................................... 6,535
-------------
INFORMATION TECHNOLOGY (7.3%)
COMMUNICATIONS EQUIPMENT (4.2%)
(a)61,600 Accord Networks Ltd. .......................... 570
84,084 Nortel Networks Corp. ......................... 5,739
(a)2,500 Stratos Lightwave, Inc. ....................... 69
-------------
6,378
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (1.3%)
18,400 PE Corp.-PE Biosystems Group .................. 1,212
(a)12,000 PerkinElmer, Inc. ............................. 794
-------------
2,006
-------------
INTERNET SOFTWARE & SERVICES (0.5%)
(a)77,600 Genuity, Inc. ................................. 711
-------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (1.3%)
(a)6,650 Infineon Technologies AG ...................... 527
(a)24,700 Intersil Holding Corp. ........................ 1,335
-------------
1,862
-------------
TOTAL INFORMATION TECHNOLOGY ............................... 10,957
-------------
TECHNOLOGY (81.8%)
BIOTECHNOLOGY (1.0%)
(a)5,200 Genentech, Inc. ............................... 895
(a)5,600 Millennium Pharmaceuticals, Inc. .............. 626
-------------
1,521
-------------
COMMUNICATION EQUIPMENT (0.3%)
22,200 Telefonaktiebolaget LM Ericsson AB ADR ........ 444
-------------
COMMUNICATIONS EQUIPMENT (0.1%)
(a)3,300 Exfo Electro-Optical Engineering, Inc. ........ 145
-------------
COMMUNICATIONS TECHNOLOGY (3.8%)
(a)4,900 China Mobile (Hong Kong) Ltd. ADR ............. 871
7,500 Corning, Inc. ................................. 2,024
(a)18,800 CTC Communications Group, Inc. ................ 677
(a)17,700 Pinnacle Holdings, Inc. ....................... 956
(a)23,800 SBA Communications Corp. ...................... 1,236
-------------
5,764
-------------
COMPUTER SERVICES SOFTWARE & SYSTEMS (2.7%)
(a)28,350 Mediaplex, Inc. ............................... 548
(a)54,300 QLogic Corp. .................................. 3,587
-------------
4,135
-------------
COMPUTER TECHNOLOGY (1.0%)
(a)9,150 Netegrity Inc. ................................ 689
(a)47,250 Vertel Corp. .................................. 827
-------------
1,516
-------------
COMPUTERS (SOFTWARE & SERVICES) (1.3%)
(a)23,050 Oracle Corp. .................................. 1,937
-------------
DATA COMMUNICATIONS (22.2%)
(a)200 Accelerated Networks Inc. ..................... 8
(a)19,800 Advanced Fibre Communications, Inc. ........... 897
(a)38,600 American Tower Corp., Class A ................. 1,609
(a)8,100 CIENA Corp. ................................... 1,350
(a)65,950 Cisco Systems, Inc. ........................... 4,192
(a)8,100 Ditech Communications Corp. ................... 766
(a)5,800 E-Tek Dynamics, Inc. .......................... 1,530
(a)28,950 Efficient Networks, Inc. ...................... 2,130
(a)88,750 Harmonic Lightwaves, Inc. ..................... 2,197
(a)21,380 JDS Uniphase Corp. ............................ 2,563
(a)23,500 Metromedia Fiber Network, Inc., Class A ....... 933
(a)3,950 Next Level Communications, Inc. ............... 339
30,850 Nokia Corp. ................................... 1,541
(a)49,050 Powerwave Technologies, Inc. .................. 2,158
(a)18,350 Proxim, Inc. .................................. 1,816
(a)11,950 RF Micro Devices, Inc. ........................ 1,047
21,050 Scientific-Atlanta, Inc. ...................... 1,568
(a)6,400 Sycamore Networks, Inc. ....................... 706
(a)10,700 Terayon Communication Systems, Inc. ........... 687
(a)61,950 Transwitch Corp. .............................. 4,782
16,400 Vodafone AirTouch plc ADR ..................... 680
-------------
33,499
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Technology Portfolio
96
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--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
TECHNOLOGY (CONT.)
DATA STORAGE & PROCESSING (2.7%)
(a)38,150 SanDisk Corp. ............................... $ 2,334
(a)4,100 StorageNetworks, Inc. ....................... 370
(a)12,600 VERITAS Software Corp. ...................... 1,424
-------------
4,128
-------------
ELECTRONIC EQUIPMENT (6.6%)
(a)5,900 Foundry Networks, Inc. ...................... 649
(a)11,000 Gemstar Internal Group Ltd. ................. 676
(a)9,400 Juniper Networks, Inc. ...................... 1,369
(a)27,950 LSI Logic Corp. ............................. 1,513
(a)32,600 Micrel, Inc. ................................ 1,416
(a)17,800 Microchip Technology, Inc. .................. 1,037
(a)700 ONI Systems Corp. ........................... 82
(a)8,500 SDL, Inc. ................................... 2,424
(a)6,500 Waters Corp. ................................ 811
-------------
9,977
-------------
ELECTRONICS (0.4%)
(a)19,350 DDI Corp. ................................... 551
-------------
ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS (1.4%)
(a)29,950 ASM International N.V. ...................... 794
(a)10,150 Bookham Technology plc ...................... 601
(a)17,300 hi/fn, Inc. ................................. 768
-------------
2,163
-------------
MICRO COMPUTER MFG. (1.1%)
(a)17,800 Sun Microsystems, Inc. ...................... 1,619
-------------
SEMICONDUCTOR CAPITAL EQUIPMENT MFG. (2.9%)
(a)12,500 Applied Materials, Inc. ..................... 1,133
(a)31,300 KLA-Tencor Corp. ............................ 1,833
(a)24,900 Novellus Systems, Inc. ...................... 1,408
-------------
4,374
-------------
SEMICONDUCTOR MFG. (14.9%)
(a)30,150 Advanced Micro Devices, Inc. ................ 2,329
(a)10,200 Altera Corp. ................................ 1,040
(a)23,550 Analog Devices, Inc. ........................ 1,790
(a)53,450 ASM Lithography Holding N.V. ................ 2,358
(a)16,700 Atmel Corp. ................................. 616
(a)5,350 Broadcom Corp., Class A ..................... 1,171
(a)2,550 Chartered Semiconductor Manufacturing Ltd. .. 229
(a)29,400 Cypress Semiconductor Corp. ................. 1,242
25,550 Intel Corp. ................................. 3,416
(a)37,100 Lam Research Corp. .......................... 1,391
15,800 Linear Technology Corp. ..................... 1,010
(a)32,800 Maxim Integrated Products, Inc. ............. 2,228
20,436 Motorola, Inc. .............................. 594
(a)10,900 National Semiconductor Corp. ................ 619
(a)8,250 PMC-Sierra, Inc. ............................ 1,466
15,400 Texas Instruments, Inc. ..................... 1,058
-------------
22,557
-------------
SOFTWARE PRODUCTS (11.9%)
(a)1,450 Akamai Technologies, Inc. ................... 172
(a)10,600 Ariba Inc. .................................. 1,039
(a)16,200 BEA Systems, Inc. ........................... 801
(a)12,250 Cacheflow, Inc. ............................. 754
(a)3,350 Digital Island, Inc. ........................ 163
(a)19,550 Documentum, Inc. ............................ 1,747
(a)1,750 eSPEED, Inc. Class A ........................ 76
(a)3,050 I2 Technologies, Inc. ....................... 318
(a)15,450 Informatica Corp. ........................... 1,266
(a)7,650 Inktomi Corp. ............................... 905
(a)9,450 Mercury Interactive Corp. ................... 914
(a)4,900 Micromuse, Inc. ............................. 811
(a)27,800 Portal Software, Inc. ....................... 1,776
(a)2,100 Precise Software Solutions Ltd. ............. 50
(a)23,900 PSInet, Inc. ................................ 601
(a)8,300 Rational Software Corp. ..................... 771
(a)23,400 Red Hat, Inc. ............................... 633
(a)141,200 SAGA Systems, Inc. .......................... 1,756
(a)9,200 TIBCO Software, Inc. ........................ 987
(a)18,100 Vignette Corp. .............................. 942
(a)13,800 Virage, Inc. ................................ 249
(a)8,550 YAHOO!, Inc. ................................ 1,059
(a)34,600 Zi Corporation .............................. 192
-------------
17,982
-------------
TEST, ANALYSIS & INSTRUMENTATION EQUIPMENT (1.0%)
(a)7,300 Credence Systems Corp. ...................... 403
(a)14,933 Veeco Instruments, Inc. ..................... 1,094
-------------
1,497
-------------
OTHER (6.5%)
(a)30,300 Asyst Technologies, Inc. .................... 1,038
(a)5,900 Brocade Communications Systems, Inc. ........ 1,083
(a)18,450 Extreme Networks, Inc. ...................... 1,946
(a)12,950 Redback Networks, Inc. ...................... 2,305
(a)19,643 VeriSign, Inc. .............................. 3,467
-------------
9,839
-------------
TOTAL TECHNOLOGY ......................................... 123,648
-------------
UTILITIES (1.5%)
UTILITIES: TELECOMMUNICATIONS (1.5%)
(a)51,100 NET2000 Communications, Inc. ................ 837
(a)38,078 NEXTLINK Communications, Inc. ............... 1,444
-------------
TOTAL UTILITIES .......................................... 2,281
-------------
TOTAL COMMON STOCKS (Cost $119,933) ........................ 148,849
-------------
PREFERRED STOCKS (0.9%)
TECHNOLOGY (0.9%)
SOFTWARE SERVICES (0.9%)
(a)268,000 BrandEra.com, Inc. (Cost $804) .............. 1,340
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
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97
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INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT AMOUNT
(000) (000)
--------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENT (1.3%)
REPURCHASE AGREEMENT (1.3%)
$ 2,100 Chase Securities, Inc., 6.15%, dated
6/30/00, due 7/03/00, to be repurchased
at $2,101, collateralized by U.S.
Treasury Notes, 4.75%, due 11/15/08,
valued at $2,145 (Cost $2,100) .............. $ 2,100
-------------
TOTAL INVESTMENTS (100.7%) (Cost $122,837) .................... 152,289
-------------
OTHER ASSETS (0.7%)
Receivable for Investments Sold ........... $ 964
Receivable for Portfolio Shares Sold ...... 55
Dividends Receivable ...................... 6
Other Assets .............................. 21 1,046
-------------
LIABILITIES (-1.4%)
Payable for Investments Purchased ......... (1,785)
Investment Advisory Fees Payable .......... (292)
Administrative Fees Payable ............... (19)
Payable for Portfolio Shares Redeemed ..... (18)
Custodian Fees Payable .................... (10)
Directors' Fees and Expenses Payable ...... (6)
Distribution Fees Payable ................. (5)
Other Liabilities ......................... (29) (2,164)
------------- -------------
NET ASSETS (100%) ............................................ $ 151,171
=============
NET ASSETS CONSIST OF:
Paid in Capital ............................................... $ 94,991
Accumulated Net Investment Loss ............................... (671)
Undistributed Net Realized Gain ............................... 27,399
Unrealized Appreciation on Investments ........................ 29,452
-------------
NET ASSETS .................................................... $ 151,171
=============
<CAPTION>
AMOUNT
(000)
--------------------------------------------------------------------------------
<S> <C>
CLASS A:
NET ASSETS .................................................... $ 141,303
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 3,070,694 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ...................... $ 46.02
=============
CLASS B:
NET ASSETS .................................................... $ 9,868
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 215,919 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ...................... $ 45.70
=============
--------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Technology Portfolio
98
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
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------------------------------------------------------------------------------
INVESTMENT OVERVIEW
------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-----------------------------------------------------
<TABLE>
<S> <C>
Utilities (2.7%)
Telecommunication Services (6.4%)
Technology (0.4%)
Materials (1.5%)
Information Technology (32.2%)
Industrials (8.3%)
Consumer Cyclicals (0.7%)
Consumer Discretionary (10.5%)
Consumer Staples (6.6%)
Energy (5.5%)
Financials (12.5%)
Health Care (12.7%)
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
--------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION
---------- ------- ----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A -2.19% 5.10% 14.44%
PORTFOLIO -- CLASS B -2.27 4.85 14.22
INDEX -0.42 7.25 17.18
</TABLE>
1. The S&P 500 Index is comprised of the stocks of 500 large-cap U.S.
companies with market capitalization of $1 billion or more. These 500
companies represent approximately 100 industries chosen mainly for market
size, liquidity and industry group representation.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
--------------------------------------------------------------------------------
The U.S. Equity Plus Portfolio seeks long-term capital appreciation by investing
primarily in equity securities of issuers in the S&P 500 Index (the "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
Index with a volatility of portfolio return that is similar to that of the
Index. This is sought by using a multi-factor risk model for building the
Portfolio and by maintaining sector neutrality with respect to the Index. The
active exposure to any single company is also kept to a modest level.
For the six months ended June 30, 2000, the Portfolio had a total return of
-2.19% for the Class A shares and -2.27% for the Class B shares compared to
-0.42% for the Index. For the one year ended June 30, 2000, the Portfolio had a
total return of 5.10% for the Class A shares and 4.85% for the Class B shares
compared to 7.25% for the Index. For the period from inception on July 31, 1997
through June 30, 2000, the Portfolio had an average annual total return of
14.44% for the Class A shares and 14.22% for Class B shares compared to 17.18%
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 health care,
communications and utilities. Our worst performing sectors were aerospace &
defense, consumer services and telephones.
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 Index came from the following stocks: 1) Sysco, a
food services company, rose propelled by strong sales and continued earnings
surprises. 2) Sears Roebuck & Co. turned in a strong performance as cost cutting
boosted sales and earnings beat forecasts. 3) Times Mirror almost doubled as
Tribune announced it was acquiring the company. 4) Scientific-Atlanta at one
point outperformed
--------------------------------------------------------------------------------
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. 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
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------------------------------------------------------------------------------
INVESTMENT OVERVIEW
------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
the Index by almost 125% as it promised an extremely aggressive growth in the
near future. 5) Enron rallied as it reported the fourth quarter of 1999 earnings
up by more than 50%.
On the other side, the five most negative contributions to our performance
relative to the Index came from the following stocks: 1) Bristol-Myers Squibb
tumbled due to delays in FDA's approval of Vanlev, a drug that regulates blood
pressure. 2) Chase Manhattan declined due to Federal Reserve's continuing to
raise interest rates. 3) Procter and Gamble tumbled by almost 50% after the
company said its forecasts for profit growth were too optimistic and earnings
instead will fall. 4) Walmart slid as the company executives warned that sales
gains from 1999 will be difficult to match this year. 5) Johnson and Johnson
fell as the healthcare industry underperformed the broader market.
For most of this year it has been a tale of two markets. The Index has
oscillated around 1435 level and ended up flat with a return of only -0.42%.
Nasdaq, on the other hand exhibited a tremendous volatility which reached almost
60% in the first half on an annualized basis and beat the 44% seen in second
half 1987. It was all for naught however as Nasdaq ended only down -2.46% for
the year-to-date. Looking at leading economic indicators we see that the Index
has not risen since March and decelerated from 2.2% year-over-year growth last
summer to its current 1.2% year-over-year. This, in combination with rising oil
prices, points to a slowdown in the economy. And even though growth seems to be
moderating, inflationary pressures may remain until the U.S. economy is slowed
to below its trend growth path.
A combination of these factors will be crucial in determining whether a "soft
landing" for the economy is possible. We believe that U.S. stock market will
move away from an environment dominated by sector tilts and price momentum (the
evidence of the latter has shown itself in the last two quarters). That would
signal the return of "relative value" and stock selection as major performance
drivers, which should bode well for the Portfolio.
Narayan Ramachandran
PORTFOLIO MANAGER
July 2000
--------------------------------------------------------------------------------
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100
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STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
---------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (100.0%)
CONSUMER CYCLICALS (0.7%)
PUBLISHING (NEWSPAPERS) (0.3%)
1,200 Knight-Ridder Inc. ...................... $ 64
-------
RETAIL (GENERAL MERCHANDISE) (0.4%)
2,400 Sears, Roebuck & Co. .................... 78
-------
TOTAL CONSUMER CYCLICALS ................................... 142
CONSUMER DISCRETIONARY (10.5%) -------
AUTO COMPONENTS (0.1%)
400 Delphi Automotive Systems Corp. ......... 6
(a)511 Visteon Corp. ........................... 6
-------
12
-------
AUTOMOBILES (0.8%)
3,900 Ford Motor Co. .......................... 168
-------
HOTELS RESTAURANTS & LEISURE (0.5%)
700 Darden Restaurants, Inc. ................ 11
2,200 Hilton Hotels Corp. ..................... 21
1,000 McDonald's Corp. ........................ 33
(a)500 Starbucks Corp. ......................... 19
(a)800 Tricon Global Restaurants, Inc. ......... 23
-------
107
-------
HOUSEHOLD DURABLES (0.5%)
600 American Greetings Corp., Class A ....... 11
1,700 Fortune Brands, Inc. .................... 39
800 Kaufman & Broad Home Corp. .............. 16
300 Pulte Corp. ............................. 7
300 Springs Industries, Inc., Class A ..... 10
700 Tupperware Corp. ........................ 15
-------
98
-------
LEISURE EQUIPMENT & PRODUCTS (0.0%)
400 Brunswick Corp. ......................... 7
-------
MEDIA (3.1%)
(a)900 Comcast Corp., Class A .................. 36
600 Dow Jones & Co., Inc. ................... 44
400 Gannett Co., Inc. ....................... 24
(a)800 MediaOne Group, Inc. .................... 53
1,800 The Walt Disney Co. ..................... 70
2,600 Time Warner, Inc. ....................... 198
1,000 Tribune Co. ............................. 35
(a)2,600 Viacom, Inc., Class B ................... 177
-------
637
-------
MULTILINE RETAIL (3.4%)
(a)1,600 Federated Department Stores, Inc. ....... 54
(a)800 Kohl's Corp. ............................ 44
1,700 Target Corp. ............................ 99
8,700 Wal-Mart Stores, Inc. ................... 501
-------
698
-------
SPECIALTY RETAIL (1.9%)
(a)500 Bed, Bath & Beyond, Inc. ............... 18
(a)400 Best Buy Co., Inc. ...................... 25
100 Circuit City Stores-Circuit City Group .. 3
4,650 Home Depot, Inc. ........................ 232
1,000 Lowe's Cos., Inc. ....................... 41
3,300 The Limited, Inc. ...................... 72
-------
391
-------
TEXTILES & APPAREL (0.2%)
500 Nike, Inc., Class B ..................... 20
100 Russell Corp. ........................... 2
500 VF Corp. ................................ 12
-------
34
-------
TOTAL CONSUMER DISCRETIONARY ............................... 2,152
-------
CONSUMER STAPLES (6.6%)
BEVERAGES (2.9%)
2,500 Anheuser Busch Cos., Inc. ............... 187
4,300 Coca Cola Co. ........................... 247
400 Coors (Adolph), Inc., Class B ........... 24
3,100 PepsiCo, Inc. ........................... 138
-------
596
-------
DISTRIBUTORS (FOOD & HEALTH) (0.1%)
1,000 SUPERVALU, Inc. ......................... 19
-------
FOOD & DRUG RETAILING (0.7%)
3,400 SYSCO Corp. ............................. 143
-------
FOOD PRODUCTS (1.2%)
2,100 Bestfoods ............................... 145
500 Heinz (H.J.) Co. ........................ 22
900 Quaker Oats Co. ......................... 68
800 Sara Lee Corp. .......................... 15
-------
250
-------
HOUSEHOLD PRODUCTS (0.7%)
800 Colgate-Palmolive Co. ................... 48
500 Fort James Corp. ........................ 12
600 Kimberly-Clark Corp. .................... 34
700 Procter & Gamble Co. .................... 40
-------
134
-------
TOBACCO (1.0%)
7,000 Philip Morris Cos., Inc. ................ 186
1,000 UST, Inc. .............................. 15
-------
201
-------
TOTAL CONSUMER STAPLES ..................................... 1,343
-------
ENERGY (5.5%)
ENERGY EQUIPMENT & SERVICES (0.3%)
1,000 Baker Hughes, Inc. ...................... 32
800 Halliburton Co. ......................... 38
-------
70
-------
OIL & GAS (5.2%)
600 Amerada Hess Corp. ...................... 37
1,100 Apache Corp. ............................ 65
1,300 Chevron Corp. ........................... 110
6,728 Exxon Mobile Corp. ...................... 528
300 Kerr McGee Corp. ........................ 18
3,800 Royal Dutch Petroleum Co. ............... 234
800 Sunoco, Inc. ............................ 24
900 Tosco Corp. ............................. 25
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------
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101
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---------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
---------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------
<S> <C>
ENERGY (CONT.)
OIL & GAS (CONT.)
1,000 USX-Marathon Group ..................... $ 25
-------
1,066
-------
TOTAL ENERGY ............................................. 1,136
-------
FINANCIALS (12.5%)
BANKS (4.3%)
2,300 AmSouth Bancorp. ....................... 36
1,300 Bank of New York Co., Inc. ............. 60
900 Bank One Corp. ......................... 24
2,100 BankAmerica Corp. ...................... 90
1,450 Chase Manhattan Corp. .................. 67
3,000 Comerica, Inc. ......................... 135
2,700 Firstar Corp. .......................... 57
5,500 Fleet Boston Financial Corp. ........... 187
1,100 Golden West Financial Corp. ............ 45
600 Mellon Bank Corp. ...................... 22
400 Morgan (J.P.) & Co., Inc. .............. 44
2,600 Washington Mutual, Inc. ................ 75
1,200 Wells Fargo Co. ........................ 47
-------
889
-------
DIVERSIFIED FINANCIALS (5.8%)
2,100 American Express Co. ................... 109
1,410 Bear Stearns Cos., Inc. ................ 59
1,200 Charles Schwab Corp. ................... 40
6,299 Citigroup, Inc. ........................ 380
2,100 Federal Home Loan Mortgage Corp. ....... 85
2,700 Federal National Mortgage Association .. 141
1,900 Household International, Inc. .......... 79
500 Lehman Brothers Holdings, Inc. ......... 47
1,600 MBNA Corp. ............................. 43
800 Merrill Lynch & Co. .................... 92
500 Paine Webber Group, Inc. ............... 23
400 Providian Financial Corp. .............. 36
500 State Street Corp. ..................... 53
-------
1,187
-------
INSURANCE (2.4%)
3,000 American International Group, Inc. ..... 353
6,500 Conseco, Inc. .......................... 63
800 Lincoln National Corp. ................. 29
900 Hartford Financial Services Group, Inc. 50
200 MGIC Investment Corp. .................. 9
-------
504
-------
TOTAL FINANCIALS ......................................... 2,580
-------
HEALTH CARE (12.7%)
BIOTECHNOLOGY (0.6%)
1,900 Amgen, Inc. ............................ 133
-------
HEALTH CARE EQUIPMENT & SUPPLIES (1.2%)
800 Allergan, Inc. ......................... 60
200 Baxter International, Inc. ............. 14
1,100 Becton Dickinson & Co. ................. 31
700 Mallinckrodt, Inc. ..................... 30
1,700 Medtronic, Inc. ........................ 85
300 PE Corp.-PE Biosystems Group ........... 20
-------
240
-------
HEALTH CARE PROVIDERS & SERVICES (1.5%)
600 Aetna, Inc. ............................ 38
500 Bard (C.R.), Inc. ...................... 24
500 Cardinal Health, Inc. .................. 37
1,600 CIGNA Corp. ............................ 150
800 Tenet Healthcare Corp. ................. 22
(a)400 UnitedHealth Group Inc. ................ 34
(a)100 Wellpoint Health Networks, Inc. ........ 7
-------
312
-------
PHARMACEUTICALS (9.4%)
300 American Home Products Corp. ........... 18
3,800 Bristol-Myers Squibb Co. ............... 222
1,700 Eli Lilly & Co. ........................ 170
3,100 Johnson & Johnson ...................... 316
4,400 Merck & Co., Inc. ...................... 337
12,250 Pfizer, Inc. ........................... 588
2,152 Pharmacia Corp. ........................ 111
2,600 Schering-Plough Corp. .................. 131
(a)600 Watson Pharmaceuticals, Inc. ........... 32
-------
1,925
-------
TOTAL HEALTH CARE ........................................ 2,610
-------
INDUSTRIALS (8.3%)
AEROSPACE & DEFENSE (0.8%)
400 General Dynamics Corp. ................. 21
2,100 Honeywell International, Inc. .......... 71
900 Lockheed Martin Corp. .................. 22
800 Northrop Grumman Corp. ................. 53
-------
167
-------
AIR FREIGHT & COURIERS (0.1%)
(a)800 FedEx Corporation ...................... 30
-------
AIRLINES (0.2%)
(a)1,300 AMR Corp. .............................. 35
300 Delta Air Lines, Inc. .................. 15
-------
50
-------
COMMERCIAL SERVICES & SUPPLIES (0.8%)
1,200 Automatic Data Processing, Inc. ........ 64
300 Avery Dennison Corp. ................... 20
200 Deluxe Corp. ........................... 5
1,300 Donnelley (R.R.) & Sons Co. ............ 29
800 First Data Corp. ....................... 40
-------
158
-------
CONSTRUCTION & ENGINEERING (0.0%)
300 Armstrong Holdings Inc. ................ 5
-------
ELECTRICAL EQUIPMENT (0.5%)
600 Cooper Industries, Inc. ................ 20
1,000 Emerson Electric Co. ................... 60
(a)1 Energizer Holdings Inc. ................ --
1,000 Rockwell International Corp. ........... 31
-------
111
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
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STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
---------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------
<S> <C>
INDUSTRIALS (CONT.)
INDUSTRIAL CONGLOMERATES (4.8%)
15,100 General Electric Co. ................... $ 800
1,000 ITT Industries, Inc. ................... 30
100 Textron, Inc. .......................... 6
2,900 Tyco International Ltd. ................ 138
-------
974
-------
MACHINERY (0.8%)
300 Briggs & Stratton Corp. ................ 10
1,200 Deere & Co. ............................ 45
900 Dover Corp. ............................ 37
500 Ingersoll-Rand Co. ..................... 20
300 Milacron, Inc. ......................... 4
400 PACCAR, Inc. ........................... 16
800 Parker-Hannifin Corp. .................. 27
-------
159
-------
ROAD & RAIL (0.3%)
400 Kansas City Southern Industries, Inc. .. 35
400 Ryder System, Inc. ..................... 8
400 Union Pacific Corp. .................... 15
-------
58
-------
TOTAL INDUSTRIALS ........................................ 1,712
-------
INFORMATION TECHNOLOGY (32.2%)
COMMUNICATIONS EQUIPMENT (10.2%)
(a)700 3Com Corp. ............................. 40
(a)900 ADC Telecommunications, Inc. ........... 76
(a)11,800 Cisco Systems, Inc. .................... 750
(a)400 Converse Technology, Inc. .............. 37
700 Corning, Inc. .......................... 189
5,000 Lucent Technologies, Inc. .............. 296
3,500 Motorola, Inc. ......................... 102
(a)900 Network Appliance, Inc. ............... 72
5,200 Nortel Networks Corporation ............ 355
(a)1,300 Qualcomm, Inc. ......................... 78
500 Scientific-Atlanta, Inc. ............... 37
(a)800 Tellabs, Inc. .......................... 55
-------
2,087
-------
COMPUTERS & PERIPHERALS (6.7%)
(a)400 Apple Computer, Inc. ................... 21
1,600 Compaq Computer Corp. .................. 41
(a)4,800 Dell Computer Corp. .................... 237
(a)3,700 EMC Corp. .............................. 284
1,700 Hewlett Packard Co. .................... 212
2,800 International Business Machines Corp. .. 307
(a)3,000 Sun Microsystems, Inc. ................. 273
-------
1,375
-------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.4%)
400 Millipore, Corp. ....................... 30
200 PerkinElmer Inc. ....................... 13
(a)700 Solectron Corp. ........................ 29
700 Thomas & Betts Corp. ................... 14
-------
86
-------
INTERNET SOFTWARE & SERVICES (1.6%)
(a)4,000 America Online, Inc. ................... 211
(a)900 YAHOO!, Inc. ........................... 111
-------
322
-------
IT CONSULTING & SERVICES (0.2%)
900 Electronic Data Systems Corp. .......... 37
(a)300 Unisys Corp. ........................... 5
-------
42
-------
OFFICE ELECTRONICS (0.1%)
700 Xerox Corp. ............................ 15
-------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (7.0%)
(a)400 Advanced Micro Devices, Inc. ........... 31
(a)500 Altera Corp. ........................... 51
(a)1,200 Analog Devices, Inc. ................... 91
(a)1,600 Applied Materials, Inc. ................ 145
5,600 Intel Corp. ............................ 749
(a)300 LSI Logic Corp. ........................ 16
(a)1,000 Micron Technology, Inc. ................ 88
(a)300 Teradyne, Inc. ......................... 22
3,100 Texas Instruments, Inc. ................ 213
(a)500 Xilinx, Inc. ........................... 41
-------
1,447
-------
SOFTWARE (6.0%)
200 Adobe Systems, Inc. .................... 26
800 Computer Associates International, Inc. 41
(a)8,800 Microsoft Corp. ........................ 704
(a)4,900 Oracle Corp. ........................... 412
(a)300 Siebel Systems, Inc. ................... 49
-------
1,232
-------
TOTAL INFORMATION TECHNOLOGY ............................. 6,606
-------
MATERIALS (1.5%)
CHEMICALS (0.6%)
900 Dow Chemical Co. ....................... 27
1,000 E.I. du Pont de Nemours & Co. .......... 44
100 Engelhard Corp. ........................ 2
(a)600 FMC Corp. .............................. 35
300 Praxair, Inc. .......................... 11
-------
119
-------
CONSTRUCTION MATERIALS (0.1%)
300 Vulcan Materials Co. ................... 13
-------
CONTAINERS & PACKAGING (0.0%)
500 Crown Cork & Seal Co., Inc. ............ 7
-------
METALS & MINING (0.5%)
2,300 Alcoa, Inc. ............................ 67
(a)500 Inco Ltd. .............................. 8
1,100 USX - U.S. Steel Group, Inc. ........... 20
-------
95
-------
PAPER & FOREST PRODUCTS (0.3%)
2,100 Westvaco Corp. ......................... 52
600 Willamette Industries, Inc. ............ 16
-------
68
-------
TOTAL MATERIALS ........................................... 302
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------
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103
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---------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
---------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------
<S> <C>
TECHNOLOGY (0.4%)
DATA STORAGE & PROCESSING (0.4%)
(a)800 VERITAS Software Corp. ................. $ 90
-------
TELECOMMUNICATION SERVICES (6.4%)
DIVERSIFIED TELECOMMUNICATION SERVICES (5.5%)
3,599 AT&T Corp. ............................. 114
3,600 Bell Atlantic Corp. .................... 183
3,000 Bellsouth Corp. ........................ 128
1,000 CenturyTel, Inc. ....................... 29
1,700 GTE Corp. .............................. 106
5,526 SBC Communications, Inc. ............... 239
(a)1,900 Sprint Corp. ........................... 97
(a)5,050 Worldcom Inc. .......................... 231
-------
1,127
-------
WIRELESS TELECOMMUNICATION SERVICES (0.9%)
(a)1,520 Nextel Communications, Inc., Class A ... 93
1,700 Sprint Corp. (PCS Group) ............... 101
-------
194
-------
TOTAL TELECOMMUNICATION SERVICES .......................... 1,321
-------
UTILITIES (2.7%)
ELECTRIC UTILITIES (1.9%)
(a)800 AES Corp. .............................. 36
2,200 PG&E Corp. ............................. 54
1,900 PPL Corp. .............................. 42
2,800 Public Service Enterprise Group, Inc. .. 97
2,700 Reliant Energy Inc. .................... 80
700 TXU Corp. .............................. 21
1,400 Unicom Corp. ........................... 54
-------
384
-------
GAS UTILITIES (0.3%)
1,200 Oneok, Inc. ............................ 31
1,200 Sempra Energy .......................... 20
-------
51
-------
MULTI - UTILITIES (0.5%)
1,700 Enron Corp. ............................ 110
-------
TOTAL UTILITIES ........................................... 545
-------
TOTAL INVESTMENTS (100.0%) (Cost $18,498) .................. 20,539
-------
AMOUNT
(000)
-------
OTHER ASSETS (0.4%)
Receivable for Shares Sold .................. $ 71
Dividends Receivable ........................ 19
Receivable from Investment Advisor .......... 1
Other Assets ................................ 1 $ 92
-----
LIABILITIES (-0.4%)
Overdraft Payable ........................... (39)
Custodian Fees Payable ...................... (9)
Administrative Fees Payable ................. (4)
Director's Fees and Expenses Payable ........ (2)
Distribution Fees Payable ................... (2)
Payable for Portfolio Shares Redeemed ....... (1)
Other Liabilities ........................... (35) (92)
----- -------
NET ASSETS (100%) ....................................... $ 20,539
==========
NET ASSETS CONSIST OF:
Paid in Capital ......................................... $ 18,318
Undistributed Net Investment Income ..................... 33
Undistributed Net Realized Gain ......................... 146
Unrealized Appreciation on Investments .................. 2,042
----------
NET ASSETS .............................................. $ 20,539
==========
CLASS A:
--------
NET ASSETS .............................................. $ 19,457
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,611,369 outstanding $0.001 par
value shares (authorized 500,000,000 shares) .......... $ 12.07
==========
CLASS B:
-------
NET ASSETS .............................................. $ 1,082
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 89,791 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ................ $ 12.05
==========
---------------------------------------------------------------------
(a) -- Non-income producing
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
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104
<PAGE>
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Mixed (2.3%)
Diversified (8.8%)
Health Care (0.3%)
Industrial (4.2%)
Lodging/Resorts (7.1%)
Office (31.2%)
Residential Apartments (19.2%)
Residential Manufactured Homes (4.7%)
Retail Regional Malls (7.5%)
Retail Strip Centers (5.1%)
Self Storage (5.1%)
Other (4.5%)
</TABLE>
PERFORMANCE COMPARED TO THE NATIONAL
ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS
(NAREIT) EQUITY INDEX(1)
-------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
----- ------ ------- ---------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A 14.66% 3.61% 14.55% 15.24%
PORTFOLIO -- CLASS B 14.56 3.36 N/A 12.99
INDEX -- CLASS A 13.19 3.03 9.58 10.02
INDEX -- CLASS B 13.19 3.03 N/A 8.61
</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") and real estate operating companies.
For the six months ended June 30, 2000, the Portfolio had a total return of
14.66% for the Class A shares and 14.56% for the Class B shares compared to
13.19% for the National Association of Real Estate Investment Trusts (NAREIT)
Equity Index (the "Index"). For the one year ended June 30, 2000, the
Portfolio had a total return of 3.61% for the Class A shares and 3.36% for
the Class B shares compared to 3.03% for the Index. For the five-year period
ended June 30, 2000, the Portfolio had a total return of 14.55% for the Class
A shares compared to 9.58% for the Index. For the period from inception on
February 24, 1995 through June 30, 2000, the average annual total return for
the Class A shares was 15.24% compared to 10.02% for the Index. For the
period from inception on January 2, 1996 through June 30, 2000, the average
annual total return for the Class B shares was 12.99% compared to 8.61% for
the Index.
By all measures, the second quarter of 2000 was a spectacular quarter for the
REIT market. The sector posted a quarterly return in excess of 10%,
dramatically beating all of the major equity indices. It is interesting to
note that REITs demonstrated strength relative to the Nasdaq and the S&P,
which declined 13% and 3% respectively, but also outperformed the Russell
2000 Small Cap Index, which declined 4% and the Russell Value Index which
declined 5%. Recall that recently REITs have traded in-line with the Russell
Indexes. April was a particularly favorable month as REITs rallied almost 7%
while the difficulties for the New Economy stocks continued. The market had a
modestly favorable May and then another strong month in June. On a
year-to-date basis, the sector has gained more than 13%.
Thus, REITs performed quite well in the face of the equity market
difficulties and, in our view, they acted as they should have. This may be
attributed to two key factors: fundamental real estate trends remain strong
and, at current valuation levels, REITs truly represent a defensive asset
class. REITs are now trading at almost a 10% discount to the underlying Net
Asset Value ("NAV") of their assets. As a result, there continues to be an
attractive arbitrage between valuations in the public versus the private real
estate markets. (We define real estate arbitrage as the pricing disparity
between prices of actual properties in the private real estate market versus
the implied pricing of properties owned by public companies based on their
share price). This disparity in pricing between the public and private real
estate markets, combined with the current strength in the
------------------------------------------------------------------------------
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. 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
105
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INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
direct real estate markets and the equity market's newly found interest in
defensive stocks, cause us to believe that the sector remains attractive.
COMMENTARY
Our investment perspective is that over the medium and long-term, the
largest determinant of the value for real estate stocks will be underlying
real estate fundamentals. We measure the sector based on the Price to Net
Asset Value per share ratio ("P/NAV"). Given the large and active private
real estate market, we believe that there are limits as to the level of
premium or discount at which the sector should trade relative to its NAV.
These limits can be viewed as the point at which the arbitrage opportunity
between owning real estate in the private versus public markets becomes
compelling. By quarter-end REITs continue to trade at almost a 10% discount
to the underlying value of their assets. The discussion of the physical real
estate markets that follows indicates that, with the Fed keenly focused on
slowing the economy, the markets are headed for equilibrium. However, our
outlook is that there is only modest downside risk from the potential for
oversupply.
The second quarter appears to have been the first quarter in more than two years
where the sector experienced the benefits of the return of non-dedicated
institutional investors. Their selling pressure, that plagued the sector for
much of the last two years, appeared to have abated in the first quarter. After
experiencing more than $100 million in redemptions in the first quarter of 2000,
subscriptions for the second quarter were almost $400 million and these inflows
may increase after the favorable second quarter results are posted. The industry
held its annual institutional investor forum at the beginning of June in New
York. The key theme emanating from our company meetings was that real estate
fundamentals remain strong in most markets in the country. The most dramatic
operating results were provided by companies with significant asset exposure to
the markets favorably impacted by the technology boom, with the greatest impact
in the office and apartment sectors. Despite the recovery in stock prices,
companies appear to be restrained with regard to equity issuance. The second
quarter involved several interesting announcements on the merger and acquisition
front, including two private buyouts of public companies. In each case, the
stocks were trading at as much as 20% discounts to the underlying value of their
assets. These announced sales fit with our thesis that private investors will
take advantage of arbitrage opportunities provided by the public markets.
REAL ESTATE MARKET
We have been monitoring the property markets for the inevitable shift from the
latter stages of the recovery phase into equilibrium, while maintaining a
watchful eye toward the real estate equivalent of a "hard-landing",
characterized by oversupply. Through the first half of this year, we have not
yet reached equilibrium in many markets, which would be characterized by flat
occupancy levels and inflationary rental growth. In fact, we continue to witness
increasing occupancy rates and strong rental growth in many real estate markets.
Clearly, the strong economy has continued to extend the favorable supply-demand
balance. The following presents an outline of our views of the physical property
markets.
The data reported from the Census Bureau in the second quarter demonstrated a
reduced risk of oversupply in the market for apartments. Permits were below
340,000 units (annual pace on a seasonally adjusted basis) for each of the
three reported months (March, April and May). Similarly, starts fell below
320,000 units in each month. The trailing three-month averages are 303,000
units for starts and 307,000 units for permits. With net annual demand
estimates in the 300,000 to 320,000 unit range based on 2% job growth, it
appears that national apartment supply and demand will be well balanced over
the next twelve months.
The International Council of Shopping Centers held its annual convention in
late May and the mood was considerably more upbeat than last year due to less
threatening concerns regarding e-commerce and a buoyant leasing market.
Consumer confidence rose in May, but by quarter-end had fallen back to
February's level, marking its lowest level since October 1999. Median same
store sales continued to slow to 4% in May and 2% in June. Supply data
indicates that 33 regional malls (40.2 million square feet) are expected to
open through 2002. They will be dispersed in terms of delivery: 5 malls in
2000, 12 in 2001 and 16 in 2002, with the 2002 deliveries being the least
certain. Given the additional retail square footage expected to be added in
other retail formats, we believe total supply is running at a pace that will
be in excess of demand. With the potential for oversupply, we maintain an
overall underweight position in retail, with a market weighting in the
upper-end mall sub-sector.
According to Torto Wheaton, the national office market experienced above
average demand in the first quarter of 2000, based on 35 million square feet
of absorption. Combined with the fourth quarter of 1999 absorption of 36
million square feet, this was likely the best six-month period
-------------------------------------------------------------------------------
U.S. Real Estate Portfolio
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-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
the office market has ever seen in terms of demand. Downtown vacancies declined
by 80 basis points to 7.3%. Vacancy declines were not as dramatic in the
suburban markets. Given the expected continued rental strength and the resulting
widening of differential between existing and market rents, we have extended our
overweighting to the central business district office market and we remain
underweight in the suburban office markets as it appears to be no better than at
equilibrium. Industrial vacancy barely declined in the first quarter, remaining
at 7.1%, based on net absorption of 29 million square feet and a similar level
of supply. Although the sector has achieved the equilibrium stage, like the
office market, the in-fill locations in the primary industrial hubs remain
strong.
The hotel market demonstrated strong revenue per available room ("RevPar")
growth in the second quarter, registering gains of 5.8% in March, 5% in April
and 8% in May. May's gains represented the strongest RevPar growth since
January 1997. As a result, we expect to see strong second quarter results for
the majority of the public lodging companies. Supply growth remains at
stubbornly high levels and will likely continue to limit a sustained
improvement in industry RevPar. Leading industry forecaster Pricewaterhouse-
Coopers expects RevPar Growth to decelerate from 3.9% this year to 2.8% in
2001. We remain cautious on the sector given the supply issues and the
further potential for pressure on margins due to the impacts from wage
growth, higher fuel costs and interest rates.
PORTFOLIO
We continue to shape the Portfolio with companies offering attractive
fundamental valuations relative to their underlying real estate value. The
top-down weightings in the Portfolio remain similar to last quarter. We
increased our overweighting to the companies focused on central business
district office assets as the recent increases in rent have caused a
favorable increase in the gap between existing leases and current market
rents. Despite their weak performance, we have maintained our conviction to
overweight the manufactured home sector. We are attracted by the predictable
growth in NAV per share, the limited degree of new supply, and the modest
levels of capital expenditure required.
The outlook for the REIT market continues to be favorable. We focus on two
key factors: the health of the physical property markets and the public
market pricing for the securities. The private real estate markets have
remained strong, based on the strong U.S. economy and a rational level of new
supply. We are encouraged that the development pipelines either peaked in
1999 or are in the process of peaking in 2000 for the vast majority of
property types. Clearly, the better than expected strength of the economy has
provided the demand for these large pipelines. However, given the declining
levels of construction, the U.S. real estate market is better prepared for
the eventual slowdown in the economy. This factor, when combined with a REIT
market that trades at almost a 10% discount to its private valuation,
provides the foundation for a defensive asset class that is attractively
priced. The final critical factor is the relative attractiveness of real
estate versus other asset classes. Given the current volatility in the equity
markets, it appears that REITs may be well poised to continue to receive a
high level of attention from traditional equity investors.
Theodore R. Bigman
PORTFOLIO MANAGER
Douglas A. Funke
PORTFOLIO MANAGER
July 2000
-------------------------------------------------------------------------------
U.S. Real Estate Portfolio
107
<PAGE>
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
(000)
----------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (95.2%)
REAL ESTATE (94.6%)
DIVERSIFIED (8.8%)
449,000 Pacific Gulf Properties, Inc. REIT ............. $ 11,253
200,700 Pennsylvania REIT .............................. 3,437
656,500 Rouse Co. REIT ................................. 16,236
266,500 Vornado Realty Trust REIT ...................... 9,261
(a)327,449 Wellsford Real Properties, Inc. ................ 4,953
------------
45,140
------------
HEALTH CARE (0.3%)
349,300 Meditrust Corp. REIT ........................... 1,310
------------
INDUSTRIAL (4.2%)
31,600 Cabor Industrial Trust ......................... 622
412,400 Prime Group Realty Trust REIT .................. 6,263
696,780 Prologic Trust REIT ............................ 14,850
------------
21,735
------------
LODGING/RESORTS (7.1%)
(a)106,500 Candlewood Hotel Company, Inc. ................. 253
(a)32,839 Interstate Hotels Corp. ........................ 96
(a)108,300 John Q Hammons Hotels, Inc., Class A ........... 542
144,700 Hilton Hotels Corp. ............................ 1,357
986,893 Starwood Lodging Trust REIT .................... 31,889
(a,d)982,554 Wyndham International, Inc. .................... 2,456
------------
36,593
------------
MIXED (2.3%)
79,300 Bedford Property Investors, Inc. REIT .......... 1,472
438,510 PS Business parks, Inc. REIT ................... 10,524
------------
11,996
------------
OFFICE (30.8%)
1,067,200 Arden Realty, Inc. REIT ........................ 25,079
(d)335,100 Beacon Capital Partners, Inc. .................. 4,002
600,700 Boston Properties, Inc. REIT ................... 23,202
218,954 Brandywine Realty Trust REIT ................... 4,187
1,615,797 Brookfield Properties Corp. (Canada) ........... 21,470
652,930 CarrAmerica Realty Corp. REIT .................. 17,303
1,143,102 Equity Office Properties Trust REIT ............ 31,507
598,300 Great Lakes, Inc. REIT ......................... 10,171
66,900 Prentiss Properties Trust REIT ................. 1,606
1,112,700 Trizec Hahn Corp. .............................. 19,890
------------
158,417
------------
RESIDENTIAL APARTMENTS (19.2%)
374,700 Amli Residential Properties Trust REIT ......... 8,829
493,614 Archstone Communities Trust REIT ............... 10,397
633,400 Avalon Bay Communities, Inc. REIT .............. 26,444
63,000 BRE Properties (Class A) ....................... 1,819
501,590 Equity Residential Properties Trust REIT ....... 23,073
400,100 Essex Property Trust, Inc. REIT ................ 16,804
286,100 Smith (Charles E.) Residential
Realty, Inc. REIT ............................. 10,872
23,500 Summit Properties, Inc. ........................ 494
------------
98,732
------------
<CAPTION>
SHARES VALUE
(000)
----------------------------------------------------------------------------
<S> <C>
RESIDENTIAL MANUFACTURED HOMES (4.7%)
541,552 Chateau Communities, Inc. REIT ................. $ 15,299
348,300 Manufactured Home
Communities, Inc. REIT ........................ 8,337
20,900 Sund Communities, Inc. REIT .................... 699
------------
24,335
------------
RETAIL REGIONAL MALLS (7.5%)
1,229,400 Simon Property Group, Inc. REIT ................ 27,277
1,304,978 Taubman Centers, Inc. REIT ..................... 11,385
------------
38,662
------------
RETAIL STRIP CENTERS (5.1%)
132,800 Acadia Realty Trust REIT ....................... 755
944,890 Burnham Pacific Property Trust REIT ............ 6,496
653,900 Federal Realty Investment Trust REIT ........... 13,078
264,900 JDN Realty Corp. ............................... 2,699
155,900 Pan Pacific Retail Properties, Inc. REIT ....... 3,137
2,300 Ramco-Gershenson Properties Trust REIT ......... 36
------------
26,201
------------
SELF STORAGE (5.1%)
1,132,890 Public Storage, Inc. REIT ...................... 26,552
------------
OTHER (0.1%)
(a)410,300 Atlantic Gulf Communities Corp. ................ 35
(a)107,021 Atlantic Gulf Communities Corp. ................ 575
(a)140,284 Atlantic Gulf Communities Corp. ................ 12
(a,d)75,253 Co Space. Inc. ................................. 113
------------
735
------------
TOTAL REAL ESTATE 487,579
------------
TOTAL COMMON STOCKS (COST $464,186) 490,408
------------
PREFERRED STOCKS (0.3%)
OTHER (0.3%)
(k)15,636 Wyndham, Series B (Cost $1,423) ................. 1,423
------------
CONVERTIBLE PREFERRED STOCKS (0.1%)
OTHER (0.1%)
75,756 Atlantic Gulf Communities Corp. Series B
(Cost $758) .................................... 407
------------
NO. OF
RIGHTS
---------------
OTHER (0.0%)
(a)59,764 Cyprus Trading Corp., Ltd. (Cost $--) ........... 253
------------
NO. OF
WARRANTS
---------------
OTHER (0.0%)
(a,d)50,510 Atlantic Gulf Communities Corp., Class A ........ 3
(a,d)62,000 Atlantic Gulf Communities Corp., Class A ........ 4
(a,d)50,510 Atlantic Gulf Communities Corp., Class B ........ 3
(a,d)62,000 Atlantic Gulf Communities Corp., Class B ........ 4
(a,d)50,510 Atlantic Gulf Communities Corp., Class C ........ 2
(a,d)62,000 Atlantic Gulf Communities Corp., Class C ........ 4
------------
TOTAL WARRANTS (Cost $--) .................................... 20
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
U.S. Real Estate Portfolio
108
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
----------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS (0.4%)
OFFICE (0.4%)
$ 2,934 Brookfield Properties Corp. (Cananda) 6.00%,
02/14/07 (Cost $2,251) ......................... $ 1,984
------------
SHORT-TERM INVESTMENT (6.3%)
REPURCHASE AGREEMENT (6.3%)
32,652 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/03/00, to be repurchased at $32,668,
collateralized by U.S. Treasury Notes,
4.250%, due 11/15/03, valued at
$33,322 (Cost $32,652) ......................... 32,652
------------
TOTAL INVESTMENTS (102.3%) (Cost $501,270) ................... 527,147
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
OTHER ASSETS (1.2%)
Cash ........................................ $ 167
Dividends Receivable ........................ 3,748
Receivable for Portfolio Shares Sold ........ 1,152
Receivable for Investments Sold ............. 1,152
Interest Receivable ......................... 59
Other Assets ................................ 6 6,284
------
LIABILITIES (-3.5%)
Payable for Investments Purchased ........... (17,181)
Investment Advisory Fees Payable ............ (910)
Payable for Portfolio Shares Redeemed ....... (98)
Administrative Fees Payable ................. (62)
Directors' Fees and Expenses Payable ........ (24)
Custodian Fees Payable ...................... (15)
Distribution Fees Payable ................... (10)
Other Liabilities ........................... (49) (18,349)
------ ------------
NET ASSETS (100%) .................................. $ 515,082
============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital .................................... $ 490,982
Undistributed Net Investment Gain .................. 3,400
Undistributed Net Realized Loss .................... (5,177)
Unrealized Appreciation on Investments ............. 25,877
------------
NET ASSETS ......................................... $ 515,082
============
CLASS A:
NET ASSETS ......................................... $ 498,083
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 37,085,627 outstanding $0.001 par value
shares (authorized 500,000,000 shares)............. $ 13.43
============
CLASS B:
NET ASSETS ......................................... $ 16,999
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,270,442 outstanding $0.001 par value
shares (authorized 500,000,000 shares)............. $ 13.38
============
----------------------------------------------------------------------------
(a) -- Non-income producing
(d) -- Security valued at fair value -- See Note A-1 to financial
statements.
(k) -- Security received as a result of a corporate action from Beacon
Capital Partners, Inc. Certain restrictions for resale exist.
REIT -- Real Estate Investment Trust
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
U.S. Real Estate Portfolio
109
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-----------------------------------------------
<TABLE>
<S> <C>
Other (2.2%)
Utilities (4.9%)
Telecommunications Services (14.6%)
Materials (2.3%)
Information Technology (5.8%)
Industrials (10.6%)
Health Care (3.9%)
Consumer Discretionary (15.5%)
Consumer Staples (0.3%)
Energy (8.1%)
Financials (31.8%)
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500 INDEX AND INDATA EQUITY-MEDIAN INDEX (1)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS (2)
---------------------------------------------
AVERAGE AVERAGE AVERAGE
ANNUAL ANNUAL ANNUAL
ONE FIVE TEN SINCE
YTD YEAR YEARS YEARS INCEPTION
----- ----- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
PORTFOLIO--
CLASS A ........ 2.88% -5.21% 16.69% 13.98% 13.53%
PORTFOLIO--
CLASS B ........ 2.82 -5.43 N/A N/A 15.28
S&P 500 INDEX
--CLASS A ...... -0.42 7.25 23.80 17.80 18.17
INDATA EQUITY-
MEDIAN INDEX
--CLASS A ...... 2.34 14.61 21.34 16.38 16.73
S&P 500 INDEX
--CLASS B ...... -0.42 7.25 N/A N/A 22.86
INDATA EQUITY-
MEDIAN INDEX
--CLASS B ...... 2.34 14.61 N/A N/A 20.66
</TABLE>
1. The S&P 500 Index is comprised of 500 large-cap U.S. companies with market
capitalization of $1 billion or more. These 500 companies are a
representative sample of some 100 industries chosen mainly for market size,
liquidity and industry group representation. The Indata Equity-Median Index
includes an average asset allocation of 92.4% equity and 7.6% cash based on
$444 trillion in assets among 1,254 portfolios for the period ended June 30,
2000.
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 Value Equity Portfolio seeks high total return by investing primarily in
equity securities which the investment advisor believes to be undervalued
relative to the stock market in general at the time of purchase.
Our value philosophy is to own "great" companies at fair valuations, "good"
companies at cheap valuations, and, problem/turnaround companies at fire-sale
valuations. We wait for the market to provide value investing opportunities
rather than forcing decisions. The Portfolio is characterized by distinctly
below average price-to-earnings and price-to-book ratios, and an above-average
dividend yield.
<TABLE>
<CAPTION>
1999 2000 PRICE-
PRICE-EARNINGS PRICE-EARNINGS TO BOOK YIELD
-------------- -------------- ------- -----
<S> <C> <C> <C> <C>
PORTFOLIO ..... 15 TIMES 14 TIMES 4.9 TIMES 2.0%
S&P 500 ....... 32 TIMES 28 TIMES 8.6 TIMES 1.1%
</TABLE>
For the six months ended June 30, 2000, the Portfolio had a total return of
2.88% for the Class A shares and 2.82% for the Class B shares compared to -0.42%
for the S&P 500 Index and 2.34% for the Indata Equity - Median Index. For the
one year ended June 30, 2000, the Portfolio had a total return of -5.21% for the
Class A shares and -5.43% for the Class B shares compared to 7.25% for the S&P
500 Index and 14.61% for the Indata Equity - Median Index. For the five-year
period ended June 30, 2000, the average annual total return for the Class A
shares was 16.69% compared to 23.80% for the S&P 500 Index and 21.34% for the
Indata Equity - Median Index. For the ten-year period ended June 30, 2000, the
average annual total return for the Class A shares was 13.98% compared to 17.80%
for the S&P 500 Index and 16.38% for the Indata Equity - Median Index. For the
period from inception on January 31, 1990 through June 30, 2000, the average
annual total return for the Class A shares was 13.53% compared to 18.17% for the
S&P 500 Index and 16.73% for the Indata Equity - Median Index. For the period
from inception on January 2, 1996 through June 30, 2000, the average annual
total return for the Class B shares was 15.28% compared to 22.86% for the S&P
500 Index and 20.66% for the Indata Equity - Median Index.
Index returns in the first half of 2000 were much like the last few years:
Growth beat Value; and, any negative news led to significant selling with
valuation offering no downside protection when the selling began. As was the
case in 1999, a handful of Large Cap Stocks had the most positive effect on
market results. Two stocks, Cisco and Intel, contributed over 100% of the S&P
500's return. The only difference was that a good number of Dot-Com stocks
saw negative news and were down 40% to 80%.
At the end of the first quarter of 2000 investors rotated from favoring new
economy stocks to old economy stocks. Many growth favorites, including
Microsoft, Lucent,
--------------------------------------------------------------------------------
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. 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
110
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO (CONT.)
Yahoo! and America Online declined. For a short while, April and some of May,
value dominated growth as technology stocks were most severely affected in
the downturn. In June, growth stocks again dominated, as the Russell 1000
Growth recovered 7% of the return lost in the first two months of the second
quarter.
PERFORMANCE: SECTORS AND STOCKS
Over 90% of the Portfolio's outperformance relative to the Russell 1000 Value
Index was driven by stock-picking versus sector allocation. Year-to-date, the
top contributing stocks included Newbridge Networks, Cordant Technologies,
Koninklijke Philips, Alcatel, and Bank of New York. The best performing
sectors were technology, producer durables, and consumer discretionary.
Cordant, which added 218 basis points to performance, received a cash bid
from Alcoa and was up 72%. In our commentary from the third quarter of 1999
we discussed that Cordant, (which makes sophisticated aerospace and power
generation products), was a well run company that was extremely undervalued
at 7 times earnings and 0.4 times sales. Newbridge Networks was our best
performing stock for the period, as the value of its internet assets and
internet engineers were recognized, by Alcatel's purchase. The stock was up
44%.
The top performance detractors were MediaOne, Meritor Automotive, USEC,
Sprint, and Verizon Communications. Our worst performing sector for the
period was Auto & Transportation. Stocks within the sector that were
significant detractors from performance were Meritor Automotive and General
Motors.
For Meritor there was only positive news. Meritor's business is solid and it
announced a merger of equals with Arvin Automotive; a merger that should
create a stronger combined company and will be run by the current Meritor
executive team. Meritor finished the quarter at 3.5 times 2000 earnings; and
these earnings estimates went up as the quarter ended. We added to Meritor.
General Motors did an exchange offer for its GMH holding only to be rewarded
by a 30% sell off of GM; it is currently valued at 6.5 times 2000 earning.
INTERNET STOCKS: DOT-BOMBED
We have been consistent in our view of the Internet, and the impact of the
Internet on individual companies. The "Internet" has grown faster than any
other technology. Internet traffic is doubling every three-to-twelve months.
The economics of the internet are so compelling that almost every company in
every economy will be "interneted", using the technology of the Internet to
lower costs, expand services, and reach new markets.
The second quarter saw the beginning of the parsing of real internet
companies that will be around for a long time, such as Sun Workstations and
Cisco Systems (although possibly at lower valuations), from the concept
stocks such as The Street.com, E-Toys, E-Loan, Beyond.com, TheGlobe.com,
Buy.com, Webvan.com, and Homegrocer.com. It was this latter group that got
bombed in the second quarter and is down about 67% year-to-date.
We continue to hold our view that the adoption of Internet technology by
"old-world" companies will be good for the companies as well as for
consumers. Productivity will go up, the economy will grow, and profits and
consumer incomes rise. At the same time demand for internet-related
technology will continue to boom.
We continue to own the "old-world" value companies that are early and
aggressive adopters of Internet technologies. In addition, when good
technology companies are caught in momentum sell-off (overall market or stock
specific), we are prepared to buy them. A recent example is Verio, which we
purchased at $24 per share in April. We have followed Verio for two years as
it grew from an ISP roll-up company to a full service web-hosting company
with two very valuable assets: it is one of six tier-one Internet peers and
it is has a staff of well trained IP engineers. By the bottom of the April
technology sell-off Verio had gone from $80 in February to a low of $24. At
the same time its business continued to grow and it had turned cash flow
positive. In addition, it was becoming increasing clear that its assets were
valuable to almost every major telecom company. In May, NTT made a cash bid
for Verio for $55 per share, and they were not the only potential buyer.
Stephen C. Sexauer
PORTFOLIO MANAGER
July 2000
-------------------------------------------------------------------------------
Value Equity Portfolio
111
<PAGE>
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
----------------------------------------------------------
<S> <C>
COMMON STOCKS (97.8%)
CONSUMER DISCRETIONARY (15.5%)
AUTO COMPONENTS (3.3%)
170,466 Meritor Automotive, Inc................ $ 1,875
-------
AUTOMOBILES (1.3%)
13,100 General Motors Corp.................... 761
-------
HOUSEHOLD DURABLES (2.1%)
24,864 Philips Electronics N.V. (NY Shares)... 1,181
-------
MEDIA (5.0%)
(a)28,000 MediaOne Group, Inc.................... 1,862
7,100 News Corp., Ltd. ADR................... 337
(a)31,820 R.H. Donnelly Corp..................... 616
-------
2,815
-------
SPECIALTY RETAIL (3.8%)
113,600 TJX Cos., Inc.......................... 2,130
-------
TOTAL CONSUMER DISCRETIONARY.................... 8,762
-------
CONSUMER STAPLES (0.3%)
TOBACCO (0.3%)
6,600 Philip Morris Cos., Inc................ 175
-------
ENERGY (8.1%)
OIL & GAS (8.1%)
9,500 BP Amoco plc ADR....................... 537
74,700 Conoco, Inc............................ 1,643
25,700 Exxon Mobil Corp....................... 2,018
15,100 USX-Marathon Group..................... 379
-------
TOTAL ENERGY.................................... 4,577
-------
FINANCIALS (31.8%)
BANKS (13.5%)
33,700 Bank of New York Co., Inc.............. 1,567
10,000 Bank One Corp.......................... 266
40,550 Chase Manhattan Corp................... 1,868
69,845 Fleet Boston Financial Corp............ 2,375
18,400 Mellon Bank Corp....................... 670
2,300 Morgan (J.P.) & Co., Inc............... 253
13,400 PNC Bank Corp.......................... 628
-------
7,627
-------
DIVERSIFIED FINANCIALS (4.1%)
28,400 Countrywide Credit Industries, Inc.... 861
28,400 Federal National Mortgage Association. 1,482
-------
2,343
-------
INSURANCE (14.2%)
78,700 Allstate Corp......................... 1,751
34,200 American General Corp................. 2,086
63,000 Lincoln National Corp................. 2,276
18,600 Loews Corp............................ 1,116
12,300 Torchmark Corp........................ 304
25,500 UnumProvident Corp.................... 513
-------
8,046
-------
TOTAL FINANCIALS............................... 18,016
-------
HEALTH CARE (3.9%)
HEALTH CARE EQUIPMENT & SUPPLIES (2.3%)
16,800 Bausch & Lomb, Inc.................... 1,300
-------
PHARMACEUTICALS (1.6%)
15,700 American Home Products Corp .......... 922
-------
TOTAL HEALTH CARE.............................. 2,222
-------
INDUSTRIALS (10.6%)
AEROSPACE & DEFENSE (7.8%)
17,300 General Dynamics Corp................. 904
(a)23,200 Litton Industries, Inc................ 974
42,800 United Technologies Corp.............. 2,520
-------
4,398
-------
AIRLINES (2.3%)
(a)27,500 Continental Airlines, Inc. Class B.... 1,292
-------
BUILDING PRODUCTS (0.5%)
15,600 Masco Corp............................ 282
-------
TOTAL INDUSTRIALS.............................. 5,972
-------
INFORMATION TECHNOLOGY (5.8%)
COMMUNICATIONS EQUIPMENT (5.8%)
(a) 3,100 3Com Corp............................. 178
20,974 Alcatel Alsthom ADR................... 1,395
11,000 ECI Telecom Ltd....................... 393
(a)33,000 FLAG Telecom Holdings Ltd............. 491
24,850 Harris Corp........................... 814
-------
TOTAL INFORMATION TECHNOLOGY................... 3,271
-------
MATERIALS (2.3%)
CHEMICALS (1.1%)
35,300 Milennium Chemicals, Inc.............. 600
-------
METALS & MINING (1.2%)
149,000 USEC, Inc............................. 689
-------
TOTAL MATERIALS................................ 1,289
-------
TELECOMMUNICATION SERVICES (14.6%)
DIVERSIFIED TELECOMMUNICATION SERVICES (12.8%)
9,885 AT&T Corp............................. 312
42,800 Bell Atlantic Corp.................... 2,175
25,100 BellSouth Corp........................ 1,070
(a)1,300 Exfo-Electro Optical Engineering, Inc. 57
(a)7,322 Global Crossing Ltd................... 193
35,900 Sprint Corp........................... 1,831
7,100 U.S. WEST, Inc........................ 609
a)22,100 WorldCom, Inc......................... 1,014
-------
7,261
-------
WIRELESS TELECOMMUNICATION SERVICES (1.8%)
(a)9,900 AT&T Wireless Group................... 276
16,225 Telesp Celular Participacoes S.A. ADR. 728
-------
1,004
-------
TOTAL TELECOMMUNICATION SERVICES............... 8,265
-------
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Value Equity Portfolio
112
<PAGE>
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------
<S> <C>
UTILITIES (4.9%)
ELECTRIC UTILITIES (1.2%)
15,100 New Century Energies, Inc................................. $ 453
6,500 Pinnacle West Capital Corp................................ 220
-------
673
-------
MULTI - UTILITIES (3.7%)
111,200 NiSource, Inc............................................. 2,071
-------
TOTAL UTILITIES.................................................... 2,744
-------
TOTAL COMMON STOCKS (Cost $52,752)................................. 55,293
-------
<CAPTION>
FACE
AMOUNT
(000)
---------
<S> <C>
SHORT-TERM INVESTMENT (2.2%)
REPURCHASE AGREEMENT (2.2%)
$ 1,247 Chase Securities, Inc. 6.15%, dated 6/30/00,
due 7/03/00, to be repurchased at $1,248,
collateralized by U.S. Treasury Notes,
9.125%, due 5/15/18, valued at $1,271
(Cost $1,247)............................................. 1,247
-------
TOTAL INVESTMENTS (100.0%) (Cost $53,999)............................ 56,540
-------
<S> <C> <C>
OTHER ASSETS (0.3%)
Receivable for Portfolio Shares Sold.................... $ 79
Dividends Receivable.................................... 47
Receivable from Investment Advisor...................... 14
Receivable for Investments Sold......................... 11
Other................................................... 12 163
-------
LIABILITIES (-0.3%)
Investment Advisory Fees Payable....................... (68)
Payable for Investments Purchased...................... (43)
Administrative Fees Payable............................ (10)
Directors' Fees and Expenses Payable................... (9)
Custodian Fees Payable................................. (7)
Distribution Fees Payable.............................. (1)
Other Liabilities...................................... (17) (155)
-------- --------
NET ASSETS (100%)................................................... $ 56,548
========
<CAPTION>
AMOUNT
(000)
--------------------------------------------------------------------
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital........................................... $ 51,196
Undistributed Net Investment Income....................... 120
Accumulated Net Realized Gain............................. 2,691
Unrealized Appreciation on Investments.................... 2,541
--------
NET ASSETS................................................ $ 56,548
========
CLASS A:
--------
NET ASSETS................................................ $ 55,771
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 5,652,114 outstanding $0.001 par value
shares (authorized 500,000,000 shares).................. $ 9.87
========
CLASS B:
--------
NET ASSETS................................................ $ 777
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 78,996 outstanding $0.001 par value
shares (authorized 500,000,000 shares).................. $ 9.84
========
--------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Value Equity Portfolio
113
<PAGE>
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INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
<TABLE>
<S> <C>
Algeria (2.2%)
Argentina (13.6%)
Brazil (21.5%)
Bulgaria (3.5%)
Colombia (5.6%)
Ecuador (0.6%)
Indonesia (1.8%)
Ivory Coast (0.2%)
Jordan (0.5%)
Mexico (16.6%)
Morocco (1.3%)
Panama (0.3%)
Peru (3.1%)
Phillipines (6.5%)
Poland (1.0%)
Russia (12.0%)
Turkey (4.3%)
Venezuela (2.1%)
Other (3.3%)
</TABLE>
PERFORMANCE COMPARED TO THE J.P. MORGAN EMERGING
MARKETS BOND GLOBAL INDEX AND THE J.P. MORGAN
EMERGING MARKETS BOND PLUS INDEX(1)
-----------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
----- ------- ------ ---------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A.. 7.00% 24.06% 12.76% 9.05%
PORTFOLIO -- CLASS B.. 6.93 23.42 N/A 10.26
EMERGING MARKETS
GLOBAL INDEX
-- CLASS A ......... 6.95 20.74 15.67 9.79
EMERGING MARKETS
BOND PLUS INDEX
-- CLASS A ......... 8.10 23.16 16.31 10.48
EMERGING MARKETS
GLOBAL INDEX
-- CLASS B ......... 6.95 20.74 N/A 13.37
EMERGING MARKETS
BOND PLUS INDEX
-- CLASS B ......... 8.10 23.16 N/A 14.19
</TABLE>
1. The J.P. Morgan Emerging Markets Bond Global Index tracks total returns for
U.S. dollar-denominated debt instruments issued by emerging market sovereign
and quasi-sovereign entities, Brady Bonds, loans, Eurobonds and local market
instruments for 27 emerging market countries. 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 outstanding and including Argentina, Brazil, Bulgaria, Colombia,
Ecuador, Mexico, Morocco, Nigeria, Panama, Peru, the Philippines, Poland,
Russia, South Korea 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 seeks high
total return through investment primarily in debt securities of government
and government-related issuers and, to a lesser extent, of corporate issuers
located in emerging market countries. Foreign investing involves certain
risks, including currency fluctuations and controls, restrictions on foreign
investments, less governmental supervision and regulation, less liquidity and
the potential for market volatility and political instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
7.00% for the Class A shares and 6.93% for the Class B shares compared to
6.95% for the J.P. Morgan Emerging Markets Bond Global Index and 8.10% for
the J.P. Morgan Emerging Markets Bond Plus Index. For the one year ended June
30, 2000, the Portfolio had a total return of 24.06% for the Class A shares
and 23.42% for the Class B shares compared to 20.74% for the J.P. Morgan
Emerging Markets Bond Global Index and 23.16% for the J.P. Morgan Emerging
Markets Bond Plus Index. For the five-year period ended June 30, 2000, the
average annual total return for the Class A shares was 12.76% compared to
15.67% for the J.P. Morgan Emerging Markets Bond Global Index and 16.31% for
the J.P. Morgan Emerging Markets Bond Plus Index. For the period from
inception on February 1, 1994 through June 30, 2000, the average annual total
return for the Class A shares was 9.05% compared to 9.79% for the J.P. Morgan
Emerging Markets Bond Global Index and 10.48% for the J.P. Morgan Emerging
Markets Bond Plus Index. For the period from inception on January 2, 1996
through June 30, 2000, the average annual total return for the Class B shares
was 10.26% compared to 13.37% for the J.P. Morgan Emerging Markets Bond
Global Index and 14.19% for the J.P. Morgan Emerging Markets Bond Plus Index.
As of June 30, 2000, the Portfolio had a SEC 30-day yield of 14.58% for the
Class A shares and 14.31% for the Class B shares.
The performance of emerging markets debt experienced wide shifts during the
first half of 2000. The first quarter of 2000 was very positive with a return
in the Index of 6.57%. This good performance was impressive considering the
volatility in equity markets, surging swap spreads, and a deterioration in
all other fixed income credit spreads. There were many positive events in the
first quarter of 2000
------------------------------------------------------------------------------
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. 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 Markets Debt Portfolio
114
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-------------------------------------------------------------------------------
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
including improving credit ratings as Mexico, Russia, South Africa, Hungary,
and Tunisia were all upgraded. Furthermore, global growth was better than
expected and we continued to have a very supportive commodity price
environment.
In April and May of 2000, the environment changed and the returns, as measured
by the Index, were -4.11%. The increase in rates by the Federal Reserve, a
sell-off in the U.S. equity markets, and the general consensus that emerging
markets debt prices had risen too much in comparison to U.S. high yield and
other spread products, all caused the asset class to perform poorly during these
two months. Fortunately, the market had a big rebound in June 2000 as investors
began feeling that the Federal Reserve may be near the end of their rate-hike
cycle. The Index rose 4.66% in June 2000, increasing the return for the six
months to 6.95%, far outpacing all other fixed income asset classes.
Bolstering Portfolio returns were overweight positions in Russia, Mexico,
Brazil, and Bulgaria at the right times during the second quarter of 2000. Also
helping our results was an overall defensive portfolio strategy that we
established in late March 2000. Finally, underweight positions in Argentina and
Korea, and a zero-weighting in Nigeria helped performance as these countries
performed worse than the Index. Detracting from the Portfolio's return were
overweight positions in Colombia, the Philippines, and our emerging markets
corporate positions.
In the near term, the outlook for emerging markets debt will likely be
influenced by three important considerations. The first consideration is the
continued favorable sentiment generated by the successful Mexican elections. As
the spreads on Mexican bonds tighten, asset prices of a number of higher rated
countries (e.g., Peru, Philippines, and Panama) should benefit also. The second
influence will be new supply. Continued external market stability will most
certainly prompt even more issuance by Argentina and Brazil, as well as other
sovereigns. Finally, our market will remain hostage to global financial market
developments. Insofar as the three influences are offsetting, rendering no clear
direction, our team is staying with a neutral stance hoping to, in the interim,
benefit from a Portfolio that may out-yield the Index. Longer term, we are very
positive on emerging markets debt due to good global economic growth, improving
fiscal policies by many of these countries, and the continued advancement of
structural reform agendas. We expect to become more aggressive when more
favorable market conditions exist.
Stephen F. Esser
PORTFOLIO MANAGER
Abigail L. McKenna
PORTFOLIO MANAGER
July 2000
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Emerging Markets Debt Portfolio
115
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-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
-------------------------------------------------------------------------------
<S> <C>
DEBT INSTRUMENTS (94.8%)
ALGERIA (2.2%)
SOVEREIGN (2.2%)
U.S.$ 400 Republic of Algeria, 1.14%, 3/31/10.............. $ 330
1,400 Republic of Algeria, Tranche 3,
1.14%, 3/31/10................................ 1,088
---------
1,418
---------
ARGENTINA (13.6%)
CORPORATE (1.3%)
(e)100 Cablevision S.A., 13.75%, 5/01/09................ 91
ARP 100 CIA International Telecommunications,
10.375%, 8/01/04............................... 88
(e)750 CIA International Telecommunications,
10.375%, 8/01/04............................... 659
---------
838
---------
SOVEREIGN (12.3%)
U.S.$ 1,560 Republic of Argentina, Global Bond,
11.75%, 4/07/09................................ 1,454
3,961 Republic of Argentina, Global Bond,
11.75%, 6/15/15................................ 3,604
(n)3,240 Republic of Argentina, Global Bond, Series L,
(Floating Rate)(Bearer),
7.375%, 3/31/05................................ 2,958
---------
8,016
---------
8,854
---------
BRAZIL (21.5%)
CORPORATE (1.3%)
900 Banco Nac de Desen Econo (Registered),
12.55%, 6/16/08................................ 846
---------
SOVEREIGN (20.2%)
500 Federative Republic of Brazil,
6.00%, 4/15/24................................. 327
3,600 Federative Republic of Brazil,
12.25%, 3/06/30................................ 3,294
(n)2,788 Federative Republic of Brazil, C Bond, PIK,
8.00%, 4/15/14................................. 2,023
(n)616 Federative Republic of Brazil, C Bond, Series L,
8.00%, 4/15/14................................. 447
(n)1,150 Federative Republic of Brazil, Debt Conversion
Bond, Series L, (Floating Rate),
7.44%, 4/15/12................................. 848
(n)1,400 Federative Republic of Brazil, Debt Conversion
Bond, Series L, (Floating Rate),
7.44%, 4/15/12................................. 1,032
(n)1,023 Federative Republic of Brazil, Front Loaded
Interest Reduction Bond, Series EI-L
(Floating Rate), 7.375%, 4/15/06............... 933
1,346 Federative Republic of Brazil, Front Loaded
Interest Reduction Bond, Series L (Floating
Rate), 14.50%, 10/15/09........................ 1,426
U.S.$ (n)350 Federative Republic of Brazil, New Money
Bonds, Series L, (Floating Rate),
7.44%, 4/15/09................................. 293
(n)1,116 Federative Republic of Brazil, Series EI-L,
7.375%, 4/15/06................................ 1,018
(n)150 Federative Republic of Brazil, Series L,
7.44%, 4/15/09................................. 125
1,800 Federative Republic of Brazil, Series Z-L,
7.375%, 4/15/24................................ 1,424
---------
13,190
---------
14,036
---------
BULGARIA (3.5%)
SOVEREIGN (3.5%)
1,370 Republic of Bulgaria, Discount Bond, Series A,
7.063%, 7/28/24................................ 1,086
(n)1,500 Republic of Bulgaria, Interest Arrears PDI
Bond, (Floating Rate), 7.063%, 7/28/11......... 1,190
---------
2,276
---------
COLOMBIA (5.6%)
CORPORATE (0.3%)
(n)300 Occidente y Caribe Cellular, 7.04%, 3/15/04...... 213
---------
SOVEREIGN (5.3%)
540 Republic of Colombia, Global Bond,
9.75%, 4/23/09................................. 425
3,700 Republic of Columbia, Global Bond,
11.75%, 2/25/20................................ 3,043
---------
3,468
---------
3,681
---------
ECUADOR (0.6%)
SOVEREIGN (0.6%)
(b)980 Republic of Ecuador, Discount Bond, (Floating
Rate), 6.75%, 2/28/25.......................... 390
---------
INDONESIA (1.8%)
CORPORATE (1.8%)
220 Idah Kiat, International Finance, Series B,
11.875%, 6/15/02.............................. 178
1,140 Tjiwi Kimia International BV, Global Bond,
13.25%, 8/01/01............................... 1,003
---------
1,181
---------
IVORY COAST (0.2%)
SOVEREIGN (0.2%)
(e,n)950 Ivory Coast, Series 1, 2.00%, 3/29/18........... 152
---------
JORDAN (0.5%)
SOVEREIGN (0.5%)
(e,d)443 Government of Jordan, Discount Bond, (Floating
Rate), 7.75%, 12/23/23........................ 343
---------
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
116
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
-------------------------------------------------------------------------------
<S> <C>
MEXICO (16.6%)
CORPORATE (4.6%)
U.S.$ (e)300 Grupo Elektra S.A. de C.V., 12.00%, 4/01/08.... $ 273
(e)400 Grupo Iusacell S.A. de C.V., 14.25%, 12/01/06.. 418
1,000 Petro Mexicanos, 9.50%, 9/15/27................ 1,014
(e)750 Sanluis Corp. S.A. de C.V., 8.875%, 3/18/08.... 686
635 TV Azteca S.A. de C.V., Series B,
10.50%, 2/15/07.............................. 568
---------
2,959
---------
SOVEREIGN (12.0%)
1,550 Government of Mexico, 6.25%, 12/31/19 ......... 1,289
1,260 United Mexican States Discount Bond,
Series A, 7.31%, 12/31/19.................... 1,238
4,500 United Mexican States Discount Bond,
Series B, (Floating Rate),
7.60%, 12/31/19.............................. 4,421
EUR (e)450 United Mexican States, Discount Bond,
7.50%, 3/08/10............................... 414
U.S.$ (d)600 United Mexican States, Series W-A,
6.25%, 12/31/19.............................. 499
---------
7,861
---------
10,820
---------
MOROCCO (1.3%)
SOVEREIGN (1.3%)
944 Government of Morocco, Reconstruction &
Consolidation Agreement, Series A, (Floating
Rate), 7.75%, 1/01/09........................ 850
---------
PANAMA (0.3%)
SOVEREIGN (0.3%)
(n)219 Republic of Panama, PDI PIK Bond, (Floating
Rate), 7.06%, 7/17/16........................ 181
---------
PERU (3.1%)
SOVEREIGN (3.1%)
(e,n)248 Republic of Peru, Front Loaded Interest
Reduction Bond, 0.00%, 3/07/17............... 151
(e,n)2,250 Republic of Peru, Front Loaded Interest
Reduction Bond, 3.25%, 3/07/17............... 1,367
(n)780 Republic of Peru, PDI Bond, (Floating Rate),
4.50%, 3/07/17............................... 523
---------
2,041
---------
PHILIPPINES (6.5%)
CORPORATE (0.5%)
(e)600 Bayan Telecommunications, 13.50%, 7/15/06...... 351
---------
SOVEREIGN (6.0%)
600 Republic of Philippines, Global Bond,
9.875%, 1/15/19............................. 492
U.S.$ 4,000 Republic of Philippines, Global Bond,
10.625%, 3/16/25............................ 3,433
---------
3,925
---------
4,276
---------
POLAND (1.0%)
CORPORATE (1.0%)
(e)400 Netia Holdings II B.V., 13.125%, 6/15/09....... 376
(e)200 PTC International Finance II S.A.,
11.25%, 12/01/09............................. 203
(e)100 PTC International Finance II S.A.,
11.25%, 12/01/09............................. 102
---------
681
---------
RUSSIA (12.0%)
SOVEREIGN (12.0%)
2,200 Russian Federation, 12.75%, 6/24/28........... 1,911
650 Russian Interest Arrears Note, (Floating
Rate), 7.94%, 12/15/15...................... 202
18,521 Russian Principal Loans, (Floating
Rate), 7.938%, 12/15/20..................... 5,695
---------
7,808
---------
TURKEY (2.4%)
CORPORATE (1.0%)
520 Cellco Finance NV, 15.00%, 8/01/05............ 559
50 Cellco Finance NV, 15.00%, 8/01/05............ 54
---------
613
---------
SOVEREIGN (1.4%)
(e)900 Turkey Government Inflation Linked Note,
0.00%, 8/07/00.............................. 938
---------
1,551
---------
VENEZUELA (2.1%)
SOVEREIGN (2.1%)
900 Government of Venezuela, 9.25%, 9/15/27....... 594
(n)357 Republic of Venezuela, Debt Conversion
Bond, Series DL, (Floating Rate),
7.875%, 12/18/07............................ 290
700 Republic of Venezuela, Series W-A,
6.75%, 3/31/20.............................. 490
---------
1,374
---------
TOTAL DEBT INSTRUMENTS (COST $60,623)............................ 61,913
---------
NO. OF
RIGHTS
------
RIGHTS (0.0%)
MEXICO (0.0%)
(a,e)8,861 United Mexican States, Value Recovery Rights,
expiring 6/30/03 (Cost $--).................. --
---------
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
117
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
<CAPTION>
NO. OF VALUE
WARRANTS (000)
-------------------------------------------------------------------------------
<S><C> <C>
WARRANTS (0.0%)
COLOMBIA (0.0%)
U.S.$ (d)12,600 Occidente y Caribe Cellular, expiring
3/15/04 (Cost $--)........................... $ 5
-------
FACE
AMOUNT
(000)
-------
SHORT-TERM INVESTMENT (4.3%)
UNITED STATES (2.4%)
REPURCHASE AGREEMENT (2.4%)
1,596 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/03/00, to be repurchased at $1,597,
collateralized by U.S. Treasury Notes, 6.00%, due
2/15/26, valued at $1,625.............................. 1,596
-------
TURKEY
SOVEREIGN (1.9%)
TRL 869,000,000 Turkey Treasury Bill, 0.00%, 8/23/00.............. 1,238
-------
TOTAL SHORT-TERM INVESTMENTS (Cost $2,834)........................ 2,834
-------
TOTAL INVESTMENTS (99.1%) (Cost $63,457).......................... 64,752
-------
OTHER ASSETS (11.2%)
Cash.................................. $ 80
Receivable for Investments Sold....... 5,668
Interest Receivable................... 1,549
Other................................. 7 7,304
-------
LIABILITIES (-10.3%)
Payable for Investments Purchased..... (6,508)
Investment Advisory Fees Payable...... (114)
Net Unrealized Loss on Foreign Currency
Exchange Contracts................... (17)
Foreign Taxes Payable................. (17)
Directors' Fees and Expenses Payable.. (15)
Custodian Fees Payable................ (13)
Administrative Fees Payable........... (11)
Other Liabilities..................... (24) (6,719)
------- -------
NET ASSETS (100%)....................... $ 65,337
=======
NET ASSETS CONSIST OF:
Paid in Capital................................................... $156,676
Undistributed Net Investment Income............................... 3,230
Accumulated Net Realized Loss..................................... (95,864)
Unrealized Appreciation on Investments and Foreign
Currency Translations........................................... 1,295
-------
NET ASSETS........................................................ $ 65,337
=======
AMOUNT
(000)
-------------------------------------------------------------------------------
CLASS A:
NET ASSETS........................................................ $ 64,832
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 20,210,964 outstanding $0.001 par value
shares (authorized 500,000,000 shares).......................... $ 3.21
========
CLASS B:
NET ASSETS........................................................ $ 505
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 155,829 outstanding $0.001 par value
shares (authorized 500,000,000 shares).......................... $ 3.24
========
</TABLE>
-------------------------------------------------------------------------------
(a) -- Non-income producing
(b) -- Security is in default.
(e) -- 144A Security--certain conditions for public sale may exist.
(n) -- Step Bond--coupon rate increases in increments to maturity.
Rate disclosed is as of June 30, 2000. Maturity date
disclosed is the ultimate maturity date.
ARP -- Argentine Peso
EUR -- European Monetary Unit
PDI -- Past Due Interest
PIK -- Payment-In-Kind. Income may be received in additional
securities or cash at the discretion of the issuer.
TRL -- Turkish Lira
Floating Rate -- The interest rate on these instruments are
based on changes in a designated base rate. The rates
shown are those in effect on June 30, 2000.
--------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 2000,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EUR 859 $ 819 7/05/00 U.S.$ 800 $ 800 $ (19)
EUR 409 392 8/07/00 U.S.$ 391 391 (1)
U.S.$ 816 816 7/05/00 EUR 859 819 3
------ ------ ------
$2,027 $2,010 $ (17)
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
118
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
<TABLE>
<S> <C>
Corporate Bonds and Notes (38.5%)
Collateralized Mortgage Obligations (1.9%)
U.S. Government & Agency Obligations (42.9%)
Commercial Mortgages (5.4%)
Asset Backed Securities (6.3%)
Yankee Bond (6.9%)
Other (-1.9%)
</TABLE>
PERFORMANCE COMPARED TO THE LEHMAN
AGGREGATE BOND INDEX(1)
----------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
------ ------- ------- ---------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A.......... 3.34% 3.92% 6.10% 7.22%
PORTFOLIO -- CLASS B.......... 3.29 3.24 N/A 5.09
INDEX -- CLASS A.............. 3.99 4.57 6.25 7.46
INDEX -- CLASS B.............. 3.99 4.57 N/A 5.54
</TABLE>
1. The Lehman Aggregate Bond Index is an unmanaged index comprised of the
Government/ Corporate Bond 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 seeks to provide a high total return consistent with
the preservation of capital by investing primarily in a diversified portfolio of
fixed income securities.
For the six months ended June 30, 2000, the Portfolio had a total return of
3.34% for the Class A shares and 3.29% for the Class B shares compared to 3.99%
for the Lehman Aggregate Bond Index (the "Index"). For the one year ended June
30, 2000, the Portfolio had a total return of 3.92% for the Class A shares and
3.24% for the Class B shares compared to 4.57% for the Index. For the five-year
period ended June 30, 2000, the average annual total return for the Class A
shares was 6.10% compared to 6.25% for the Index. For the period from inception
on May 15, 1991 through June 30, 2000, the average annual total return for the
Class A shares was 7.22% compared to 7.46% for the Index. For the period from
inception on January 2, 1996 through June 30, 2000, the average annual total
return for the Class B shares was 5.09% compared to 5.54% for the Index. As of
June 30, 2000, the Portfolio had a SEC 30-day yield of 6.90% for the Class A
shares and 6.75% for the Class B shares.
Our active management of the Portfolio's interest rate risk position had a
favorable effect on relative performance, although this was more than offset by
the unfavorable effects of the systematic widening of yield spreads on the
Portfolio's above-benchmark corporate and mortgage positions for most of this
period.
There was a sharp contrast between the first and second quarters of 2000 for the
U.S. economy. The first quarter was characterized by a series of strong economic
statistics and a continuation of the boom in private demand, bringing real GDP
growth to the 6% area on an annualized basis. As such growth is well above the
Federal Reserve's target level, the central bank responded by a further
tightening of monetary policy via a series of additional increases in short-term
interest rates. The second quarter, however, brought with it some early signs of
an economic slowdown, the most notable of which was the weak May employment
report issued in early June. It would appear, therefore, that the cumulative
effects of the Fed's year-long string of tightening moves helped trigger this
slowdown, although other factors, such as recent declines in equity prices and
the relatively high cost of capital for private sector borrowers, have conspired
to help to slow the economy, as well.
The first half of the year was also notable because of the dramatic volatility
in yield spreads in the non-Treasury sectors. In the first quarter, the U.S.
Treasury formally initiated a program to use a portion of the federal budget
--------------------------------------------------------------------------------
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. 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
119
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO (CONT.)
surplus to buyback outstanding Treasury debt issues. At the same time, the bond
market was growing increasingly concerned that the Fed's continued pursuit of an
aggressive tightening campaign would eventually produce a "hard landing" for the
U.S. economy. Together, these factors led to strong demand for Treasury
securities, and, consequently, a dramatic widening of the yield spreads for
corporate, mortgage, agency, and asset-backed securities for most of this year.
In fact, yield spreads in all of these sectors reached record or near-record
levels by late May.
The situation changed markedly in June, however, as the aforementioned signs of
moderating economic growth lessened the probability of further aggressive Fed
tightening moves and reduced the risk of the eventual "hard landing" for the
economy. The result was a strong rally in corporates and other non-Treasury
sectors and a significant decline in yield spreads relative to Treasuries during
June. And while the U.S. Treasury continues to implement its debt buyback
program, value investors have started to pay more attention to the return
potential of the non-Treasury sectors' high yield premiums, which represent
extremely attractive value relative to history and to their underlying
fundamentals; this is evidenced, for example, by the strong performance of
corporate bonds during June despite a significant increase in new issuance.
Still, the recovery of yield spreads during June was not enough to offset the
unfavorable effects of the systematic widening of yield spreads during most of
this period, thereby explaining virtually all of the Portfolio's
underperformance. While we are disappointed in the recent performance of the
Portfolio, we are comforted in knowing that the relative "losses" are the result
of marking our securities to market, and are not due to any permanent impairment
in the securities' underlying cash flows; in fact, the timing and quality of the
cash flows associated with the Portfolio's non-Treasury holdings have been as
good as, or better than, expected. As disciplined value investors, we recognize
that a well-diversified, high-quality strategy emphasizing the non-Treasury
sectors will generate a significant amount of extra yield than either Treasury
securities or the Salomon Broad Index, and we expect this yield premium to be a
key component of our relative performance as we go forward. To the extent that
yield spreads narrow further -as they did during June, for example - then this
would "front load" some of the benefit in the form of relative price gains and
enhanced performance versus Treasuries and the Index. Thus, we remain very
comfortable with our current strategy of overweighting the corporate and
mortgage sectors and concurrently underweighting the allocation to
lower-yielding Treasury securities. Moreover, with a weighted average credit
quality of AA+ and very little relative mortgage prepayment risk versus the
benchmark, we believe the Portfolio has a very attractive risk profile in
relation to its significant yield advantage.
Our management of interest-rate risk added value through the first half of this
year. Disciplined adherence to our key value measures -- real interest rates and
the difference between actual and implied inflation -- allowed us opportunities
to actively manage the Portfolio's interest-rate sensitivity (IRS), resulting in
several changes to the IRS position. The key strategic moves involved an initial
extension of the Portfolio's IRS position relative to the benchmark in early
January just prior to a rally in Treasury securities, and a subsequent reduction
in this position as Treasury yields declined and our key value measures
diminished. We ended the quarter with only a small long position versus the
benchmark. Our key value measures remained in positive territory at the end of
June, thereby justifying this modest above-benchmark IRS position. We continued
to favor cash flows in the 10-year area relative to the benchmark, as this area
appeared to represent the best relative value along the yield curve.
In summary, then, we want you to know that we share a sense of disappointment in
our recent performance. At the same time, however, we hope you recognize and
appreciate our disciplined adherence to our time-tested, value approach toward
fixed income investing, and share our strong conviction that the tremendous
value potential inherent in the Portfolio's current strategy will eventually
lead us back to the high grounds of superior relative performance.
Warren Ackerman, III
PORTFOLIO MANAGER
Thomas L. Bennett
PORTFOLIO MANAGER
Kenneth B. Dunn
PORTFOLIO MANAGER
Roberto M. Sella
PORTFOLIO MANAGER
W. David Armstrong
PORTFOLIO MANAGER
July 2000
--------------------------------------------------------------------------------
Fixed Income Portfolio
120
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF THE NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C>
FIXED INCOME SECURITIES (101.9%)
ASSET BACKED SECURITIES (6.3%)
$ (e)2,000 Aesop Funding II LLC,
Series 97-1, Class A1, 6.22%, 10/20/01 ....... $ 1,996
2,400 COMED,
Series 98-1, Class A2, 5.29%, 6/25/03 ........ 2,375
2,237 Ford Credit Auto Owner Trust,
Series 98, Class B, 5.85%, 10/15/01 .......... 2,231
620 MBNA Master Credit Card Trust,
Series 2000-E, Class A 7.80%, 10/15/12 ....... 640
(e)3,250 Team Fleet Financing Corp.,
Series 97-1A, 7.35%, 5/15/03 ................. 3,235
----------
TOTAL ASSET BACKED SECURITIES 10,477
----------
CORPORATE BONDS AND NOTES (45.4%)
ENERGY (0.7%)
1,330 Conoco, Inc., 6.95%, 4/15/29 .................... 1,213
----------
FINANCE (28.4%)
1,800 American General Finance Corp.
6.75%, 11/15/04 .............................. 1,740
(e)2,000 American General Institutional Capital,
Series A, 7.57%, 12/01/45 .................... 1,767
1,970 Associates Corp. of North America,
5.80%, 4/20/04 ............................... 1,850
760 Bank One Corp., MTN,
Series A, 6.00%, 2/17/09 ..................... 662
455 BankAmerica Corp. 5.875%, 2/15/09 ............... 402
800 Bellsouth Capital Funding Corp.
7.75%, 2/15/10 ............................... 801
1,000 Chase Manhattan Corp., 6.00%, 2/15/09 ........... 886
3,000 CNA Financial Corp., 6.50%, 4/15/05 ............. 2,715
1,000 Donaldson, Lufkin & Jenrette, Inc.,
6.90%, 10/01/07 .............................. 937
(e)950 Equitable Life Assurance Society USA
6.95%, 12/01/05 .............................. 918
(e)2,500 Farmers Exchange Capital, 7.05%, 7/15/28 ........ 2,028
2,000 FleetBoston Financial Corp. 6.375%, 5/15/08 ..... 1,817
1,470 Ford Motor Co., 6.375%, 2/01/29 ................. 1,207
1,575 General Electric Capital Corp. 7.375%, 1/19/10 .. 1,589
2,000 General Motors Acceptance Corp.
7.48%, 2/28/03 ............................... 1,996
(e)2,500 Goldman Sachs Group, 6.34%, 3/01/06 ............. 2,323
655 Hartford Financial Services Group, Inc.
7.75%, 6/15/05 ............................... 658
825 Household Finance Corp. 5.875%, 2/01/09 ......... 717
(e)2,950 John Hancock, 7.375%, 2/15/24 ................... 2,729
875 Lehman Brothers Holding, Inc. 8.25%, 6/15/07 .... 876
(e)3,000 Liberty Mutual Insurance Co., 8.20%, 5/04/07 .... 2,950
(e)2,000 Lumbermans Mutual Casualty Co.,
8.45%, 12/01/97 .............................. 1,544
3,000 Merrill Lynch & Co., 6.00%, 2/12/03 ............. 2,902
825 PNC Funding Corp. 6.125%, 2/15/09 ............... 730
(e)2,500 Prudential Insurance Co., 6.375%, 7/23/06 ....... 2,334
2,000 Salomon, Inc., 7.30%, 5/15/02 ................... 1,996
1,500 Simon Debartolo Group, MTN,
7.125%, 9/20/07 .............................. 1,385
345 State Street Boston Corp. 7.65%, 6/15/10 ........ 344
850 Wells Fargo Co. 6.625%, 7/15/04 ................. 829
(e)3,507 World Financial Credit, 6.91%, 9/01/13 .......... 3,284
----------
46,916
----------
INDUSTRIAL (5.9%)
1,085 DaimlerChysler NA Holding Corp. 8.00%,
6/15/10 ...................................... 1,105
800 Delphi Auto Systems Corp., 7.125%, 5/01/29 ...... 688
725 Federated Department Stores, Inc.
6.30%, 4/01/09 ............................... 639
605 Hertz Corp. 8.25%, 6/01/05 ...................... 616
610 IBM Corp. 6.50%, 1/15/28 ........................ 552
(e)2,000 Lockheed Martin Corp., 8.20%, 12/01/09 .......... 2,022
2,000 Lowe's Companies, Inc., 6.50%, 3/15/29 .......... 1,628
850 News America Holdings 8.875%, 4/26/23 ........... 870
510 Norfolk Southern Corp. 6.20%, 4/15/09 ........... 455
200 Phillips Petroleum Co. 8.75%, 5/25/10 ........... 212
195 Time Warner Inc. 6.625%, 5/15/29 ................ 164
240 Time Warner, Inc. 7.25%, 9/01/08 ................ 232
460 TRW, Inc. 8.75%, 5/15/06 ........................ 469
----------
9,652
----------
TELEPHONES (3.5%)
1,000 AT&T Canada, Inc. 7.65%, 9/15/06 ................ 990
670 AT&T Corp., 6.50%, 3/15/29 ...................... 563
640 Bellsouth Telecommunications, Inc.
6.375%, 6/01/28 .............................. 534
(e)815 U.S. West Communications Group
7.625%, 6/09/03 .............................. 813
3,000 Worldcom, Inc., 6.40%, 8/15/05 .................. 2,847
----------
5,747
----------
YANKEE BONDS (6.9%)
1,500 Abbey National plc, 7.95%, 10/26/29 ............. 1,484
2,000 Ahold Finance USA, Inc., 6.875%, 5/01/29 ........ 1,682
395 Deutsche Telekom International Finance B.V.
8.00%, 6/15/10 ............................... 398
(e)1,693 Oil Enterprises Ltd., 6.239%, 6/30/08 ........... 1,609
2,000 Republic of Italy 7.25%, 2/07/05 ................ 2,011
3,000 Sony Corp., 6.125%, 3/04/03 ..................... 2,925
(e)1,250 Vodafone AirTouch plc 7.625%, 2/15/05 ........... 1,253
----------
11,362
----------
TOTAL CORPORATE BONDS AND NOTES ..................................... 74,890
----------
MORTGAGE PASS-THROUGHS (50.2%)
AGENCY FIXED RATE MORTGAGES (42.9%)
4 Federal Home Loan Mortgage Corporation
13.00%, 9/01/10 .............................. 5
7,470 Federal Home Loan Mortgage Corporation
6.00%, 12/01/28 .............................. 6,856
6,327 Federal Home Loan Mortgage Corporation
6.00%, 12/01/28 .............................. 5,807
2,662 Federal Home Loan Mortgage Corporation
6.00%, 12/01/28 .............................. 2,443
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Fixed Income Portfolio
121
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF THE NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO (CONT.)
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C>
MORTGAGE PASS-THROUGHS (CONT.)
AGENCY FIXED RATE MORTGAGES (CONT.)
$ 3,120 Federal National Mortgage Association
7.25%, 1/15/10 ............................... $ 3,151
1,590 Federal National Mortgage Association
8.00%, 2/01/12 ............................... 1,607
15,054 Federal National Mortgage Association
6.00%, 4/01/28 ............................... 13,802
9,441 Federal National Mortgage Association
6.00%, 2/01/29 ............................... 8,646
8,000 Federal National Mortgage Association
6.25%, 5/15/29 ............................... 7,194
5,000 Government National Mortgage Association
TBA, 6.50%, 7/01/30 .......................... 4,745
17,000 Government National Mortgage Association
TBA, 7.00%, 7/01/30 .......................... 16,525
----------
70,781
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.9%)
2,027 Mid-State Trust, Series 4 A, 8.33%, 4/01/30 ..... 2,062
1,250 Peco Energy Transition Trust,
Series 99-A, Class A6, 6.05%, 3/01/09 ........ 1,167
----------
3,229
----------
COMMERCIAL MORTGAGES (5.4%)
603 Chase Commercial Mortgage Securities Corp.,
Series 97-2, Class A1, 6.45%, 12/19/04 ....... 584
2,161 First Union-Lehman Brothers Commercial Mortgage,
Series 97-C2, Class A1, 6.48%, 3/18/04 ....... 2,125
3,885 Lehman Brothers Large Loan,
Series 97-LLIA1, 6.79%, 6/12/04 .............. 3,831
2,463 Merrill Lynch Mortgage Investors, Inc.,
Series 98-C2, Class A1, 6.22%, 2/15/30 ....... 2,381
----------
8,921
----------
TOTAL MORTGAGE PASS-THROUGHS ........................................ 82,931
----------
TOTAL FIXED INCOME SECURITIES (Cost $175,365) ....................... 168,298
----------
SHORT-TERM INVESTMENT (10.8%)
REPURCHASE AGREEMENT (10.8%)
17,875 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/03/00, to be repurchased at $17,884,
collateralized by U.S. Treasury Notes,
5.875%, due 11/15/05, valued at $18,253
(Cost $17,875) ............................... 17,875
----------
TOTAL INVESTMENTS (112.7%)(Cost $193,240) ........................... 186,173
----------
<CAPTION>
AMOUNT
(000)
---------
OTHER ASSETS (1.1%)
<S> <C> <C>
Interest Receivable ................................. $ 1,823
Other ............................................... 11 $ 1,834
---------
LIABILITIES (-13.8%)
Payable for Investments Purchased ................. (22,562)
Bank Overdraft Payable ............................ (157)
Investment Advisory Fees Payable .................. (103)
Administrative Fees Payable ....................... (21)
Directors' Fees and Expenses Payable .............. (18)
Custodian Fees Payable ............................ (7)
Distribution Fees Payable ......................... (1)
Other Liabilities ................................. (22) (22,891)
--------- ----------
NET ASSETS (100%) ................................... $ 165,116
==========
NET ASSETS CONSIST OF:
Paid in Capital ..................................................... $ 175,591
Undistributed Net Investment Income ................................. 990
Accumulated Net Realized Loss ....................................... (4,398)
Unrealized Appreciation on Investments .............................. (7,067)
----------
NET ASSETS .......................................................... $ 165,116
==========
CLASS A:
--------
NET ASSETS .......................................................... $ 163,221
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 15,850,059 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ............................ $ 10.30
==========
CLASS B:
--------
NET ASSETS .......................................................... $ 1,895
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 183,851 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ............................ $ 10.31
==========
--------------------------------------------------------------------------------
</TABLE>
(e) -- 144A Security -- certain conditions for public sale may exist.
MTN -- Medium Term Note
TBA -- Security is subject to delayed delivery -- See Note A-7 to financial
statements.
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Fixed Income Portfolio
122
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
<TABLE>
<S> <C>
Australian Dollar (2.3%)
British Pound (6.0%)
Canadian Dollar (3.9%)
Danish Krone (4.6%)
Euro (34.2%)
Japanese Yen (17.4%)
Swedish Krona (1.8%)
United States Dollar (24.0%)
Other (5.8%)
</TABLE>
PERFORMANCE COMPARED TO THE J.P. MORGAN
TRADED GLOBAL BOND INDEX (1)
---------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
------ ------ ------ ---------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A ...... -0.80% -0.29% 3.80% 5.93%
PORTFOLIO -- CLASS B ...... -0.89 -0.49 N/A 2.66
INDEX -- CLASS A .......... 0.41 2.70 3.74 7.25
INDEX -- CLASS B .......... 0.41 2.70 N/A 3.43
</TABLE>
1. The J.P. Morgan Traded Global Bond Index is an unmanaged index of securities
and includes Australia, Belgium, Canada, Denmark, Finland, France, Germany,
Ireland, Italy, Japan, The Netherlands, New Zealand, Portugal, South Africa,
Spain, Sweden, the United Kingdom and the United States.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Global Fixed Income Portfolio seeks to produce an attractive real rate of
return while preserving capital by investing primarily in high quality fixed
income securities issued by U.S. and foreign governments and their agencies, and
instrumentalities with varying maturities in various currencies. Foreign
investing involves certain risks, including currency fluctuations and controls,
restrictions on foreign investments, less governmental supervision and
regulation, less liquidity and the potential for market volatility and political
instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
-0.80% for the Class A shares and -0.89% for the Class B shares compared to
0.41% for the J.P. Morgan Traded Global Bond Index (the "Index"). For the one
year ended June 30, 2000, the Portfolio had a total return of -0.29% for the
Class A shares and -0.49% for the Class B shares compared to 2.70% for the
Index. For the five-year period ended June 30, 2000, the average annual total
return for the Class A shares was 3.80% compared to 3.74% for the Index. For the
period from inception on May 1, 1991 through June 30, 2000, the average annual
total return for the Class A shares was 5.93% compared to 7.25% for the Index.
For the period from inception on January 2, 1996 through June 30, 2000, the
average annual total return for the Class B shares was 2.66% compared to 3.43%
for the Index. As of June 30, 2000, the Portfolio had a SEC 30-day yield of
4.69% for the Class A shares and 4.54% for the Class B shares.
The first half of the year was a positive period for global bonds and all
markets represented in the Index produced solid positive returns.
In the U.S., the backdrop was one of rising interest rates as the Federal
Reserve raised its key short-term interest rate by a further 1.00% in an effort
to slow the highly buoyant economy and head off the emergence of significant
inflationary pressures. In the first quarter, the persistent uncertainty
regarding the likely magnitude of future monetary tightening had a negative
impact on the front end of the yield curve. In contrast, and surprising in this
environment, longer maturity bonds rallied strongly with the ten-year yield
falling approximately 40 basis points and the long bond down close to 70 basis
points. This move was largely prompted by concerns over supply, following the
announcement of a larger than expected Treasury buyback program focused on
longer maturity bonds. The second quarter saw a more subdued performance
although, recently, evidence of slower U.S. growth and greater uncertainty in
global equity market has raised hopes that the period of Fed tightening may soon
be coming to an end and Treasuries have rallied across the curve. Also important
during the period was the divergent performance between Treasuries and
non-government sectors as the increased demand for Treasuries materialized at
the expense of all spread
-------------------------------------------------------------------------------
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. 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.
--------------------------------------------------------------------------------
Global Fixed Income Portfolio
123
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO (CONT.)
products. Elsewhere, improving economic growth, a still benign inflation
backdrop (at least on a core basis) and central bank tightening saw the European
and dollar bloc bond markets follow the trends in the U.S. although to a much
lesser degree, resulting in a flattening of government yield curves. In
contrast, the Japanese market displayed little correlation with other bond
markets and was the poorest performer on stronger economic growth and
anticipation of an end to the zero interest rate policy.
While falling yields had a positive impact on the absolute returns of the
Portfolio over the period, the broad appreciation of the dollar subtracted from
these returns. During the period, the dollar rose 3.3% against the yen, 4.4%
against the euro and 6.1% against sterling.
In terms, of performance relative to the benchmark, our duration, country and
currency positions made a net positive contribution to performance. The positive
benefit of both our long duration exposure to the dollar bloc and European
markets and our overweighting to these markets relative to Japan are being
partially offset by our overweight exposure to the European currencies. The
major negative which impacted performance was our strategic overweighting to the
corporate sector which underperformed strikingly over the period. We remain
committed to this position, as we believe that this sector represents unusually
attractive long-term value, particularly in the U.S., and we expect our strategy
to outperform over the longer term.
In terms of strategy, we have recently reduced our excess duration in Europe and
the U.S. after the sharp rally in these bond markets that followed the release
of weaker than expected U.S. employment data. This change moved the Portfolio to
a neutral interest rate exposure in the dollar bloc countries. The Portfolio
remains overweight duration in Europe. There has been no change to our
underweight duration position in Japan or in our currency strategy. The
Portfolio remains approximately 5% overweight the European currencies versus the
Japanese yen and 1% overweight the Australian and Canadian dollars versus the
U.S. dollar.
Although the recent increase in energy prices promise ugly inflation numbers in
the months ahead, we believe that the principal effect will be to slow economic
growth rather than create a sustained boost in inflation. We also agree that the
evidence of slower U.S. economic growth should not be dismissed although we are
concerned that the recent shift in market sentiment may be excessive. On
balance, financial conditions still seem supportive of world growth. To be sure,
real short-term interest rates are mildly restrictive in the U.S. and neutral in
Europe. However, high U.S. equity prices and a low euro make overall financial
conditions on the stimulative side. In Japan, the likelihood is that the central
bank will increase interest rates this summer, but this is the only one expected
for a very long time.
These considerations make us chary of the front end of the U.S. yield curve.
However, longer-dated forwards still offer attractive real interest rates and we
still consider the bonds in the 7-10 year sector to offer fair value. Meanwhile,
the Australian and Canadian dollars, and euro remain at very low levels (the
latter against the yen) and we remain comfortable holding these positions.
Indeed, the narrowing of growth differentials between the U.S. and Europe and
lessening of prospective interest rate increases between the U.S. and other
dollar bloc countries suggest a more positive economic environment in which to
realize their longer-term value.
Our outlook is for continued monetary tightening with a greater risk of the
market being surprised by larger-than expected increases. At the same time, risk
premia offered on long-maturity bonds are low. Intermediate bonds, however,
still offer fair or slightly attractive value and we are comfortable with a
largely neutral position overall.
J. David Germany
PORTFOLIO MANAGER
Michael B. Kushma
PORTFOLIO MANAGER
Paul F. O'Brien
PORTFOLIO MANAGER
Ram Willner
PORTFOLIO MANAGER
Christian G. Roth
PORTFOLIO MANAGER
July 2000
--------------------------------------------------------------------------------
Global Fixed Income Portfolio
124
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------------------------
<S> <C> <C>
FIXED INCOME SECURITIES (94.2%)
AUSTRALIAN DOLLAR (2.3%)
US GOVERNMENT & AGENCY OBLIGATIONS (2.3%)
AUD 1,200 Federal National Mortgage Association
6.50%, 7/10/02 ..........................................$ 715
-------
BRITISH POUND (6.0%)
GOVERNMENT BONDS (6.0%)
GBP 550 United Kingdom Treasury Gilt
8.00%, 12/07/00 ......................................... 832
600 United Kingdom Treasury Gilt
8.50%, 7/16/07 .......................................... 1,061
-------
1,893
-------
CANADIAN DOLLAR (3.9%)
GOVERNMENT BONDS (3.9%)
CAD 1,800 Government of Canada 5.25%, 12/01/01 ...................... 1,205
-------
DANISH KRONE (4.6%)
GOVERNMENT BONDS (4.6%)
DKK 4,600 Kingdom of Denmark 7.00%, 12/15/04 ........................ 614
5,900 Kingdom of Denmark 8.00%, 3/15/06 ......................... 835
-------
1,449
-------
EUROPEAN CURRENCY UNIT (34.2%)
CORPORATE BONDS (3.9%)
EUR 150 ABN AMRO Bank NV, MTN
4.625%, 5/12/09 ......................................... 127
200 BAT International Finance, MTN
4.875%, 2/25/09 ......................................... 162
200 Burmah Castrol plc 4.875%, 3/31/09 ........................ 177
(e)150 Dresdner Funding Trust 5.79%, 6/30/11 ..................... 128
200 Mannesmann Finance BV 4.75%, 5/27/09 ...................... 167
150 Marconi Corp. plc 6.375%, 3/30/10 ......................... 139
200 Philip Morris Financial 4.50%, 04/06/06 ................... 171
150 SNS Bank of Nederland, MTN
6.125%, 4/07/10 ......................................... 142
-------
1,213
-------
GOVERNMENT BONDS (30.3%)
1,500 Bundesobligation 5.00%, 8/20/01 ........................... 1,432
300 Bundesrepublik Deutschland 6.00%, 7/04/07 ................. 299
500 Buoni Poliennali Del Tesoro 3.75%, 9/01/02 ................ 464
1,000 Buoni Poliennali Del Tesoro 9.50%, 2/01/06 ................ 1,139
1,000 Deutschland Republic 6.50%, 7/04/27 ....................... 1,075
1,000 Government of France 5.50%, 10/25/07 ...................... 965
1,200 Government of France 5.25%, 4/25/08 ....................... 1,138
1,000 Government of France 6.00%, 10/25/25 ...................... 991
1,350 Government of The Netherlands, Series I,
8.25%, 2/15/02 .......................................... 1,350
700 Republic of Austria, MTN 5.50%, 10/20/07 .................. 668
-------
9,521
-------
10,734
-------
JAPANESE YEN (17.4%)
CORPORATE BONDS (7.8%)
JPY 110,000 International Bank for Reconstruction &
Development 4.75%, 12/20/04 ............................. 1,210
130,000 KFW International Finance 1.00%, 12/20/04 ................. 1,229
-------
2,439
-------
GOVERNMENT BONDS (8.4%)
300,000 Government of Japan, Series 207,
0.90%, 12/22/08 ......................................... 2,626
-------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (1.2%)
40,000 Federal National Mortgage
Association - Global 1.75%, 3/26/08 ..................... 382
-------
5,447
-------
SWEDISH KRONA (1.8%)
GOVERNMENT BONDS (1.8%)
SEK 4,900 Swedish Government 6.00%, 2/09/05 ......................... 570
-------
UNITED STATES DOLLAR (24.0%)
ASSET BACKED SECURITIES (0.4%)
U.S.$ 120 MBNA Master Credit Card Trust, Series
2000E, Class A 7.80%, 10/15/12 .......................... 124
-------
CORPORATE BONDS (15.4%)
100 Abbey National Capital Trust
8.963%, 12/29/49 ........................................ 99
100 Abbey National plc 7.95%, 10/26/29 ........................ 99
150 AT&T Corp. 6.50%, 3/15/29 ................................. 126
220 BankAmerica Corp. 5.875%, 2/15/09 ......................... 194
200 Conoco, Inc., 6.95%, 4/15/29 .............................. 182
150 DaimlerChrysler Corp. 8.00%, 6/15/10 ...................... 153
200 Equitable Cos. 7.00%, 4/01/28 ............................. 175
(e)250 Farmers Exchange Capital, 7.05%, 7/15/28 .................. 201
(e)150 First Chicago Corp., 7.75%, 12/01/26 ...................... 133
(e)100 Florida Windstorm 7.125%, 2/25/19 ......................... 91
250 Ford Motor Co., 6.375%, 2/01/29 ........................... 204
150 General Electric Capital Corp.
7.375%, 1/19/10 ......................................... 151
200 General Motors Acceptance Corporation
7.75%, 1/19/10 .......................................... 199
(e)100 HSBC Capital Funding LP, Series 2
10.176%, 12/31/49 ....................................... 107
200 Lucent Technologies 6.45%, 3/15/29 ........................ 177
250 Merrill Lynch & Co., Inc. 6.875%, 11/15/18 ................ 222
(e)300 Metropolitan Life Insurance 7.45%, 11/01/23 ............... 263
(e)200 Monsanto Co., 6.60%, 12/01/28 ............................. 177
(e)300 Nationwide Mutual Insurance 7.50%, 2/15/24 ................ 254
350 Procter & Gamble Co. 6.60%, 12/15/04 ...................... 343
(e)200 Prudential Insurance Co. 8.30% 7/01/25 .................... 202
150 Royal Bank of Scotland Group, plc
9.118%, 3/31/49 ......................................... 153
(e)250 Vodafone Airtouch plc 7.75%, 2/15/10 ...................... 248
150 Wal-Mart Stores 6.875%, 8/10/09 ........................... 147
100 Wal-Mart Stores 7.55%, 2/15/30 ............................ 103
250 Wells Fargo Co. 6.625%, 7/15/04 ........................... 244
200 Worldcom, Inc. 6.95%, 8/15/28 ............................. 177
-------
4,824
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Global Fixed Income Portfolio
125
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES DOLLAR (CONT.)
U.S. TREASURY NOTES (3.6%)
U.S.$ 500 U.S. Treasury Note 7.50%, 2/15/05 ..........................$ 524
600 U.S. Treasury Note 6.50%, 8/15/05 .......................... 607
-------
1,131
-------
U.S. TREASURY BONDS (4.6%)
1,200 U.S. Treasury Bond 8.125%, 8/15/19 ......................... 1,447
-------
7,526
-------
TOTAL FIXED INCOME SECURITIES (Cost $31,402) ........................... 29,539
-------
SHORT-TERM INVESTMENT (3.2%)
REPURCHASE AGREEMENT (3.2%)
1,000 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/03/00, to be repurchased at $1,001,
collateralized by U.S. Treasury Notes,
5.875%, due 11/15/05, valued at $1,026
(Cost $1,000) ............................................ 1,000
-------
FOREIGN CURRENCY (0.8%)
AUD 345 Australian Dollar .......................................... 206
JPY 4,615 Japanese Yen ............................................... 43
-------
TOTAL FOREIGN CURRENCY (Cost $250) ..................................... 249
-------
TOTAL INVESTMENTS (98.2%) (Cost $32,652) ............................... 30,788
-------
OTHER ASSETS (2.1%)
Cash ..........................................................$ 3
Interest Receivable ........................................... 654
Withholding Tax Receivable .................................... 15
Other ......................................................... 6 678
----
LIABILITIES (-0.3%)
Net Unrealized Loss on Foreign Currency Exchange
Contracts ................................................... (52)
Directors' Fees and Expenses Payable .......................... (8)
Investment Advisory Fees Payable .............................. (7)
Custodian Fees Payable ........................................ (7)
Administrative Fees Payable ................................... (6)
Payable for Portfolio Shares Redeemed ......................... (1)
Other Liabilities ............................................. (17) (98)
---- -------
NET ASSETS (100%) ......................................................$ 31,368
=======
NET ASSETS CONSIST OF:
Paid in Capital ........................................................$ 34,974
Undistributed Net Investment Income .................................... 719
Accumulated Net Realized Loss .......................................... (2,392)
Unrealized Depreciation on Investments and
Foreign Currency Translations ........................................ (1,933)
-------
NET ASSETS $ 31,368
=======
<CAPTION>
VALUE
(000)
--------------------------------------------------------------------------------
<S> <C>
CLASS A:
--------
NET ASSETS .............................................................$ 31,052
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,790,430 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ...............................$ 11.13
=======
CLASS B:
--------
NET ASSETS .............................................................$ 316
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 28,550 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ...............................$ 11.08
=======
</TABLE>
-------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30,
2000, the Portfolio is obligated to deliver or is to receive foreign
currency in exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
---------- ------- ---------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C>
AUD 345 $ 206 6/28/00 U.S.$ 203 $ 203 $ (3)
U.S.$ 382 382 7/06/00 JPY 40,000 377 (5)
EUR 800 763 7/07/00 U.S.$ 719 719 (44)
AUD 345 206 8/29/00 U.S.$ 206 206 --
U.S.$ 206 206 6/28/00 AUD 345 206 --
------ ------ ----
$1,763 $1,711 $(52)
====== ====== ====
</TABLE>
-------------------------------------------------------------------------------
(e)--144A Security -- certain conditions for public sale may exist.
MTN--Medium Term Notes
-------------------------------------------------------------------------------
SUMMARY OF FIXED INCOME SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
---------------------------------------------------------------------------
<S> <C> <C>
Finance $ 8,352 26.7%
Foreign Government and Agency Obligations 17,512 55.8
U.S. Government and Agency Obligations 3,675 11.7
------- ----
$29,539 94.2%
======= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Global Fixed Income Portfolio
126
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-----------------------------------------------
<TABLE>
<S> <C>
Other (2.5%)
Preferred Stocks (4.3%)
Asset Backed Securities (0.2%)
Corporate Bonds and Notes (90.8%)
Common Stocks (0.2%)
Sovereign & Emerging Markets (2.0%)
</TABLE>
PERFORMANCE COMPARED TO THE CS FIRST
BOSTON HIGH YIELD INDEX(1)
--------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
------- ------- ---------- ------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A... -2.15% 1.26% 9.33% 10.11%
PORTFOLIO -- CLASS B... -2.25 0.94 N/A 8.21
INDEX -- CLASS A....... -0.84 -0.40 6.68 8.11
INDEX -- CLASS B....... -0.84 -0.40 N/A 6.06
</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 primarily
in a diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four highest
rating categories of the recognized rating services. Investing in high yield
fixed income securities, otherwise known as "junk bonds" is speculative and
includes greater risk of loss of principal and interest.
For the six months ended June 30, 2000, the Portfolio had a total return of
-2.15% for the Class A shares and -2.25% for the Class B shares compared to
-0.84% for the CS First Boston High Yield Index (the "Index"). For the one year
ended June 30, 2000, the Portfolio had a total return of 1.26% for the Class A
shares and 0.94% for the Class B shares compared to -0.40% for the Index. For
the five-year period ended June 30, 2000, the average annual total return of
Class A shares was 9.33% compared to 6.68% for the Index. For the period from
inception on September 28, 1992 through June 30, 2000, the average annual total
return of Class A shares was 10.11% compared to 8.11% for the Index. For the
period from inception on January 2, 1996 through June 30, 2000, the average
annual total return of Class B shares was 8.21% compared to 6.06% for the Index.
As of June 30, 2000, the Portfolio had a SEC 30-day yield of 12.36% for the
Class A shares and 12.10% for the Class B shares.
The high yield market underperformed higher quality bonds in the first half of
2000. Stock market volatility and several rate hikes by the Federal Reserve
caused investors to move money into higher quality fixed income assets.
Furthermore, there continued to be large outflows from high yield mutual funds
early in the second quarter of 2000 as individual investors continued to invest
heavily in high-tech equity funds. This outflow of funds, almost $4 billion in
the first five months of 2000, has caused high yield mutual funds to sell
securities and create a poor technical situation in the market. Fortunately the
situation improved in June 2000 as almost $1 billion was added to high yield
mutual funds, the largest gain in some time. The spread on the Index widened by
155 basis points in the first six months of 2000 to 728 basis points over
treasuries.
An overweight position in the telecommunications sectors was the biggest drag on
performance as these sectors performed poorly due to the NASDAQ volatility.
Higher exposure than the Index to non-U.S. issues was another negative factor
that impacted on our results.
Our higher quality than the Index portfolio benefited our returns as BB rated
securities outperformed lower rated bonds during the second quarter of 2000. Our
overweight
--------------------------------------------------------------------------------
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. 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
127
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
allocation to the gaming sector also increased returns as this sector
was one of the best performing sectors in the U.S. high yield market.
In terms of portfolio activity, we participated in several new deals as issuers
had to price their deals very cheaply to get investors attention. We increased
our exposure slightly in the cable and telecom sectors where we found good
value. We lowered our target weighting in Columbia/HCA and eliminated positions
in several issuers during the first half of 2000, including Metromedia Fiber,
Sequa, Voicestream, Snyder Oil and Algoma Steel.
We are optimistic about attaining better returns in the high yield market over
the coming months. The high yield market continues to trade at spread levels
only surpassed during the last U.S. recession in the early 1990's. This has
occurred at the same time that the global economies continue to expand and the
default rate has stabilized. Evidence is starting to appear that the Federal
Reserve might be able to stop or slow down the restrictive stance that they have
had for over the past year. The supply in the new issue market for high yield
has slowed considerably this year with issuance down over 50% from the same
period last year. Stability is what the high yield market needs: a Federal
Reserve on hold, less volatile interest rates and stock market, continued
moderate new issue supply, and less outflows (or possibly inflows) from high
yield mutual funds. We are hopeful that this stability will emerge soon.
Robert Angevine
PORTFOLIO MANAGER
Stephen F. Esser
PORTFOLIO MANAGER
Gordon W. Loery
PORTFOLIO MANAGER
July 2000
--------------------------------------------------------------------------------
High Yield Portfolio
128
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSET BACKED SECURITIES (0.2%)
COMMERCIAL MORTGAGE (0.2%)
$ (e)875 FMAC Loan Receivables Trust, Series 96-B,
Class C (Floating Rate), 7.929%, 11/15/18 (Cost $749)............... $ 297
---------
SOVEREIGN & EMERGING MARKETS (2.0%)
1,350 Federative Republic of Brazil, 12.75%, 1/15/20........................ 1,294
950 Republic of Colombia, 9.75%, 4/23/09.................................. 748
850 Republic of Philippines, 10.625%, 3/16/25............................. 738
---------
TOTAL SOVEREIGN & EMERGING MARKETS (Cost $2,950) 2,780
---------
CORPORATE BONDS AND NOTES (90.8%)
ASSET BACKED CORPORATES (0.2%)
277 Long Beach Auto, Series 97-1, Class B, 14.22%, 10/26/03............... 276
---------
AUTOMOTIVE (2.2%)
2,000 Hayes Lemmerz International, Inc., 8.25%, 12/15/08.................... 1,690
1,500 Tenneco Automotive, Inc., 11.625%, 10/15/09........................... 1,331
---------
3,021
---------
CABLE (11.5%)
1,875 Adelphia Communications, Series B, 7.75%, 1/15/09..................... 1,580
1,400 Adelphia Communications, Series B, 8.375%, 2/01/08.................... 1,239
850 Cablevision S.A., 13.75%, 5/01/09..................................... 774
(e)1,500 Callahan Nordrhein-Westfalen GmbH, 14.00%, 7/15/10.................... 1,500
1,200 Charter Commuincations Holdings, 10.25%, 1/15/10...................... 1,160
825 CSC Holdings, Inc., 9.875%, 5/15/06................................... 834
1,100 Echostar DBS Corp., 9.375%, 2/01/09................................... 1,064
1,640 Multicanal S.A., 10.50%, 2/01/07...................................... 1,394
(n)2,050 NTL, Inc., 6.25%, 4/01/08............................................. 1,291
1,290 Onepoint Communications Corp., 14.50%, 6/01/08........................ 645
(e,n)2,265 RCN Corp., 4.79%, 2/15/08............................................. 1,283
410 Rogers Cablesystems of America, 10.125%, 9/01/12...................... 417
(n)2,300 Telewest Communications plc, 4.97%, 4/15/09........................... 1,276
1,365 United Pan-Europe Communications N.V., 10.875%, 8/01/09............... 1,198
---------
15,655
---------
CHEMICALS (2.7%)
1,300 Huntsman ICI Chemicals, Inc., 10.125%, 7/01/09........................ 1,303
1,400 ISP Holdings, Inc., Series B, 9.00%, 10/15/03......................... 1,302
1,000 Lyondell Chemical Co., 9.625%, 5/01/07................................ 990
---------
3,595
---------
COMMUNICATIONS (19.9%)
(e)2,000 Bayan Telecommunications, Inc., 13.50%, 7/15/06....................... 1,260
(e)1,200 Exodus Communications, Inc., 11.625%, 7/15/10......................... 1,206
1,350 Global Crossing Holdings, 9.625%, 5/15/08............................. 1,313
965 Global Tele-Systems Ltd., 10.875%, 6/15/08............................ 685
600 Global Tele-Systems Ltd., 11.50%, 12/15/07............................ 444
1,280 Globix Corp., 12.50%, 2/01/10......................................... 1,062
(e,n)1,850 GT Group Telecom, 8.60%, 2/01/10...................................... 1,027
(n)900 Hermes Europe Railtel B.V., 11.50%, 8/15/07........................... 783
(n)1,510 Hyperion Telecommunication, 4.72%, 4/15/03............................ 1,401
(n)1,675 Intermedia Communications, Inc., Series B, 5.14%, 7/15/07............. 1,308
300 Intermedia Communications, Inc., Series B, 8.50%, 1/15/08............. 276
(e,n)1,275 Level 3 Commuincations, Inc., 8.67%, 3/15/10.......................... 695
(e)1,000 Maxcom Telecommunications S.A de S.V., 13.75%, 4/01/07................ 887
(e)1,375 Netia Holdings II B.V., 13.125%,6/15/09............................... 1,375
(n)2,550 NEXTLINK Communications, Inc., 5.22%, 4/15/08......................... 1,606
(e,n)450 NEXTLINK Communications, Inc., 8.15%, 12/01/09........................ 263
1,315 Primus Telecommunications Group, Inc., 9.875%, 5/15/08................ 1,019
640 Primus Telecommunications Group, Inc., 11.25%, 1/05/09................ 522
1,595 Psinet, Inc., 10.00%, 2/15/05......................................... 1,483
260 Psinet, Inc., 11.00%, 8/01/09......................................... 245
(n)3,250 Rhythms Netconnections, 9.06%, 5/15/08................................ 1,332
(n)1,440 RSL Communications, plc, 7.80%, 3/01/08............................... 598
1,875 RSL Communications, plc, 9.125%, 3/01/08.............................. 1,219
51 RSL Communications, plc, 12.25%, 11/15/06............................. 41
1,025 Tele1 Europe B.V., 13.00%, 5/15/09.................................... 1,033
(n)1,930 Viatel, Inc., 6.26%, 4/15/08.......................................... 888
(n)1,290 Wam!Net, Inc., 7.53%, 3/01/05......................................... 722
(e,n)5,170 Winstar Communications, Inc., 10.68%, 4/15/10......................... 2,378
---------
27,071
---------
COMMUNICATIONS: MOBILE (9.3%)
(e)825 Cellco Finance N.V. Turkcell, 12.75%, 8/01/05......................... 852
1,475 Centennial Cellular, 10.75%, 12/15/08................................. 1,434
(n)1,900 CTI Holdings, 8.16%, 4/15/08.......................................... 1,095
(n)2,425 Dolphin Telecom plc, 6.46%, 6/01/08................................... 897
(n)300 Dolphin Telecom plc, 8.80%, 5/15/09................................... 107
1,175 Globalstar Capital Corp., 11.375%, 2/15/04............................ 335
310 Globalstar LP, 11.50%, 6/01/05........................................ 85
(e)1,500 Grupo Iusacell S.A. de C.V., 14.25%, 12/01/06......................... 1,545
(n)3,600 Nextel Communications, Inc., 4.53%, 9/15/07........................... 2,821
(n)900 Nextel Communications, Inc.,4.80%, 2/15/08............................ 658
(e,n)2,275 Occidente y Caribe Cellular, 4.66%, 3/15/04........................... 1,604
(n)1,690 PTC International Finance B.V., 4.08%, 7/01/07........................ 1,204
---------
12,637
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
High Yield Portfolio
129
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
----------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY (1.3%)
$ (n)800 Husky Oil Ltd., 8.90%, 8/15/28........................................ $ 759
425 Vintage Petroleum, 8.625%, 2/01/09.................................... 406
570 Vintage Petroleum, 9.75%, 6/30/09..................................... 577
---------
1,742
---------
FINANCIAL (1.2%)
1,860 Golden State Holdings, 7.125%, 8/01/05................................ 1,669
---------
FOOD & BEVERAGES (1.3%)
1,925 Smithfield Foods, Inc., 7.625%, 2/15/08............................... 1,713
---------
GAMING (5.4%)
1,475 Harrahs Operating Co., Inc., 7.875%, 12/15/05......................... 1,388
1,350 Horseshoe Gaming Holdings Corp., 8.625%, 5/15/09...................... 1,269
1,415 International Game Technology, 8.375%, 5/15/09........................ 1,345
775 Park Place Entertainment, 8.50%, 11/15/06............................. 762
650 Park Place Entertainment, 7.875%, 12/15/05............................ 609
470 Station Casinos, Inc., 9.75%, 4/15/07................................. 470
1,413 Station Casinos, Inc., 10.125%, 3/15/06............................... 1,431
---------
7,274
---------
GENERAL INDUSTRIAL (1.3%)
820 Applied Power, Inc., 8.75%, 4/01/09.................................. 855
1,130 Axia, Inc., 10.75%, 7/15/08.......................................... 881
---------
1,736
---------
HEALTHCARE (4.4%)
1,730 Fresenius Medical Capital Trust II, 7.875%, 2/01/08.................. 1,574
600 HCA - The Healthcare Corp., 7.58%, 9/15/25........................... 478
1,800 HCA - The Healthcare Corp., 7.69%, 6/15/25........................... 1,466
895 HCA - The Healthcare Corp., 8.13%, 8/04/03........................... 870
1,720 Tenet Healthcare Corp., 8.625%, 1/15/07.............................. 1,634
---------
6,022
---------
HOTELS & LODGING (2.5%)
1,420 Hilton Hotels Corp., 7.95%, 4/15/07.................................. 1,330
1,470 HMH Properties, Inc., Series A, 7.875%, 8/01/05...................... 1,352
700 Host Marriott LP, 8.375%, 2/15/06.................................... 655
---------
3,337
---------
MEDIA (4.3%)
1,805 Chancellor Media Corp., 9.00%, 10/01/08.............................. 1,837
1,150 Outdoor Systems, Inc., 8.875%, 6/15/07............................... 1,161
800 Satelites Mexicanos, 10.125%, 11/01/04............................... 528
1,685 TV Azteca, Series B, 10.50%, 2/15/07................................. 1,491
(e)900 XM Satellite Radio Holdings, Inc., 14.00%, 3/15/10................... 788
---------
5,805
---------
METALS (2.5%)
435 Glencore Nickel Property Ltd., 9.00%, 12/01/14....................... 368
2,080 Murrin Murrin Holdings, PTY, (Yankee Bond), 9.375%, 8/31/07.......... 1,810
1,300 National Steel Corp., 9.875%, 3/01/09................................ 1,105
(e)1,010 NSM Steel, Inc., 12.25%, 2/01/08..................................... $ 1
(e)1,010 Republic Technologies International LLC/RTI Capital Corp.,
13.75%, 7/15/09...................................................... 151
---------
3,435
---------
PAPER & PACKAGING (2.8%)
2,350 Indah Kiat Financial Mauritius, 10.00%, 7/01/07...................... 1,422
750 Norampac, Inc., 9.50%, 2/01/08....................................... 724
1,145 Pacifica Papers Corp., 10.00%, 3/15/09............................... 1,129
900 Pindo Deli Finance Mauritius, 10.75%, 10/01/07....................... 535
---------
3,810
---------
REAL ESTATE (2.1%)
1,000 Centex Corp., 9.75%, 6/15/05......................................... 1,012
840 D R Horton, Inc., 8.00%, 2/01/09..................................... 727
1,170 Nortek, Inc., 8.875%, 8/01/08........................................ 1,058
---------
2,797
---------
RETAIL (5.7%)
568 DR Securitized Lease Trust, Series 93-K1 Class A1, 6.66%, 8/15/10.... 475
1,982 DR Securitized Lease Trust, Series 94-K1 Class A1, 7.60%, 8/15/07.... 1,807
700 DR Securitized Lease Trust, Series 94-K1 Class A2, 8.375%, 8/15/15... 573
(e)840 Grupo Elektra, S.A. de C.V., 12.00%, 4/01/08......................... 752
2,275 HMV Media Group plc, Series A, 10.25%, 5/15/08....................... 1,536
850 Kmart Funding Corp., 8.80%, 7/01/10.................................. 785
500 Musicland Group, Inc., 9.00%, 6/15/03................................ 455
1,700 Musicland Group, Inc., 9.875%, 3/15/08............................... 1,419
---------
7,802
---------
SERVICES (2.5%)
(n)1,000 Norcal Waste Systems, Inc., Series B, 13.50%, 11/15/05............... 1,040
1,100 Waste Management Inc, 6.875%, 5/15/09................................ 973
700 Waste Management, Inc., 7.00%, 10/15/06.............................. 646
400 Waste Management, Inc., 7.125%, 12/15/17............................. 332
450 Waste Management, Inc., 7.65%, 3/15/11............................... 411
---------
3,402
---------
SUPERMARKET/DRUG (2.0%)
(e)1,570 CA FM Lease Trust, 8.50%, 7/15/17.................................... 1,447
1,495 Stater Brothers Holdings, Inc., 10.75%, 8/15/06...................... 1,301
---------
2,748
---------
TECHNOLOGY (0.7%)
1,195 AMSC Acquisition Co., Inc., 12.25%, 4/01/08.......................... 902
---------
TRANSPORTATION (2.5%)
1,677 Aircraft Lease Portfolio Securitization Ltd., Series 96-1 P1,
Class D, 12.75%, 6/15/06...................................... 1,610
(e)525 Jet Equipment Trust, Series 95-D, 11.44%, 11/01/14.................. 579
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
High Yield Portfolio
130
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
----------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 1,050 Jet Equipment Trust, Series C-1, 11.79%, 6/15/13................... $ 1,179
---------
3,368
---------
UTILITIES (2.5%)
1,100 AES Corp., 8.50%, 11/01/07......................................... 1,009
850 CMS Energy, 7.50%, 1/15/09......................................... 763
(e)1,155 Paiton Energy Funding B.V., 9.34%, 2/15/14......................... 231
(e)430 Ras Laffan Gas Liquified Natural Gas, 8.294%, 3/15/14.............. 402
100 TNP Enterprises, Inc., 14.50%, 4/01/11............................. 990
---------
3,395
---------
TOTAL CORPORATE BONDS AND NOTES (Cost $139,306)....................................... 123,212
---------
<CAPTION>
SHARES
-----------
<S> <C> <C>
COMMON STOCKS (0.2%)
HOTELS & LODGING (0.0%)
(e)1,300 Motels of America, Inc............................................. --
---------
UTILITIES (0.2%)
18,052 Tele1 Europe Holding AB............................................ 218
---------
TOTAL COMMON STOCKS (Cost $85)........................................................ 218
---------
PREFERRED STOCK (4.3%)
COMMUNICATIONS (1.8%)
1,521 IXC Communications, Inc., Series B, PIK, 12.50%.................... 1,521
8,771 NEXTLINK Communications, Inc., 13.50%.............................. 868
---------
2,389
---------
COMMUNICATIONS: MOBILE (0.9%)
(a)9,369 Dobson Communications Corp., PIK, 13.00%........................... 965
(a)185 Nextel Communications, Inc., PIK, 13.00%........................... 194
---------
1,159
---------
MEDIA (1.1%)
(a,e)12,183 Paxson Communications Corp., PIK, 13.25%, 11/15/06................. 1,170
(a,e)3,797 Paxson Communications Corp., PIK, 9.75%, 12/31/06.................. 364
---------
1,534
---------
RETAIL (0.5%)
20,300 Kmart Financing, 7.50%............................................. 741
---------
TOTAL PREFERRED STOCK (Cost $5,073)................................................... 5,823
---------
<CAPTION>
NO. OF
WARRANTS
------------
<S> <C> <C>
WARRANTS (0.1%)
CABLE (0.0%)
(a,e)12,900 Onepoint Communications Corp., expiring 6/1/08..................... 26
---------
COMMUNICATIONS (0.0%)
(a)38,700 Wam!Net, Inc., expiring 3/01/05.................................... 43
---------
COMMUNICATIONS: MOBILE (0.1%)
(a,e)600 Globalstar Telecom Ltd., expiring 2/15/04.......................... 6
(a,d,e)18,450 Motient Corp., expiring 4/01/08.................................... 64
(a,e)111,000 Occidente y Caribe Cellular, expiring 3/15/04...................... $ 42
---------
112
---------
METALS (0.0%)
(e)6,394,240 NSM Steel Ltd., Inc., expiring 2/01/08............................. 6
---------
TOTAL WARRANTS (Cost $187)............................................................ 187
---------
<CAPTION>
FACE
AMOUNT
(000)
----------
<S> <C> <C> <C>
SHORT - TERM INVESTMENT (1.5%)
REPURCHASE AGREEMENT (1.5%)
$ 2,001 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/03/00, to be repurchased at $2,002,
collateralized by U.S. Treasury Notes,
5.875%, due 11/15/05, valued at $2,046 (Cost $2,001)............ 2,001
---------
TOTAL INVESTMENTS (99.1%) (Cost $150,351)............................................. 134,518
---------
OTHER ASSETS (3.0%)
Cash................................................. $ 1
Interest Receivable.................................. 2,979
Receivable for Portfolio Shares Sold................. 1,156
Other Assets......................................... 7 4,143
-------
LIABILITIES (-2.1%)
Payable for Portfolio Shares Redeemed................ (2,701)
Investment Advisory Fees Payable..................... (132)
Administrative Fees Payable.......................... (18)
Distribution Fees Payable............................ (15)
Directors' Fees and Expenses Payable................. (14)
Custodian Fees Payable............................... (8)
Other Liabilities.................................... (22) (2,910)
------- ---------
NET ASSETS (100%)..................................................................... $ 135,751
=========
NET ASSETS CONSIST OF:
Paid in Capital....................................................................... $ 159,938
Undistributed Net Investment Income................................................... 1,237
Accumulated Net Realized Loss......................................................... (9,747)
Unrealized Appreciation on Investments................................................ (15,677)
---------
NET ASSETS............................................................................ $ 135,751
=========
CLASS A:
NET ASSETS............................................................................ $ 108,830
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 10,934,235 outstanding $0.001 par value
shares (authorized 500,000,000 shares)........................................... $ 9.95
=========
CLASS B:
NET ASSETS............................................................................ $ 26,921
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 2,713,116 outstanding $0.001 par value
shares (authorized 500,000,000 shares)........................................... $ 9.92
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
High Yield Portfolio
131
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
---------------------------------------------------------------------------
(a) -- Non-income producing security
(d) -- Security value at fair value -- See Note A-1 to financial
statements.
(e) -- 144A security -- certain conditions for public resale may exist.
(n) -- Step Bond -- coupon rate increases in increments to maturity.
Rate disclosed is as of June 30, 2000. 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 -- The interest rate changes on these instruments are based
on changes in a designated base rate. The rates shown are those
in effect at June 30, 2000.
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
High Yield Portfolio
132
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
<TABLE>
<S> <C>
Other (5.8%)
Bank Notes (3.7%)
U.S. Government & Agency Obligations (13.0%)
Certificates of Deposit (9.1%)
Commercial Paper (68.4%)
</TABLE>
COMPARATIVE MONTHLY AVERAGE YIELDS
[Graphic]
<TABLE>
Portfolio Index
<S> <C> <C>
January 5.32% 5.07%
February 5.41% 5.19%
March 5.52% 5.31%
April 5.60% 5.46%
May 5.78% 5.61%
June 6.07% 5.86%
</TABLE>
The Money Market Portfolio seeks to maximize current income and preserve capital
while maintaining high levels of liquidity through investing in high quality
money market instruments which have effective maturities of 397 days or less.
The Portfolio is expected to maintain a net asset value of $1.00 per share.
There can be no assurance, however, that the Portfolio will be successful in
maintaining a net asset value of $1.00 per share.
The seven day yield and seven day effective yield (which assumes an
annualization of the current yield with all dividends reinvested) for the
Portfolio as of June 30, 2000, were 6.12% and 6.31%, respectively. As with all
money market portfolios, the seven day yields are not necessarily indicative of
future performance.
During the first five months of this year, the U.S. economy continued to show
few signs of slowing down. First quarter real Gross Domestic Product increased
at a 4.8% annual pace and the nation's unemployment rate for the month of April
reached 3.9%, the lowest level in 30 years. Tight labor markets placed pressure
on wage and benefit growth as the first quarter Employment Cost Index posted its
highest reading in close to 9 years. At the same time, the overall trend in the
core Consumer Price Index (CPI) appeared to head gradually higher. For the
three-month period ending May 31, the Consumer Price Index (CPI), excluding food
and energy, rose an annualized 3.2% as compared to a 1.9% increase for all of
1999. However, by June, the impact of higher interest rates seemed to begin
cooling off the U.S. economy. Starting in late-May through mid-June,
weaker-than-expected employment, retail sales and housing-related statistics
were all released. The May employment report, released in early June, featured
an uptick in the unemployment rate to 4.1% and an estimated decline in nonfarm
payrolls, after excluding recently hired census workers.
Over the past six months, the Federal Reserve continued on its course of trying
to slow economic growth to a more sustainable, noninflationary pace. On three
separate occasions, during the first half of this year, the Fed increased its
target federal funds rate. As of June 30, the target federal funds rate stood at
6.50%, an increase of 100 basis points since year-end. As a result of the higher
rates available on money market securities, net yields on the Portfolio
continued in an upward trend throughout the semi-annual period under review.
Our primary strategy during the first half of this year has consisted of
purchasing money market securities that matured near upcoming Federal Open
Market Committee (FOMC) meeting dates in order to quickly reinvest at higher
short-term interest rate levels. As always, we try to operate
---------------------------------------------------------------------------
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 AND ARE NOT NECESSARILY INDICATIVE OF FUTURE
PERFORMANCE.
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Money Market Portfolio
133
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO (CONT.)
the Portfolio in a conservative manner without the use of derivatives or
funding agreements.
On June 30, 2000, approximately 68 percent of the Portfolio was invested in
high quality commercial paper, 13 percent in Federal agency obligations, 6
percent in overnight repurchase agreements, and 13 percent in short-term bank
notes and negotiable certificates of deposit issued by financially strong
commercial banks. At June 30, the Portfolio's weighted average maturity was
50 days, an increase of 18 days from December 31. Eighty three percent of
holdings were due to mature in less than three months. Therefore, we believe
the Portfolio is well positioned for stability of principal with a very high
degree of liquidity. As always, the Portfolio continues to serve as a useful
investment for liquidity, preservation of capital and a yield that reflects
prevailing money market conditions.
Looking ahead, while we expect slight further increases in our yield levels
over the months ahead, we are not anticipating the relatively sharp increases
that occurred during the first half of this year. We believe your Portfolio
is well positioned to take advantage of the money market yield levels which
become available during the months ahead.
July 2000
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Money Market Portfolio
134
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
--------------------------------------------------------------------------------
<S> <C>
MONEY MARKET INSTRUMENTS (94.2%)
BANK NOTES (3.7%)
MAJOR BANKS (3.7%)
$ 20,000 Bank of America N.A., 6.10%, 7/03/00..................... $ 20,000
35,000 Bank of America N.A., 6.25%, 7/20/00..................... 35,000
30,000 Bank of America N.A., 6.80%, 11/13/00.................... 30,000
20,000 Bank of America N.A., 6.88%, 10/04/00.................... 20,000
-----------
TOTAL BANK NOTES (Cost $105,000)................................... 105,000
-----------
CERTIFICATES OF DEPOSIT (9.1%)
MAJOR BANKS (9.1%)
50,000 Citibank N.A., 6.61%, 10/03/00........................... 50,000
50,000 First Union National Bank, 6.65%, 7/27/00................ 50,000
60,000 Fleet National Bank, 6.73%, 9/08/00...................... 60,000
40,000 Harris Trust & Savings Bank, 6.57%, 7/03/00.............. 40,000
25,000 SunTrust Bank, 6.25%, 7/24/00............................ 25,000
35,000 SunTrust Bank, 6.65%, 7/21/00............................ 35,000
-----------
TOTAL CERTIFICATES OF DEPOSIT (Cost $260,000)...................... 260,000
-----------
COMMERCIAL PAPER (68.4%)
BANKING (10.2%)
60,000 Bank of New York Co., Inc. 6.54%, 7/31/00............... 59,695
25,000 Citicorp 6.49%, 7/03/00................................. 25,000
25,000 Citicorp 6.52%, 7/28/00................................. 24,891
40,000 FleetBoston Financial Corp. 6.55%, 7/17/00............... 39,898
30,000 J.P. Morgan & Co. 6.45%, 7/07/00......................... 29,979
30,000 J.P. Morgan & Co. 6.58%, 9/05/00......................... 29,649
30,000 Wachovia Corp. 5.92%, 7/10/00............................ 29,965
50,000 Wells Fargo & Co. 6.52%, 7/28/00......................... 49,774
-----------
288,851
-----------
CONSUMER SUNDRIES (1.4%)
40,000 Procter & Gamble Co. 6.57%, 8/29/00...................... 39,584
DIVERSIFIED FINANCIAL SERVICES (7.3%)
40,000 Associates Corp. of North America 6.50%, 7/13/00......... 39,927
20,000 Associates First Capital Corp.6.55%, 7/07/00............. 19,985
45,000 Associates First Capital Corp. 6.54%, 8/02/00............ 44,755
25,000 General Electric Capital Corp. 6.05%, 8/16/00............ 24,815
15,000 General Electric Capital Corp. 6.07%, 10/10/00........... 14,750
35,000 General Electric Capital Corp. 5.94%, 10/16/00........... 34,394
30,000 General Electric Capital Corp. 6.74%, 10/30/00........... 29,332
-----------
207,958
-----------
DIVERSIFIED MANUFACTURING (0.7%)
20,000 Honeywell International, Inc. 6.52%, 7/19/00....... 19,942
-----------
FINANCE - AUTOMOTIVE (8.2%)
25,000 BMW U.S. Capital Corp. 6.54%, 8/08/00.................... 24,837
40,000 BMW U.S. Capital Corp. 6.54%, 8/14/00.................... 39,695
35,000 BMW U.S. Capital Corp. 6.56%, 8/29/00.................... 34,636
50,000 Daimler Chrysler North America Holding Corp.
6.10%, 7/06/00......................................... 49,975
30,000 Daimler Chrysler North America Holding Corp.
6.64%, 8/30/00......................................... 29,679
40,000 Ford Motor Credit Corp. 6.52%, 7/25/00................... 39,841
15,000 Ford Motor Credit Corp. 6.54%, 8/03/00................... 14,915
-----------
233,578
-----------
FINANCE - CONSUMER (10.3%)
80,000 American General Finance Corp. 6.54%, 8/01/00............ 79,579
80,000 Household Finance Corp. 6.88%, 7/03/00................... 80,000
20,000 New Center Asset Trust 5.98%, 7/07/00.................... 19,987
30,000 New Center Asset Trust 5.98%, 7/11/00.................... 29,960
30,000 New Center Asset Trust 6.60%, 10/11/00................... 29,450
20,000 Norwest Financial, Inc. 6.57%, 7/10/00................... 19,974
35,000 Norwest Financial, Inc. 6.10%, 7/18/00................... 34,911
-----------
293,861
-----------
FINANCE - CORPORATE (6.3%)
25,000 Ciesco, LP 6.52%, 7/05/00................................ 24,991
50,000 Ciesco, LP 6.58%, 9/07/00................................ 49,396
25,000 CIT Group, Inc. 6.00%, 7/12/00........................... 24,962
60,000 CIT Group, Inc. 6.56%, 8/11/00........................... 59,574
20,000 CIT Group, Inc. 6.59%, 8/30/00........................... 19,788
-----------
178,711
-----------
INTERNATIONAL BANKS (11.5%)
40,000 Commerzbank U.S. Finance Inc. 6.64%, 8/23/00............. 39,624
50,000 Deutsche Bank Financial, Inc. 6.64%, 8/28/00............. 49,484
25,000 Dresdner U.S. Finance, Inc. 6.59%, 9/06/00............... 24,703
50,000 KFW International Finance 6.57%, 8/25/00................. 49,516
75,000 Rabobank U.S.A. Financial Corp. 6.57%, 8/31/00........... 74,192
15,000 UBS Finance, (Del.) LLC 6.60%, 9/05/00................... 14,824
30,000 UBS Finance, (Del.) LLC 5.99%, 10/02/00.................. 29,546
30,000 UBS Finance, (Del.) LLC 6.28%, 11/30/00.................. 29,215
14,600 Westpac Capital Corp. 6.63%, 8/24/00..................... 14,460
-----------
325,564
-----------
INVESTMENT BANKERS/BROKERS/SERVICES (7.2%)
35,000 Goldman Sachs Group, Inc. 6.52%, 7/05/00................. 34,987
50,000 Goldman Sachs Group, Inc.6.58%, 7/05/00.................. 49,982
20,000 Goldman Sachs Group, Inc. 6.18%, 7/10/00................. 19,976
30,000 Merrill Lynch & Co. 6.43%, 7/11/00....................... 29,957
40,000 Merrill Lynch & Co. 6.48%, 7/12/00....................... 39,935
30,000 Merrill Lynch & Co. 6.53%, 7/14/00....................... 29,940
-----------
204,777
-----------
MAJOR PHARMACEUTICALS (0.9%)
25,000 Schering Corp. 6.21%, 9/19/00............................ 24,663
-----------
OILFIELD SERVICES/EQUIPMENT (3.5%)
50,000 Halliburton Co. 6.55%, 7/13/00........................... 49,909
50,000 Halliburton Co. 6.55%, 7/14/00........................... 49,900
-----------
99,809
-----------
UTILITIES (0.9%)
25,000 National Rural Utilities Cooperative Finance Corp.
6.65%, 7/11/00.......................................... 24,963
-----------
TOTAL COMMERCIAL PAPER (Cost $1,942,261)......................... 1,942,261
-----------
The accompanying notes are an integral part of the financial statements.
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Money Market Portfolio
135
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
-------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO (CONT.)
-------------------------------------------------------------------------------
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
--------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT & AGENCY SECURITIES (13.0%)
U.S. AGENCY DISCOUNT NOTES (13.0%)
$120,000 Federal Home Loan Bank 6.55%, 7/03/00.................... $ 120,000
20,000 Federal Home Loan Bank 6.14%, 12/29/00................... 19,390
15,000 Federal Home Loan Bank 6.64%, 5/22/01.................... 14,106
20,000 Federal Home Loan Mortgage Corp. 6.45%, 2/01/01.......... 19,278
20,000 Federal Home Loan Mortgage Corp. 6.22%, 3/01/01.......... 19,183
25,000 Federal Home Loan Mortgage Corp. 6.26%, 3/29/01.......... 23,831
45,000 Federal Home Loan Mortgage Corp. 6.70%, 4/26/01.......... 42,683
20,000 Federal National Mortgage Association 5.84%, 7/06/00..... 19,990
25,000 Federal National Mortgage Association 6.17%, 9/28/00..... 24,627
30,000 Federal National Mortgage Association 5.75%, 10/05/00.... 29,522
20,000 Federal National Mortgage Association 5.63%, 11/20/00.... 19,562
18,826 Student Loan Marketing Association 5.99%, 12/20/00....... 18,294
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $370,466)..... 370,466
-----------
TOTAL MONEY MARKET INSTRUMENTS (Cost $2,677,727)................... 2,677,727
-----------
SHORT-TERM INVESTMENT (6.1%)
REPURCHASE AGREEMENT (6.1%)
172,400 Goldman Sachs Group, Inc., 6.45%, dated 6/30/00,
due 7/03/00, to be repurchased at $172,492,
collateralized by U.S. Treasury Bonds, 11.125%,
due 8/15/03, valued at $172,425 (Cost $172,400)........ 172,400
-----------
<CAPTION>
AMOUNT
(000)
--------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS (100.3%) (Cost $2,850,127)....................... $2,850,127
----------
OTHER ASSETS (0.1%)
Interest Receivable.................................... $ 3,813
Other.................................................. 43 $3,856
-------
LIABILITIES (-0.4%)
Dividends Payable...................................... (7,904)
Investment Advisory Fees Payable....................... (2,232)
Overdraft Payable...................................... (653)
Administrative Fees Payable............................ (364)
Directors' Fees and Expenses Payable................... (123)
Custodian Fees Payable................................. (101)
Other Liabilities...................................... (186) (11,563)
------- -----------
NET ASSETS (100%).................................................. $2,842,420
===========
NET ASSETS CONSIST OF:
Paid in Capital.................................................... $2,842,711
Undistributed Net Investment Income................................ 4
Accumulated Net Realized Loss...................................... (295)
-----------
NET ASSETS......................................................... $2,842,420
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 2,842,894,180 outstanding $0.001 par value shares
(authorized 4,000,000,000 shares)............................... $ 1.00
===========
</TABLE>
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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 June 30, 2000.
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 June 30, 2000.
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
Money Market Portfolio
136
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
INVESTMENT OVERVIEW
------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
U.S. Government and Agency Obligations (0.4%)
Put Option Bonds (3.4%)
Municipals Bonds & Notes (3.7%)
Weekly Variable Rate Bonds (37.6%)
Daily Variable Rate Bonds (21.2%)
Commercial Paper (35.1%)
Other (-1.4%)
</TABLE>
COMPARATIVE MONTHLY AVERAGE YIELDS
-------------------------------------------------------------------------------
[CHART]
<TABLE>
Portfolio Index
<S> <C> <C>
January 2.89% 3.09%
February 3.07% 2.81%
March 3.16% 3.10%
April 3.34% 3.21%
May 3.81% 4.10%
June 3.63% 3.58%
</TABLE>
The Municipal Money Market Portfolio seeks to maximize current tax-exempt
income and preserve capital. The Investment Advisor and Sub-Advisor seek
these objectives by investing in high quality municipal money market
instruments which earn interest exempt from Federal income tax and by
maintaining high levels of liquidity. The Portfolio will purchase only
securities having a remaining maturities of 397 days or less. Typically, the
Portfolio will invest at least 80% of its assets in tax-exempt municipal
securities. The Portfolio will not invest in municipal obligations that pay
interest subject to the alternative minimum tax. 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 at June 30, 2000, were 3.89% and 3.97, respectively. The seven day
taxable equivalent yield and seven day taxable equivalent effective yield for
the Portfolio at June 30, 2000, assuming Federal income tax rate of 39.6%
(maximum rate) were 6.44% and 6.57%, respectively. As with all money market
portfolios, the seven day yields are not necessarily indicative of future
performance.
The rise in tax-free money market yields continued over the first half of
2000, although at a slower pace than during the latter half of 1999. The U.S.
economy stayed on course. Real personal consumption accelerated and
unemployment reached a 30-year low. At the same time a surge in oil prices
also heightened the risk of inflation. In response, the Federal Reserve Board
took added steps toward a more restrictive monetary policy. Three increases
in the federal funds rate totaling 100 basis points have occurred since
February 2000 bringing the federal funds rate target to a nine-year high of
6.50%.
Yields for both variable rate and fixed rate municipal money market
instruments increased by about 50 basis points, on average, from the previous
six-month period. However, the movement of yields was subject to the usual
fluctuations stemming from seasonal changes in the direction of cash flows.
The trend toward higher interest rates was interrupted early in the year when
heavy demand from new cash in the market caused rates to drop temporarily.
The rise in yields resumed when demand subsided later in January. Another
marked departure from the measured pace toward higher yields occurred in
conjunction with the tax-payment season lasting from late April into early
May when yields took an exaggerated spike upward.
-------------------------------------------------------------------------------
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 AND ARE NOT NECESSARILY INDICATIVE OF FUTURE
PERFORMANCE.
-------------------------------------------------------------------------------
Municipal Money Market Portfolio
137
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
INVESTMENT OVERVIEW
------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
The Bond Buyer One Year Note Index, a benchmark indicator for the longest
maturities in the tax-free money market sector, dropped modestly from 3.97%
to 3.91% during the first week of January to register its low for the first
half of the year. The Index moved upward moderately to a level of 4.10% in
mid-April but then rose more than 50 basis points over the next several weeks
to a high of 4.64% in mid-May. The Index settled down again over the balance
of the second quarter and ended June at 4.29% for a net increase of 32 basis
points over the six-month period. Over the 12-month period beginning in June
1999, when the Federal Reserve Board first embarked on a less accommodative
monetary policy, the Index increased by 90 basis points from 3.29%.
Although yields for daily and weekly variable rate demand obligations (VRDOs)
also rose, the yield swings were much more pronounced because these
instruments are the most frequently utilized to meet changing cash flows.
Weekly VRDO yields moved over a range of nearly 300 basis points during the
six-month period from a low of 2.95% in early January to a high of 5.85% in
early May. In a year-over-year comparison, the average yield for weekly VRDOs
rose from 3.30% in June 1999 to 4.40% in June 2000.
Net assets of the Portfolio increased 17% during the first six months of
2000. At the end of June assets totaled $1,690 million. Asset allocation
continued to favor daily and weekly variable rate issues that have shorter
effective maturities. At the end of June the weighted average maturity of the
Portfolio stood at 26 days, essentially unchanged from 27 days six months
earlier. We anticipate that the Federal Reserve Board will continue to focus
on inflation. Additional increases in short-term interest rates remain a
possibility if the central bank feels that economic momentum is not slowing
sufficiently. In this environment, average portfolio maturity will be
monitored closely over the period ahead.
July 2000
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Municipal Money Market Portfolio
138
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORITIZED
AMOUNT COST
(000) (000)
------------------------------------------------------------------------------------------
<S> <C>
TAX-EXEMPT INSTRUMENTS (101.4%)
FIXED RATE INSTRUMENTS (42.6%)
COMMERCIAL PAPER (35.1%)
$ 6,500 Baltimore County, Maryland,
Gas & Electric, 4.05%, 7/10/00 ............................. $ 6,500
7,100 Baltimore County, Maryland, Series 1985, BANS,
4.00%, 8/09/00 .............................................. 7,100
5,000 Bexar County, Texas, Metropolitan Water District,
4.70%, 8/17/00 ............................................ 5,000
12,000 Burke County Development Authority, Georgia, Series
1998 A, 4.00%, 7/27/00 .................................... 12,000
15,000 Florida Municipal Power Agency, Series A, 3.95%,
7/12/00 ................................................... 15,000
8,385 Georgia Municipal Electric Authority, Project 1, Series A,
4.00%, 8/10/00 ............................................ 8,385
12,150 Georgia Municipal Electric Authority, Project 1, Series B,
4.20%, 9/12/00 ............................................ 12,150
14,635 Harris County, Texas, Series A 1, 4.00%, 7/12/00 .............. 14,635
10,812 Harris County, Texas, Series A 1, 4.15%, 8/03/00 .............. 10,812
12,000 Honolulu City & County, Hawaii, Series 1998, 3.90%,
7/12/00 ................................................... 12,000
8,000 Houston, Texas, Series 1993 A, 4.00%, 9/14/00 ................. 8,000
10,300 Houston, Texas, Series 1996 B, 4.05%, 7/11/00 ................. 10,300
10,000 Houston, Texas, Series 1996 B, 4.40%, 8/09/00 ................. 10,000
12,600 Houston, Texas, Series 1996 B, 4.45%, 10/12/00 ................ 12,600
20,600 Houston, Texas, Water & Sewer, Series 1994 A, 3.90%,
7/27/00 ................................................... 20,600
21,500 Houston, Texas, Water & Sewer, Series 1994 A, 3.90%,
8/14/00 ................................................... 21,500
5,000 Illinois Educational Facility Authority, Con Edison Co.,
Series C, 3.95%, 7/27/00 .................................. 5,000
15,341 Illinois Educational Facility Authority, Pooled
Financing, Series 1998, 4.10%, 8/17/00 .................... 15,341
18,634 Illinois Educational Facility Authority, Pooled
Financing, Series 1998, 4.65%, 9/12/00 .................... 18,634
10,000 Intermountain Power Agency, Utah, Series 1997 B-2,
3.95%, 7/20/00 ............................................ 10,000
11,400 Kentucky Asset/Liability Commission, 1999 1st Series,
4.40%, 7/12/00 ............................................ 11,400
13,900 Kentucky Asset/Liability Commission, 1999 2nd Series,
3.90%, 7/13/00 ............................................ 13,900
19,650 Lincoln, Nebraska, Electric System, Series 1995, 4.00%,
7/11/00 ................................................... 19,650
9,835 Louisiana Public Facilities Authority, Series 1998 B,
Christus Health, 4.70%, 7/25/00 .......................... 9,835
15,000 Louisiana Public Facilities Authority, Series B, Christus
Health, 4.00%, 7/13/00 .................................... 15,000
11,000 Louisiana, Series 1991 A, 4.55%, 7/18/00 ...................... 11,000
16,100 Maricopa County, Arizona, SoCal Edison Co., Series
1985 B, 3.90%, 8/22/00 .................................... 16,100
15,000 Massachusetts Water Resources Authority, Series 1999,
4.35%, 8/14/00 ............................................ 15,000
12,000 Massachusetts Water Resources Authority, Series 1999,
4.40%, 7/25/00 ............................................ 12,000
13,000 Metropolitan Transportation Authority, New York,
Series C-1 B, 3.90%, 7/20/00 .............................. 13,000
10,000 Nebraska Public Power District, Series A, 4.20%,
8/23/00 ................................................... 10,000
12,000 New York City Municipal Water Finance Authority,
New York, 3.95%, 7/12/00 .................................. 12,000
12,250 New York State Power Authority, Series 2, 4.50%,
8/08/00 ................................................... 12,250
16,500 New York State Power Authority, Series 4, 4.00%,
7/19/00 ................................................... 16,500
8,000 Ohio State Water Development Authority, Cleveland
Electric Co., Series 1988 A, 3.90%, 7/14/00 ............... 8,000
6,000 Petersburg, Indiana, Indianapolis Power & Light Co.,
Series 1991, 4.25%, 8/17/00 ............................... 6,000
15,605 Port of Seattle, Washington, Series A, 4.20%, 9/07/00 ......... 15,605
12,000 Puerto Rico, Government Development Bank, Series
1996, 3.00%, 8/10/00 ...................................... 12,000
13,200 Puerto Rico, Government Development Bank, Series
1996, 3.05%, 8/15/00 ...................................... 13,200
1,000 South Carolina Public Service Authority, Santee
Cooper, Series 1998, 3.95%, 7/18/00 ........................... 1,000
11,581 South Carolina Public Service Authority, Santee
Cooper, Series 1998, 4.00%, 7/26/00 ........................... 11,581
12,000 South Carolina Public Service Authority, Santee
Cooper, Series 1998, 4.40%, 9/13/00 ........................... 12,000
5,900 South Carolina Public Service Authority, Santee
Cooper, Series 1998, 4.70%, 7/18/00 ........................... 5,900
9,460 Sunshine State Governement Financing Commission,
Florida, Series C, 4.00%, 7/31/00 ......................... 9,460
9,100 Sweetwater County, Wyoming, Pacificorp, Series
1988, 3.95%, 7/10/00 ......................................... 9,100
9,600 Texas Public Finance Authority, Series 1993 A, 3.80%,
7/10/00 ................................................... 9,600
7,250 University of Texas Regents, Series A, 3.80%, 7/11/00 ......... 7,250
8,433 University of Texas Regents, Series A, 4.20%, 8/16/00 ......... 8,433
13,782 Wisconsin, Series 1998 B, 4.00%, 8/10/00 ...................... 13,782
27,700 York County, Industrial Development Authority,
Virginia, Series 1985, 4.05%, 8/11/00 ........................ 27,700
----------
593,803
----------
MUNICIPAL BONDS & NOTES (3.7%)
10,000 Arizona School District Tax Anticipation Notes, 4.05%,
7/31/00 .................................................. 10,004
12,075 Indianapolis Local Public Improvement Bond Bank,
Indiana, Series 2000A, 5.00%, 1/08/01 .................... 12,119
15,000 Kentucky Asset/Liability Commission, 5.25%, 6/27/01 ........... 15,100
10,000 Texas State, Tax & Revenue, 4.50%, 8/31/00 .................... 10,012
</TABLE>
The accompanying notes are an integral part of the financial statements.
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139
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORITIZED
AMOUNT COST
(000) (000)
------------------------------------------------------------------------------------------
<S> <C>
FIXED RATE INSTRUMENTS (CONT.)
MUNICIPAL BONDS & NOTES (CONT.)
$ 15,000 Wyoming Education Fund, Series 2000 B, 5.25%,
6/27/01 .................................................. $ 15,129
----------
62,364
----------
PUT OPTION BONDS (3.4%)
10,000 Intermountain Power Agency, Utah, 3.75%, 9/15/00 .............. 10,000
17,000 Intermountain Power Agency, Utah, 3.75%, 7/01/14 .............. 17,000
4,500 Oklahoma State Water Reserve Board Program,
3.80%, 9/01/24 ........................................... 4,500
8,725 Putnam County Development Authority, Florida,
Seminole Electric Co-op Inc., Series 1984 H1
(NRU-CFC-GTD), 4.30%, 3/15/14 ............................ 8,725
10,000 Utah County, Utah, USX Corp., Series 1995, 3.85%,
11/01/17 ................................................. 10,000
8,000 York County Pollution Control, Revenue Bonds, South
Carolina, Seminole Electric Co., Series 1984 H-3,
4.05%, 9/15/14 ........................................... 8,000
----------
58,225
----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (0.4%)
5,850 Federal Home Loan Bank, Discount Note, 6.50%,
7/03/00 .................................................. 5,850
----------
TOTAL FIXED RATE INSTRUMENTS (COST $720,242) .................................. 720,242
----------
VARIABLE/FLOATING RATE INSTRUMENTS (58.8%)
DAILY VARIABLE RATE BONDS (21.2%)
8,900 Burke County Development Authority, Georgia,
Power Co., Series 1985, 4.55%, 7/01/24 ................... 8,900
10,000 Chula Vista, California, San Diego Gas and Electric,
Series 1996 A, 3.50%, 7/01/21 ............................ 10,000
6,100 Clark County, Nevada, Airport Improvement, Series B-2,
4.70%, 7/01/29 ........................................... 6,100
13,930 Collier County Health Facilities Authority, Florida, Series
1999, 4.50%, 1/01/33 ..................................... 13,930
6,595 Cuyahoga County, Ohio, Cleveland Clinic
Foundation Series 1997 D, 4.70%, 1/01/16 ..................... 6,595
5,400 Cuyahoga County, Ohio, Hospital, Cleveland Clinc,
Series 1998 A, 4.55%, 1/01/26 ............................ 5,400
2,600 Delta County Economic Development Corporation,
Michigan, Mead-Escanaba Paper Co. Series 1985
C, Revenue Bonds, Mead Corp., 4.45%, 12/01/23 ............ 2,600
4,200 East Baton Rouge Parish, Louisiana, Pollution Control,
Control Revenue Bonds, Exxon Corp. Project 4.45%,
11/01/19 ................................................. 4,200
7,000 Forsyth, Montana, Pacificorp, Revenue Bonds, 4.75%,
1/01/18 .................................................. 7,000
10,200 Hapeville Development Authority, Georgia, Hapeville
Ltd. Series 85, 4.45%, 11/01/15 .......................... 10,200
5,900 Harris County, Texas, Health Facilities, Development
Corp., Methodist Hospital, 4.45%, 12/01/26 ............... 5,900
8,660 Harris County, Texas, Health Facilities Development
Corp., 4.55%, 2/15/27 .................................... 8,660
18,500 Harris County, Texas, Health Facilities Development
Corp., 4.55%, 7/01/34 .................................... 18,500
15,000 Harris County, Texas, Health Facilities Development,
Methodist Hospital, 4.55% 12/01/25 ....................... 15,000
1,400 Harris County, Texas, Industrial Development, Pollution
Control Revenue Bonds, Exxon Project, 4.50%, 3/01/24 ..... 1,400
2,485 Idaho Health Facilities, Authority Revenue Bonds, St. Lukes
Regional Medica 4.60%, 5/01/22 ........................... 2,485
8,000 Illinois Health Facilities Authority, Northwestern
Memorial Hospital, Series 1995, 4.80%, 8/15/25 ........... 8,000
7,200 Illinois Health Facilities Authority, 4.60%, 8/01/26 .......... 7,200
2,000 Irvine, California, Improvement Board, Act 1915,
4.15%, 9/02/24 ........................................... 2,000
7,300 Jacksonville, Florida, Pollution Control Financing
Authority, Power & Light Co., Series 1995, 2.00%,
5/01/29 .................................................. 7,300
2,700 Lehigh County, Pennsylvania, General Obligation,
4.50%, 7/01/29 ........................................... 2,700
18,850 Louisiana Public Facilities Authority, Kenner Hotel,
Development, Kenner Hotel, Series 85, 4.00%, 12/01/15 .... 18,850
2,200 M-S-R Public Power Agency, California, San Juan,
Series 1998 F, 4.15%, 7/01/22 ............................ 2,200
7,000 Maricopa County, Arizona, Pollution Control Corp.,
4.45%, 5/01/29 ........................................... 7,000
4,000 Massachusetts Health & Educational Facilites
Authority, Capital Asset, Series D, 4.45%, 1/01/35 ....... 4,000
7,400 Metropolitan Nashville Airport Authority, Series B,
4.55%, 10/01/12 .......................................... 7,400
22,800 Missouri Health & Educational Facilities Authority,
4.50%, 6/01/15 ........................................... 22,800
20,300 Missouri Health & Educational Facilities Authority,
4.50%, 3/01/40 ........................................... 20,300
1,600 Missouri State Health & Educational Facilities
Authority, 4.50%, 9/01/30 ................................ 1,600
25,600 Missouri State Health & Educational Facilities
Authority, Seires C, 4.50%, 3/01/40 ...................... 25,600
3,100 New Jersey Economic Development Authority, 4.50%,
11/01/26 ................................................. 3,100
1,520 New York City Cultural Resources Trust, New York,
Solomon R. Guggenheim Foundation, Series 1990 B,
4.40%, 12/01/15 .......................................... 1,520
11,685 New York State Dormatory Authority, Oxford University
Press Inc., Series 1993, 4.50%, 7/01/23 .................. 11,685
3,500 Newport Beach, California, Hoag Memorial, Series
1992, 4.25%, 10/01/22 .................................... 3,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
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140
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORITIZED
AMOUNT COST
(000) (000)
------------------------------------------------------------------------------------------
<S> <C>
VARIABLE/FLOATING RATE INSTRUMENTS (CONT.)
DAILY VARIABLE RATE BONDS (CONT.)
$ 6,000 North Central Texas Health Facilites Development
Corp., Presbyterian Medical Center, Series 1985 C,
4.55%, 12/01/15 .......................................... $ 6,000
3,200 Ohio Air Quality Development Authority, Cincinnatti
Gas and Electric Co. Series 1985 A, 4.75%, 12/01/15 ...... 3,200
3,045 Pennsylvania State Higher Education Facilities
Authority, Temple University, Series 1985-1, 4.50%,
10/01/09 ................................................. 3,045
10,000 Princeton, Indiana, PSI Energy, Series 1997, 4.45%,
4/01/22 .................................................. 10,000
9,400 Salt Lake County, Utah, Service Station Holdings,
Series 1984, 4.50%, 8/01/07 .............................. 9,400
8,260 Sweetwater County, Wyoming, Pacificorp, Series
1994, 4.55%, 11/01/24 ........................................ 8,260
25,000 Tempe, Arizona, Excise Tax Series 1998, 4.55%, 7/01/23 ........ 25,000
9,200 Washington State Health Care Facilities Authority,
4.60%, 2/15/27 ........................................... 9,200
----------
357,730
----------
WEEKLY VARIABLE RATE BONDS (37.6%)
14,800 Albuquerque, New Mexico, Airport Sub Lien, Series
1995, 4.70%, 7/01/14 ..................................... 14,800
17,000 Birmingham, Medical Clinic Board, Alabama, Series
1991, 4.70%, 12/01/26 .................................... 17,000
10,195 Burke County Development Authority, Georgia, Series
1998 A, 4.75%, 1/01/19 ................................... 10,195
5,300 Charlotte, North Carolina, Airport Series 1993 A
(MBIA), 4.70%, 7/01/16 ................................... 5,300
6,000 Chicago, Illinois, People's Gas Light and Coke Co.,
Series 2000, 4.72%, 3/01/30 .............................. 6,000
17,700 Clark County, Nevada, Airport Impr Refg, Series 1993 A,
4.70%, 7/01/12 ........................................... 17,700
13,400 Clarksville Public Building Authority, Tennessee, Series
1995, 4.75%, 10/01/25 .................................... 13,400
12,330 Cleveland, Ohio, Income Tax Sub Lien, Series 1994,
4.90%, 5/15/24 ........................................... 12,330
25,200 Connecticut Health & Educational Facilities Authority,
Yale University, Series T-1, 4.35%, 7/01/29 .............. 25,200
8,375 Connecticut Second Lien Special Tax Series 1990,
4.75%, 12/01/10 .......................................... 8,375
7,315 Connecticut Series 1997 B, 4.30%, 5/15/14 ..................... 7,315
5,400 Cuyahoga County, Ohio, Hospital Revenue, 4.55%,
1/01/24 .................................................. 5,400
17,300 Cuyahoga County, Ohio, University Hospital, Series
1999 E, 4.80%, 1/15/29 ................................... 17,300
20,500 Dade County, Florida, Water & Sewer System Series
1994 (FGIC), 4.70%, 10/05/22 ............................. 20,500
16,000 District of Columbia, George Washington University,
Series 1999 C, 4.80%, 9/15/29 ............................ 16,000
4,000 Fulton County Development Authority, Georgia,
Morehouse College, 4.75%, 8/01/17 ........................ 4,000
18,600 Harris County, Texas, Baytank Houston Inc., Series
1998, 4.75%, 2/01/20 ..................................... 18,600
5,000 Harris County, Texas, Toll Road Unlimited Tax Sub Lien,
Series 94 H, 4.75%, 8/01/20 .............................. 5,000
3,500 Illinois Development Finance Authority, Chicago
Symphony, 4.70%, 6/01/31 ................................. 3,500
5,000 Illinois Development Finance Authority, Con Edison
Co. Series C, 93A, 4.75%, 3/01/09 ........................ 5,000
5,000 Illinois Development Finance Authority, Museum of
Contemporary Art, 4.75%, 2/01/29 ......................... 5,000
8,000 Illinois Development Finance Authority, Palos
Community Hospital, Series 1995, 4.80%, 9/01/15 .......... 8,000
15,600 Illinois State Toll Highway Authority, Series 1993 B,
4.70%, 1/01/10 ........................................... 15,600
4,000 Jacksonville Electric Authority, Florida, Water and
Sewer, Series B, 4.75%, 10/01/34 ......................... 4,000
4,000 Jefferson Parish, Louisiana, West Jefferson Medical
Center, Series 1986, 4.80%, 1/01/26 ...................... 4,000
5,640 Louisiana Public Facilities Authority, College &
University Equipment Series A, 4.80%, 9/01/10 ............ 5,640
8,600 Maryland Health & Educational Facilities, John
Hopkins Hospital Series 1997 A, 4.90%, 7/01/27 ........... 8,600
28,500 Massachusetts Health & Educational Facilities Authority,
Harvard University, Series 1985 I, 4.50%, 2/01/16 ........ 28,500
19,400 Massachusetts Water Resources Authority, Series B,
4.40%, 8/01/28 ........................................... 19,400
30,300 Massachusetts, Series 1997 B, 4.60%, 8/01/15 .................. 30,300
21,680 Minneapolis, Minnesota, 4.50%, 12/01/18 ....................... 21,680
12,300 Missouri Health & Educational Facilities Authority, Sisters
of Mercy Health System Series 1995 B, 4.85%, 12/01/16 .... 12,300
4,000 Municipal Electric Authority, Georgia, Series E, 4.70%,
1/01/26 .................................................. 4,000
25,000 New Jersey Educational Facilities Authority, College of
New Jersey Series 1999 A (AMBAC), 4.45%, 7/01/29 ......... 25,000
19,100 New Jersey State Authority, Series 1991 D, 4.20%, 1/01/18 ..... 19,100
9,135 New York City Transportation Finance Authority, New York,
Fiscal 1999, 2nd Series A-1, 4.65%, 11/15/22 ............. 9,135
14,400 New York City, New York, Fiscal 1996 J-2, 4.65%, 2/15/16 ...... 14,400
5,000 New York State Housing Finance Agency, Series 1998 A,
4.65%, 3/15/28 ........................................... 5,000
24,300 New York State Local Government Assistance
Corporation Series 1995 G, 4.40%, 4/01/25 ................ 24,300
</TABLE>
The accompanying notes are an integral part of the financial statements.
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Municipal Money Market Portfolio
141
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORITIZED
AMOUNT COST
(000) (000)
------------------------------------------------------------------------------------------
<S> <C>
VARIABLE/FLOATING RATE INSTRUMENTS (CONT.)
WEEKLY VARIABLE RATE BONDS (CONT.)
$ 3,900 Nueces County Health Facilities Developmental
Corporation, Texas, Driscoll Childrens' Foundation
Series 1985, 4.85%, 7/01/15 .............................. $ 3,900
20,500 Oregon, Series 73F, 4.75%, 12/01/17 ........................... 20,500
9,350 Puerto Rico, Government Development Bank, Series
1996, 4.60%, 12/01/15 .................................... 9,350
25,000 Salt Lake City, Utah, IHC Health Services Inc., Series
1990 B, 4.75%, 1/01/20 ................................... 25,000
5,600 Stanislaus Waste to Energy, California, Ogden Martin,
Series 2000, 4.35%, 1/01/10 .............................. 5,600
4,400 Suffolk County Water Authority, New York, Series 1997
BANS, 4.55%, 11/01/02 .................................... 4,400
12,380 Sunshine State Governement Financing Commission,
Florida, Series 1986 A, 4.80%, 7/01/16 ................... 12,380
7,705 Texas State, Veterans Housing Assistance Fund, Series
1995, 4.70%, 12/01/16 .................................... 7,705
8,300 University of Alabama, Hospital Series 1997 B, 4.70%,
10/01/07 ................................................. 8,300
6,600 University of Maryland, Series 1996 B, 4.70%, 7/01/15 ......... 6,600
4,000 University of Minnesota Regents, Series 1999 A, 4.80%,
1/01/34 .................................................. 4,000
11,300 Washington, Series 1996 B, 4.75%, 6/01/20 .................... 11,300
20,000 Weber County, Utah, IHC Health Services Inc., Series
2000 C, 4.75%, 2/15/35 ................................... 20,000
----------
635,905
----------
TOTAL VARIABLE/FLOATING RATE INSTRUMENTS (COST $993,635) .................... 993,635
----------
TOTAL TAX-EXEMPT INSTRUMENTS (COST $1,713,877) ................................ 1,713,877
----------
TOTAL INVESTMENTS (101.4%) (COST $1,713,877) .................................. 1,713,877
----------
OTHER ASSETS (0.7%)
Cash $ 64
Interest Receivable 11,240
Other 7 11,311
-------
LIABILITIES (-2.1%)
Payable for Investments Purchased .................................. (30,230)
Dividends .......................................................... (3,006)
Investment Advisory Fees Payable ................................... (1,377)
Administrative Fees Payable ........................................ (232)
Directors' Fees and Expenses Payable ............................... (75)
Custodian Fees Payable ............................................. (43)
Other Liabilities .................................................. (175) (35,138)
------- ----------
NET ASSETS (100%) ............................................................. $1,690,050
==========
NET ASSETS CONSIST OF:
Paid in Capital ............................................................ 1,690,239
Undistributed Net Investment Income ......................................... 5
Accumulated Net Realized Loss ............................................... (194)
----------
NET ASSETS .................................................................... $1,690,050
==========
VARIABLE/FLOATING RATE INSTRUMENTS (CONT.)
DAILY VARIABLE RATE BONDS (CONT.)
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,690,225,945 outstanding $0.001 par value
shares (authorized 4,000,000,000 shares) .................................... $ 1.00
==========
------------------------------------------------------------------------------------------
</TABLE>
AMBAC-- American Municipal Bond Assurance Company
BANS -- Bond Anticipation Notes
FGIC -- Financial Guaranty Insurance Corporation
MBIA -- Municipal Bond Insurance Corporation
NRU-CFC-GTD-- National Rural Utilities Cooperative Finance
Corporation Guaranteed
TANS -- Tax Anticipation Notes
TRANS-- Tax & Revenue Anticipation Notes
Variable/Floating Rate Instruments. The interest rate changes on these
instruments are based on changes in a designated base rate. These instruments
are payable on demand.
Maturity dates disclosed for Variable/Floating Rate Instruments are the ultimate
maturity dates. The effective maturity dates for such securities are the next
interest reset dates which are seven days or less.
Prerefunded Bonds-- Outstanding bonds have been refunded to the first call date
(prerefunded date) by the issuance of new bonds. Principal and interest are
paid from monies escrowed in U.S. Treasury securities. Prerefunded bonds are
generally re-rated AAA due to the U.S. Treasury escrow.
The accompanying notes are an integral part of the financial statements.
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142
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 2000
--------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
SUMMARY OF TAX-EXEMPT INSTRUMENTS BY STATE
AMORTIZED PERCENT
COST OF NET
STATE (000) ASSETS
----------------------------------------------------------------------------
<S> <C> <C>
Alabama ...................................... $ 25,300 1.5%
Arizona ...................................... 58,104 3.4
California ................................... 23,300 1.4
Connecticut .................................. 40,890 2.4
District of Columbia ......................... 16,000 1.0
Florida ...................................... 91,295 5.4
Georgia ...................................... 69,830 4.1
Hawaii ....................................... 12,000 0.7
Idaho ........................................ 2,485 0.2
Illinois ..................................... 97,275 5.8
Indiana ...................................... 28,119 1.7
Kentucky ..................................... 40,400 2.4
Louisiana .................................... 68,525 4.1
Maryland ..................................... 28,800 1.7
Massachusetts ................................ 109,200 6.5
Michigan ..................................... 2,600 0.2
Minnesota .................................... 25,680 1.5
Missouri ..................................... 82,600 4.9
Montana ...................................... 7,000 0.4
Nebraska ..................................... 29,650 1.8
Nevada ....................................... 23,800 1.4
New Jersey ................................... 47,200 2.8
New Mexico ................................... 14,800 0.9
New York ..................................... 124,190 7.3
North Carolina ............................... 5,300 0.3
Ohio ......................................... 58,225 3.4
Oklahoma ..................................... 4,500 0.3
Oregon ....................................... 20,500 1.2
Pennsylvania ................................. 5,745 0.3
Puerto Rico .................................. 34,550 2.0
South Carolina ............................... 38,481 2.3
Tennessee .................................... 20,800 1.2
Texas ........................................ 239,407 14.2
Utah ......................................... 101,400 6.0
Virginia ..................................... 27,700 1.6
Washington ................................... 36,105 2.1
Wisconsin .................................... 13,782 0.8
Wyoming ...................................... 32,489 1.9
U.S. Government and Agency Obligations ....... 5,850 0.3
---------- -----
$1,713,877 101.4%
========== =====
</TABLE>
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Municipal Money Market Portfolio
143
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE ASIAN EUROPEAN
INTERNATIONAL ASIAN REAL EMERGING EUROPEAN REAL GLOBAL
ALLOCATION EQUITY ESTATE MARKETS EQUITY ESTATE EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000) (000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 4,783 $ 787 $ 48 $ 7,570+ $ 1,478 $ 150 $ 993
Interest 3,231 120 3 1,441 58 7 71
Less: Foreign Taxes Withheld (569) (46) (2) (394) (194) (29) (79)
-------- ------- ----- -------- ------- ----- -------
Total Income 7,445 861 49 8,617 1,342 128 985
-------- ------- ----- -------- ------- ----- -------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 1,858 426 13 9,319 406 39 366
Less: Fees Waived (300) (101) (13) -- (66) (39) (77)
-------- ------- ----- -------- ------- ----- -------
Investment Advisory Fees -- Net 1,558 325 -- 9,319 340 -- 289
Administrative Fees 475 89 8 1,158 89 13 78
Custodian Fees 154 60 17 838 37 10 39
Directors' Fees and Expenses 11 2 1 24 2 1 4
Filing and Registration Fees 26 15 8 110 13 8 13
Foreign Tax Expense 37 13 -- -- -- -- --
Insurance 5 2 -- 12 1 -- 3
Interest Expense 57 9 -- 196 1 2 2
Professional Fees 37 31 15 122 21 15 24
Shareholder Reports 17 8 -- 31 2 -- 2
Distribution Fees on Class B Shares 28 3 1 27 2 2 33
Other Expenses 18 5 1 44 5 4 7
Expenses Reimbursed by Advisor -- -- (34) -- -- (1) --
-------- ------- ----- -------- ------- ----- -------
Total Expenses 2,423 562 17 11,881 513 54 494
-------- ------- ----- -------- ------- ----- -------
NET INVESTMENT INCOME (LOSS) 5,022 299 32 (3,264) 829 74 491
-------- ------- ----- -------- ------- ----- -------
NET REALIZED GAIN (LOSS):
Investments Sold 48,834 6,274 33 255,161** 5,880 (499) (31)
Foreign Currency Transactions (7,783) (92) (2) (2,098) 130 (15) 1,625
Futures Contracts 5,611 -- -- -- -- -- --
-------- ------- ----- -------- ------- ----- -------
Total Net Realized Gain (Loss) 46,662 6,182 31 253,063 6,010 (514) 1,594
-------- ------- ----- -------- ------- ----- -------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments (82,132) (15,687)* (521) (324,719)*** (4,980) 641 (2,824)
Foreign Currency Translations 1,671 9 1 6,832 417 (1) (1,010)
Futures Contracts (9,720) -- -- -- -- -- --
-------- ------- ----- -------- ------- ----- -------
Total Net Change in Unrealized
Appreciation (Depreciation) (90,181) (15,678) (520) (317,887) (4,563) 640 (3,834)
-------- ------- ----- -------- ------- ----- -------
TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN
UNREALIZED APPRECIATION (DEPRECIATION) (43,519) (9,496) (489) (64,824) 1,447 126 (2,240)
-------- ------- ----- -------- ------- ----- -------
Net Increase (Decrease) in Net Assets
Resulting from Operations $(38,497) $(9,197) $(457) $(68,088) $ 2,276 $ 200 $(1,749)
======== ======= ===== ======== ======= ===== =======
</TABLE>
-------------------
* Net of foreign tax of $1,000 on unrealized appreciation.
** Net of foreign tax expense of $5,321,000.
*** Net of foreign tax of $2,674,000 on unrealized appreciation.
+ Includes dividend income from affiliated parties of $25,000.
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
144
<PAGE>
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INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------------------------------
<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 $ 62,033 $ 1,850 $ 6,536 $ 287 $ 182
Interest 5,826 627 238 81 17
Less: Foreign Taxes Withheld (6,521) (254) (787) (42) (1)
--------- ------- -------- ------ -------
Total Income 61,338 2,223 5,987 326 198
--------- ------- -------- ------ -------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 18,119 885 1,751 305 89
Less: Fees Waived (257) (85) (105) (41) (35)
--------- ------- -------- ------ -------
Investment Advisory Fees -- Net 17,862 800 1,646 264 54
Administrative Fees 3,497 184 292 66 18
Custodian Fees 885 60 114 10 28
Directors' Fees and Expenses 87 5 7 2 1
Filing and Registration Fees 16 16 16 10 16
Foreign Tax Expense -- -- -- -- 4
Insurance 48 2 3 1 --
Interest Expense 5 4 31 22 6
Professional Fees 136 23 34 21 19
Shareholder Reports 75 15 5 6 --
Distribution Fees on Class B Shares 53 36 -- 5 2
Other Expenses 145 9 11 3 1
--------- ------- -------- ------ -------
Total Expenses 22,809 1,154 2,159 410 149
--------- ------- -------- ------ -------
NET INVESTMENT INCOME (LOSS) 38,529 1,069 3,828 (84) 49
--------- ------- -------- ------ -------
NET REALIZED GAIN (LOSS):
Investments Sold 452,227 3,497 36,895 1,703 793
Foreign Currency Transactions (32,215) (464) (531) (5) (21)
Futures Contracts -- (7) -- -- --
--------- ------- -------- ------ -------
Total Net Realized Gain (Loss) 420,012 3,026 36,364 1,703 772
--------- ------- -------- ------ -------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION):
Investments (150,871) (7,187) (21,440) 1,316 (1,354)
Foreign Currency Translations 42,645 (29) 25 (1) 17
Futures -- (443) -- -- --
--------- ------- -------- ------ -------
Total Net Change in Unrealized Appreciation
(Depreciation) (108,226) (7,659) (21,415) 1,315 (1,337)
--------- ------- -------- ------ -------
TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN
UNREALIZED APPRECIATION (DEPRECIATION) 311,786 (4,633) 14,949 3,018 (565)
--------- ------- -------- ------ -------
Net Increase (Decrease) in Net Assets Resulting from
Operations $ 350,315 $(3,564) $ 18,777 $2,934 $ (516)
========= ======= ======== ====== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
145
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL
EQUITY FOCUS COMPANY U.S. EQUITY U.S. REAL VALUE
GROWTH EQUITY 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 $ 3,945 $ 512 $ 161 $ 20 $ 113 $ 7,573 $ 444
Interest 779 79 172 120 2 486 44
Less: Foreign Taxes Withheld -- -- -- -- -- (30) --
------- ------- -------- ------- ------- ------- -------
Total Income 4,724 591 333 140 115 8,029 488
------- ------- -------- ------- ------- ------- -------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 3,999 653 721 622 47 1,582 127
Less: Fees Waived (15) (24) (62) (27) (44) (66) (34)
------- ------- -------- ------- ------- ------- -------
Investment Advisory Fees -- Net 3,984 629 659 595 3 1,516 93
Administrative Fees 1,024 127 115 100 22 307 43
Custodian Fees 62 16 34 11 8 15 8
Directors' Fees and Expenses 26 3 2 3 1 7 1
Filing and Registration Fees 83 11 67 55 19 39 13
Insurance 19 2 -- -- -- 3 1
Interest Expense -- 1 -- 9 1 2 4
Professional Fees 45 19 16 15 13 22 15
Shareholder Reports 55 6 6 5 11 21 2
Distribution Fees on Class B Shares 390 28 69 10 2 19 1
Other Expenses 38 6 4 3 6 53 3
Expenses Reimbursed by Advisor -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- -------
Total Expenses 5,726 848 972 806 86 2,004 184
------- ------- -------- ------- ------- ------- -------
NET INVESTMENT INCOME (LOSS) (1,002) (257) (639) (666) 29 6,025 304
------- ------- -------- ------- ------- ------- -------
NET REALIZED GAIN (LOSS):
Investments Sold 53,617 9,335 28,052 21,389 359 (1,316) 3,249
------- ------- -------- ------- ------- ------- -------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments 27,714 1,184 (15,813) (7,171) (1,030) 57,985 (2,340)
Foreign Currency Translations -- -- -- -- -- (3) --
------- ------- -------- ------- ------- ------- -------
Total Net Change in Unrealized
Appreciation (Depreciation) 27,714 1,184 (15,813) (7,171) (1,030) 57,982 (2,340)
------- ------- -------- ------- ------- ------- -------
TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN
UNREALIZED APPRECIATION (DEPRECIATION) 81,331 10,519 12,239 14,218 (671) 56,666 909
------- ------- -------- ------- ------- ------- -------
Net Increase (Decrease) in Net Assets
Resulting from Operations $80,329 $10,262 $ 11,600 $13,552 $ (642) $62,691 $ 1,213
======= ======= ======== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
146
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL MUNICIPAL
EMERGING FIXED FIXED HIGH MONEY MONEY
MARKETS DEBT INCOME INCOME YIELD MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 24 $ -- $ -- $ 134 $ -- $ --
Interest 3,691 6,008 906 7,916 93,197 33,519
Less: Foreign Taxes Withheld -- -- (8) -- -- --
------- ------- ------- -------- ------- -------
Total Income 3,715 6,008 898 8,050 93,197 33,519
------- ------- ------- -------- ------- -------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 231 300 64 296 4,567 2,619
Less: Fees Waived -- (98) (54) -- -- --
------- ------- ------- -------- ------- -------
Investment Advisory Fees -- Net 231 202 10 296 4,567 2,619
Administrative Fees 52 135 31 124 2,326 1,354
Custodian Fees 16 9 8 12 133 57
Directors' Fees and Expenses 1 4 1 4 22 9
Filing and Registration Fees 12 11 14 18 225 147
Foreign Tax Expense 109 -- -- -- -- --
Insurance 1 1 -- 2 2 15
Interest Expense 14 1 5 -- -- --
Professional Fees 24 18 17 20 43 35
Shareholder Reports 1 3 -- 4 23 22
Distribution Fees on Class B Shares 1 1 -- 40 -- --
Other Expenses 8 8 2 7 5 12
Expenses Reimbursed by Advisor -- -- -- -- -- --
------- ------- ------- -------- ------- -------
Total Expenses 470 393 88 527 7,346 4,270
------- ------- ------- -------- ------- -------
NET INVESTMENT INCOME 3,245 5,615 810 7,523 85,851 29,249
------- ------- ------- -------- ------- -------
NET REALIZED GAIN (LOSS):
Investments Sold 4,191 (2,204) (317) (4,592) -- (97)
Foreign Currency Transactions (699) -- (449) -- -- --
------- ------- ------- -------- ------- -------
Total Net Realized Gain (Loss) 3,492 (2,204) (766) (4,592) -- (97)
------- ------- ------- -------- ------- -------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION):
Investments (2,740) 2,280 (309) (6,476) -- --
Foreign Currency Translations 68 -- (46) -- -- --
------- ------- ------- -------- ------- -------
Total Net Change in Unrealized Appreciation
(Depreciation) (2,672) 2,280 (355) (6,476) -- --
------- ------- ------- -------- ------- -------
TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN
UNREALIZED APPRECIATION (DEPRECIATION) 820 76 (1,121) (11,068) -- (97)
------- ------- ------- -------- ------- -------
Net Increase (Decrease) in Net Assets Resulting from
Operations $ 4,065 $ 5,691 $ (311) $ (3,545) $85,851 $29,152
======= ======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------------------
147
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE INTERNATIONAL
ALLOCATION PORTFOLIO ASIAN EQUITY PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2000 DECEMBER 31, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 5,022 $ 7,290 $ 299 $ 428
Net Realized Gain (Loss) 46,662 36,392 6,182 22,415
Change in Unrealized Appreciation (Depreciation) (90,181) 78,883 (15,678) 24,459
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations (38,497) 122,565 (9,197) 47,302
--------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (2,165) -- (718)
In Excess of Net Investment Income -- (2,247) -- --
Net Realized Gain -- (28,918) -- --
CLASS B:
Net Investment Income -- (30) -- (15)
In Excess of Net Investment Income -- (31) -- --
Net Realized Gain -- (415) -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (33,806) -- (733)
--------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 89,389 306,079 113,546 133,913
Distributions Reinvested -- 29,221 -- 666
Redeemed (74,492) (106,381) (113,138) (127,781)
CLASS B:
Subscribed 501,831 9,859 250 450
Distributions Reinvested -- 459 -- 15
Redeemed (485,560) (1,358) (186) (312)
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 31,168 237,879 472 6,951
--------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (7,329) 326,638 (8,725) 53,520
NET ASSETS:
Beginning of Period 593,566 266,928 106,341 52,821
--------------------------------------------------------------------------------------------------------------------------
End of Period $ 586,237 $ 593,566 $ 97,616 $ 106,341
--------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss)
included to end of period net assets $ 2,903 $ (2,119) $ 390 $ 91
--------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 6,664 24,816 8,357 13,946
Shares Issued on Distributions Reinvested -- 2,218 -- 49
Shares Redeemed (5,602) (8,511) (8,239) (13,211)
--------------------------------------------------------------------------------------------------------------------------
Net Increase in Class A Shares Outstanding 1,062 18,523 118 784
--------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 37,392 757 20 40
Shares Issued on Distributions Reinvested -- 34 -- 1
Shares Redeemed (35,993) (108) (15) (30)
--------------------------------------------------------------------------------------------------------------------------
Net Increase in Class B Shares Outstanding 1,399 683 5 11
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
148
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASIAN REAL ESTATE PORTFOLIO EMERGING MARKETS PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2000 DECEMBER 31, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ 32 $ 63 $ (3,264) $ (2,713)
Net Realized Gain (Loss) 31 359 253,063 135,938
Net Change in Unrealized Appreciation (Depreciation) (520) 370 (317,887) 649,154
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations (457) 792 (68,088) 782,379
--------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (122) -- --
In Excess of Net Investment Income -- (10) -- --
CLASS B:
Net Investment Income -- (42) -- --
In Excess of Net Investment Income -- (3) -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (177) -- --
--------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 50 615 552,552 452,119
Distributions Reinvested -- 31 -- --
Redeemed (188) (649) (608,720) (453,915)
CLASS B:
Subscribed -- 533 45,179 14,167
Distributions Reinvested -- 43 -- --
Redeemed (521) (112) (39,881) (12,172)
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions (659) 461 (50,870) 199
--------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (1,116) 1,076 (118,958) 782,578
NET ASSETS:
Beginning of Period 4,284 3,208 1,561,892 779,314
--------------------------------------------------------------------------------------------------------------------------
End of Period $ 3,168 $ 4,284 $ 1,442,934 $1,561,892
--------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss)
included in end of period net assets $ 19 $ (13) $ (8,118) $ (4,854)
--------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 7 82 29,195 35,173
Shares Issued on Distributions Reinvested -- 4 -- --
Shares Redeemed (26) (86) (31,956) (35,808)
--------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class A Shares Outstanding (19) -- (2,761) (635)
--------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed -- 70 2,382 979
Shares Issued on Distributions Reinvested -- 6 -- --
Shares Redeemed (73) (17) (2,103) (848)
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares Outstanding (73) 59 279 131
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
149
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EUROPEAN EQUITY PORTFOLIO EUROPEAN REAL ESTATE PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2000 DECEMBER 31, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 829 $ 1,894 $ 74 $ 445
Net Realized Gain (Loss) 6,010 10,452 (514) (316)
Change in Unrealized Appreciation (Depreciation) (4,563) (4,162) 640 (499)
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 2,276 8,184 200 (370)
--------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (2,064) -- (258)
In Excess of Net Investment Income -- (167) -- (37)
Net Realized Gain -- (11,303) -- --
CLASS B:
Net Investment Income -- (35) -- (32)
In Excess of Net Investment Income -- (3) -- (4)
Net Realized Gain -- (264) -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (13,836) -- (331)
--------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 17,513 47,476 500 1,987
Distributions Reinvested -- 12,471 -- 286
Redeemed (30,418) (118,144) (2,959) (25,147)
CLASS B:
Subscribed -- 701 160 433
Distributions Reinvested -- 298 -- 26
Redeemed (259) (3,817) (359) (1,120)
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions (13,164) (61,015) (2,658) (23,535)
--------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (10,888) (66,667) (2,458) (24,236)
NET ASSETS:
Beginning of Period 107,226 173,893 11,717 35,953
--------------------------------------------------------------------------------------------------------------------------
End of Period $ 96,338 $ 107,226 $ 9,259 $ 11,717
--------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period net assets $ 655 $ (174) $ 33 $ (41)
--------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 1,179 3,069 59 210
Shares Issued on Distributions Reinvested -- 849 -- 30
Shares Redeemed (2,051) (7,670) (349) (2,644)
--------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class A Shares Outstanding (872) (3,752) (290) (2,404)
--------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed -- 46 17 44
Shares Issued on Distributions Reinvested -- 20 -- 3
Shares Redeemed (18) (250) (40) (116)
--------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class B Shares Outstanding (18) (184) (23) (69)
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
150
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL EQUITY PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2000 DECEMBER 31, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 491 $ 2,728 $ 38,529 $ 51,726
Net Realized Gain (Loss) 1,594 28,239 420,012 354,703
Change in Unrealized Appreciation (Depreciation) (3,834) (25,843) (108,226) 243,836
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (1,749) 5,124 350,315 650,265
--------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (2,179) -- (39,249)
In Excess of Net Investment Income -- (315) -- --
Net Realized Gain -- (18,311) -- (322,951)
CLASS B:
Net Investment Income -- (475) -- (262)
In Excess of Net Investment Income -- (69) -- --
Net Realized Gain -- (3,780) -- (2,795)
--------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (25,129) -- (365,257)
--------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 16,708 15,201 831,514 1,675,013
Distributions Reinvested -- 19,363 -- 344,185
Redeemed (83,890) (131,408) (1,129,234) (1,073,291)
CLASS B:
Subscribed 6,243 22,424 7,035 25,017
Distributions Reinvested -- 4,325 -- 2,913
Redeemed (5,359) (8,036) (3,040) (5,010)
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions (66,298) (78,131) (293,725) 968,827
--------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (68,047) (98,136) 56,590 1,253,835
NET ASSETS:
Beginning of Period 143,735 241,871 4,671,409 3,417,574
--------------------------------------------------------------------------------------------------------------------------
End of Period $ 75,688 $ 143,735 $ 4,727,999 $4,671,409
--------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss)
included in end of period net assets $ 126 $ (365) $ 37,069 $ (1,460)
--------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 916 742 42,829 86,582
Shares Issued on Distributions Reinvested -- 1,029 -- 17,923
Shares Redeemed (4,820) (6,489) (57,981) (54,905)
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding (3,904) (4,718) (15,152) 49,600
--------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 344 1,066 360 1,279
Shares Issued on Distributions Reinvested -- 236 -- 152
Shares Redeemed (303) (395) (156) (255)
--------------------------------------------------------------------------------------------------------------------------
Net Increase in Class B Shares Outstanding 41 907 204 1,176
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
151
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL MAGNUM PORTFOLIO INTERNATIONAL SMALL CAP PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2000 DECEMBER 31, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,069 $ 2,544 $ 3,828 $ 3,727
Net Realized Gain (Loss) 3,026 13,026 36,364 28,999
Change in Unrealized Appreciation (Depreciation) (7,659) 32,007 (21,415) 63,878
-------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations (3,564) 47,577 18,777 96,604
-------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (2,072) -- (4,582)
In Excess of Net Investment Income -- -- -- (418)
Net Realized Gain -- (8,198) -- (20,419)
CLASS B:
Net Investment Income -- (257) -- --
Net Realized Gain -- (1,323) -- --
--------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (11,850) -- (25,419)
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 177,067 128,879 45,418 45,497
Distributions Reinvested -- 9,764 -- 24,307
Redeemed (161,278) (251,176) (32,680) (36,506)
Transaction Fees -- -- 425 583
CLASS B:
Subscribed 20,061 31,085 -- --
Distributions Reinvested -- 1,571 -- --
Redeemed (20,937) (32,459) -- --
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 14,913 (112,336) 13,163 33,881
--------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 11,349 (76,609) 31,940 105,066
NET ASSETS:
Beginning of Period 219,356 295,965 357,708 252,642
--------------------------------------------------------------------------------------------------------------------------------
End of Period $ 230,705 $ 219,356 $ 389,648 $ 357,708
================================================================================================================================
Undistributed (accumulated) net investment income (loss)
included in end of period net assets $ 1,129 $ 60 $ 3,409 $ (419)
================================================================================================================================
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 13,693 10,445 2,293 2,428
Shares Issued on Distributions Reinvested -- 759 -- 1,308
Shares Redeemed (12,403) (20,684) (1,625) (2,111)
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding 1,290 (9,480) 668 1,625
================================================================================================================================
CLASS B:
Shares Subscribed 1,554 2,469 -- --
Shares Issued on Distributions Reinvested -- 122 -- --
Shares Redeemed (1,616) (2,591) -- --
--------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class B Shares Outstanding (62) -- -- --
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
152
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPANESE EQUITY PORTFOLIO LATIN AMERICAN PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2000 DECEMBER 31, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (84) $ (180) $ 49 $ 259
Net Realized Gain (Loss) 1,703 10 772 1,516
Change in Unrealized Appreciation (Depreciation) 1,315 30,838 (1,337) 6,903
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations 2,934 30,668 (516) 8,678
--------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- -- -- (436)
CLASS B:
Net Investment Income -- -- -- (30)
--------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- (466)
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 23,698 61,773 5,167 7,989
Distributions Reinvested -- -- 420
Redeemed (19,394) (75,399) (4,788) (17,160)
CLASS B:
Subscribed 1,508 2,388 75 212
Distributions Reinvested -- -- -- 27
Redeemed (808) (1,064) (22) (664)
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 5,004 (12,302) 432 (9,176)
--------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 7,938 18,366 (84) (964)
NET ASSETS:
Beginning of Period 77,204 58,838 15,196 16,160
--------------------------------------------------------------------------------------------------------------------------------
End of Period $ 85,142 $ 77,204 $ 15,112 $ 15,196
================================================================================================================================
Undistributed (accumulated) net investment income (loss)
included in end of period net assets $ (460) $ (376) $ 242 $ 193
================================================================================================================================
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 2,429 8,179 419 973
Shares Issued on Distributions Reinvested -- -- -- 45
Shares Redeemed (1,986) (10,247) (420) (2,025)
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding 443 (2,068) (1) (1,007)
================================================================================================================================
CLASS B:
Shares Subscribed 155 304 7 24
Shares Issued on Distributions Reinvested -- -- -- 3
Shares Redeemed (81) (128) (2) (74)
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares Outstanding 74 176 5 (47)
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
153
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INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO FOCUS EQUITY PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2000 DECEMBER 31, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $ (1,002) $ (1,402) $ (257) $ (504)
Net Realized Gain (Loss) 53,617 125,662 9,335 47,285
Change in Unrealized Appreciation (Depreciation) 27,714 227,053 1,184 7,047
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations 80,329 351,313 10,262 53,828
--------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (23) -- --
In Excess of Net Investment Income -- (35) -- --
Net Realized Gain -- (55,337) -- (28,868)
CLASS B:
Net Investment Income -- (6) -- --
In Excess of Net Investment Income -- (10) -- --
Net Realized Gain -- (13,532) -- (4,789)
--------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (68,943) -- (33,657)
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 138,968 248,578 17,781 50,123
Distributions Reinvested -- 53,147 -- 26,848
Redeemed (104,380) (345,875) (20,454) (89,436)
CLASS B:
Subscribed 129,795 147,967 2,577 3,277
Distributions Reinvested -- 12,393 -- 4,773
Redeemed (28,233) (42,581) (2,220) (4,876)
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 136,150 73,629 (2,316) (9,291)
--------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 216,479 355,999 7,946 10,880
NET ASSETS:
Beginning of Period 1,223,894 867,895 158,296 147,416
--------------------------------------------------------------------------------------------------------------------------------
End of Period $ 1,440,373 $ 1,223,894 $ 166,242 $ 158,296
================================================================================================================================
Undistributed (accumulated) net investment income (loss)
included in end of period net assets $ (1,047) $ (45) $ (269) $ (12)
================================================================================================================================
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 5,363 11,778 882 2,443
Shares Issued on Distributions Reinvested -- 2,239 -- 1,435
Shares Redeemed (4,077) (16,202) (1,008) (4,440)
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding 1,286 (2,185) (126) (562)
================================================================================================================================
CLASS B:
Shares Subscribed 5,095 6,969 126 160
Shares Issued on Distributions Reinvested -- 525 -- 258
Shares Redeemed (1,105) (1,971) (109) (239)
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares Outstanding 3,990 5,523 17 179
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
154
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO TECHNOLOGY PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2000 DECEMBER 31, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $ (639) $ (293) $ (666) $ (408)
Net Realized Gain (Loss) 28,052 21,320 21,389 18,608
Change in Unrealized Appreciation (Depreciation) (15,813) 17,240 (7,171) 28,687
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations 11,600 38,267 13,552 46,887
--------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Realized Gain -- (10,210) -- (11,601)
CLASS B:
Net Realized Gain -- (1,563) -- (629)
--------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (11,773) -- (12,230)
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 25,762 18,995 77,877 32,611
Distributions Reinvested -- 9,257 -- 9,146
Redeemed (24,305) (47,961) (31,599) (19,510)
CLASS B:
Subscribed 72,804 10,665 5,912 3,053
Distributions Reinvested -- 1,550 -- 626
Redeemed (6,154) (1,590) (953) (2,557)
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 68,107 (9,084) 51,237 23,369
--------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 79,707 17,410 64,789 58,026
NET ASSETS:
Beginning of Period 91,968 74,558 86,382 28,356
--------------------------------------------------------------------------------------------------------------------------------
End of Period $ 171,675 $ 91,968 $ 151,171 $ 86,382
================================================================================================================================
Undistributed (accumulated) net investment income (loss)
included in end of period net assets $ (646) $ (7) $ (671) $ (5)
================================================================================================================================
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 1,636 1,721 1,683 1,119
Shares Issued on Distributions Reinvested -- 799 -- 265
Shares Redeemed (1,636) (5,806) (725) (801)
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding -- (3,286) 958 583
================================================================================================================================
CLASS B:
Shares Subscribed 4,484 996 128 122
Shares Issued on Distributions Reinvested -- 133 -- 19
Shares Redeemed (419) (155) (20) (80)
--------------------------------------------------------------------------------------------------------------------------------
Net Increase in Class B Shares Outstanding 4,065 974 108 61
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
155
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[GRAPHIC] 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
------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2000 DECEMBER 31, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 29 $ 95 $ 6,025 $ 18,661
Net Realized Gain (Loss) 359 9,759 (1,316) 1,079
Change in Unrealized Appreciation (Depreciation) (1,030) (5,569) 57,982 (31,043)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations (642) 4,285 62,691 (11,303)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (157) (3,921) (15,483)
Net Realized Gain -- (3,474) -- (1,019)
In Excess of Net Realized Gain -- (134) -- --
CLASS B:
Net Investment Income -- (8) (141) (695)
Net Realized Gain -- (170) -- (48)
In Excess of Net Realized Gain -- (79) -- --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (4,022) (4,062) (17,245)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 925 8,363 196,367 197,530
Distributions Reinvested -- 3,722 5,957 12,238
Redeemed (3,303) (56,559) (72,048) (131,000)
CLASS B:
Subscribed 9 4 6,620 8,798
Distributions Reinvested -- 250 133 688
Redeemed (413) (151) (5,058) (8,336)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions (2,782) (44,371) 131,971 79,918
------------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (3,424) (44,108) 190,600 51,370
NET ASSETS:
Beginning of Period 23,963 68,071 324,482 273,112
------------------------------------------------------------------------------------------------------------------------------------
End of Period $ 20,539 $ 23,963 $ 515,082 $ 324,482
====================================================================================================================================
Undistributed net investment income included in end of period
net assets $ 33 $ 4 $ 3,400 $ 1,437
====================================================================================================================================
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 77 624 16,385 15,344
Shares Issued on Distributions Reinvested -- 311 246 993
Shares Redeemed (283) (4,479) (5,818) (10,487)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding (206) (3,544) 10,813 5,850
====================================================================================================================================
CLASS B:
Shares Subscribed 1 -- 543 697
Shares Issued on Distributions Reinvested -- 21 11 56
Shares Redeemed (36) (12) (420) (683)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares Outstanding (35) 9 134 70
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
156
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
VALUE EQUITY EMERGING MARKETS DEBT
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2000 DECEMBER 31, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 304 $ 726 $ 3,245 $ 6,929
Net Realized Gain (Loss) 3,249 9,177 3,492 452
Change in Unrealized Appreciation (Depreciation) (2,340) (5,310) (2,672) 6,174
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations 1,213 4,593 4,065 13,555
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (189) (657) -- (5,708)
In Excess of Net Investment Income -- (66) -- (15)
Net Realized Gain -- (8,764) -- --
In Excess of Net Realized Gain -- (549) -- --
Return of Capital -- -- -- (184)
CLASS B:
Net Investment Income (3) (11) -- (15)
Net Realized Gain -- (150) -- --
In Excess of Net Realized Gain -- (10) -- --
Return of Capital -- -- -- (82)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (192) (10,207) -- (6,004)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 13,981 24,456 15,872 28,117
Distributions Reinvested 175 9,517 -- 2,466
Redeemed (6,146) (39,222) (7,717) (31,594)
CLASS B:
Subscribed -- 771 -- 90
Distributions Reinvested 2 171 -- --
Redeemed (174) (978) (397) (537)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 7,838 (5,285) 7,758 (1,458)
------------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 8,859 (10,899) 11,823 6,093
NET ASSETS:
Beginning of Period 47,689 58,588 53,514 47,421
------------------------------------------------------------------------------------------------------------------------------------
End of Period $ 56,548 $ 47,689 $ 65,337 $ 53,514
====================================================================================================================================
Undistributed (accumulated) net investment income (loss)
included in end of period net assets $ 120 $ 8 $ 3,230 $ (15)
====================================================================================================================================
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 1,419 2,024 5,088 10,256
Shares Issued on Distributions Reinvested 17 956 -- 776
Shares Redeemed (643) (3,457) (2,442) (11,178)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding 793 (477) 2,646 (146)
====================================================================================================================================
CLASS B:
Shares Subscribed -- 65 -- 31
Shares Issued on Distributions Reinvested -- 18 -- --
Shares Redeemed (17) (84) (128) (194)
------------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class B Shares Outstanding (17) (1) (128) (163)
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
157
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
FIXED INCOME GLOBAL FIXED INCOME
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2000 DECEMBER 31, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 5,615 $ 11,574 $ 810 $ 1,512
Net Realized Gain (Loss) (2,204) (2,037) (766) (530)
Change in Unrealized Appreciation (Depreciation) 2,280 (13,018) (355) (3,890)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations 5,691 (3,481) (311) (2,908)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (4,629) (11,567) -- (1,200)
In Excess of Net Investment Income -- -- -- (90)
Net Realized Gain -- (526) -- --
Return of Capital -- -- -- (25)
CLASS B:
Net Investment Income (50) (156) -- (11)
In Excess of Net Investment Income -- -- -- (1)
In Excess of Net Realized Gain -- (7) -- --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (4,679) (12,256) -- (1,327)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 14,556 20,302 4,910 1,780
Distributions Reinvested 3,992 10,601 -- 1,153
Redeemed (27,797) (56,628) (7,776) (10,394)
CLASS B:
Subscribed 28 171 -- --
Distributions Reinvested 30 87 -- 12
Redeemed (256) (1,612) (2) (15)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions (9,447) (27,079) (2,868) (7,464)
------------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (8,435) (42,816) (3,179) (11,699)
NET ASSETS:
Beginning of Period 173,551 216,367 34,547 46,246
------------------------------------------------------------------------------------------------------------------------------------
End of Period $ 165,116 $ 173,551 $ 31,368 $ 34,547
====================================================================================================================================
Undistributed (accumulated) net investment income (loss)
included in end of period net assets $ 990 $ 54 $ 719 $ (91)
====================================================================================================================================
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 1,424 1,827 443 154
Shares Issued on Distributions Reinvested 391 1,005 -- 101
Shares Redeemed (2,717) (5,274) (704) (870)
------------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class A Shares Outstanding (902) (2,442) (261) (615)
====================================================================================================================================
CLASS B:
Shares Subscribed 3 16 -- --
Shares Issued on Distributions Reinvested 3 8 -- 1
Shares Redeemed (25) (150) -- (1)
------------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class B Shares Outstanding (19) (126) -- --
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
158
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD MONEY MARKET MUNICIPAL MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2000 DECEMBER 31, 2000 DECEMBER 31, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999 (UNAUDITED) 1999
(000) (000) (000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 7,523 $ 16,131 $ 85,851 $ 97,110 $ 29,249 $ 30,893
Net Realized Gain (Loss) (4,592) (4,346) -- 112 (97) (66)
Change in Unrealized Appreciation
(Depreciation) (6,476) 2,048 -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations (3,545) 13,833 85,851 97,222 29,152 30,827
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (4,982) (12,224) (85,851) (97,110) (29,244) (30,898)
In Excess of Net Investment Income -- (132) -- -- -- --
Return of Capital -- (156) -- -- -- --
CLASS B:
Net Investment Income (1,131) (3,969) -- -- -- --
In Excess of Net Investment Income -- (41) -- -- -- --
Return of Capital -- (47) -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (6,113) (16,569) (85,851) (97,110) (29,244) (30,898)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 18,917 93,841 26,139,998 22,565,514 7,200,015 7,856,789
Distributions Reinvested 4,424 10,968 76,060 94,269 26,163 30,732
Redeemed (43,131) (94,490) (26,304,954) (21,686,756) (6,941,682) (7,472,383)
CLASS B:
Subscribed 3,411 40,398 -- -- -- --
Distributions Reinvested 812 675 -- -- -- --
Redeemed (23,867) (48,854) -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions (39,434) 2,538 (88,896) 973,027 284,496 415,138
------------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net
Assets (49,092) (198) (88,896) 973,139 284,404 415,067
NET ASSETS:
Beginning of Period 184,843 185,041 2,931,316 1,958,177 1,405,646 990,579
------------------------------------------------------------------------------------------------------------------------------------
End of Period $135,751 $184,843 $ 2,842,420 $ 2,931,316 $ 1,690,050 $ 1,405,646
====================================================================================================================================
Undistributed (accumulated) net
investment income (loss) included
in end of period net assets $ 1,237 $ (173) $ 4 $ 4 $ 5 $ --
====================================================================================================================================
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 1,826 8,765 26,139,999 22,565,514 7,200,017 7,858,223
Shares Issued on Distributions
Reinvested 434 1,030 76,060 94,269 26,162 30,735
Shares Redeemed (4,215) (8,837) (26,304,967) (21,686,756) (6,941,682) (7,473,832)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Class A Shares Outstanding (1,955) 958 (88,908) 973,027 284,497 415,126
====================================================================================================================================
CLASS B:
Shares Subscribed 336 3,764 -- -- -- --
Shares Issued on Distributions
Reinvested 79 63 -- -- -- --
Shares Redeemed (2,293) (4,532) -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class B Shares
Outstanding (1,878) (705) -- -- -- --
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
159
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ------------------------------------------------------------------
(UNAUDITED) 1999 1998++ 1997++ 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 14.26 $ 11.90 $ 10.39 $ 11.44 $ 11.63 $ 11.65
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) ...................... 0.12 0.22 0.22 0.18 0.24 0.17
Net Realized and Unrealized Gain (Loss) on
Investments .................................. (1.09) 3.01 1.86 0.80 0.88 1.00
-------- -------- -------- -------- -------- --------
Total from Investment Operations ............. (0.97) 3.23 2.08 0.98 1.12 1.17
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income .......................... -- (0.05) (0.30) (0.83) (0.81) (0.25)
In Excess of Net Investment Income ............. -- (0.06) (0.04) (0.02) (0.02) (0.10)
Net Realized Gain .............................. -- (0.76) (0.23) (1.18) (0.48) (0.84)
-------- -------- -------- -------- -------- --------
Total Distributions .......................... -- (0.87) (0.57) (2.03) (1.31) (1.19)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ................... $ 13.29 $ 14.26 $ 11.90 $ 10.39 $ 11.44 $ 11.63
======== ======== ======== ======== ======== ========
TOTAL RETURN ..................................... (6.80)% 27.82% 20.12% 8.61% 9.71% 10.57%
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) ............ $558,195 $583,607 $266,832 $138,667 $183,193 $170,663
Ratio of Expenses to Average Net Assets (1) ...... 0.83%** 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Expenses to Average Net Assets Excluding
Interest Expense ............................... 0.80%** N/A N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (1) ..................................... 1.75%** 1.71% 1.91% 1.47% 1.22% 1.26%
Portfolio Turnover Rate .......................... 48% 53% 49% 49% 65% 72%
-------------------
(1)Effect of voluntary expense limitation
during the period:
Per share benefit to net investment income ... $ 0.01 $0.01 $0.02 $0.03 $0.03 $0.05
Ratios before expense limitation:
Expenses to Average Net Assets ............... 0.93%** 0.92% 1.03% 1.10% 1.09% 1.18%
Net Investment Income to Average Net Assets .. 1.65%** 1.59% 1.70% 1.18% 0.94% 0.88%
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996***
2000 ---------------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998++ 1997++ 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ...................... $ 14.41 $ 12.12 $ 10.48 $ 11.44 $ 11.66
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) ............................... 0.17 0.13 0.22 0.08 0.06
Net Realized and Unrealized Gain (Loss) on Investments .. (1.16) 3.02 1.94 0.87 1.00
-------- -------- -------- -------- --------
Total from Investment Operations ...................... (0.99) 3.15 2.16 0.95 1.06
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income ................................... -- (0.05) (0.23) (0.71) (0.78)
In Excess of Net Investment Income ...................... -- (0.05) (0.06) (0.02) (0.02)
Net Realized Gain ....................................... -- (0.76) (0.23) (1.18) (0.48)
-------- -------- -------- -------- --------
Total Distributions ................................... -- (0.86) (0.52) (1.91) (1.28)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ............................ $ 13.42 $ 14.41 $ 12.12 $ 10.48 $ 11.44
======== ======== ======== ======== ========
TOTAL RETURN .............................................. (6.87)% 26.63% 20.71% 8.35% 9.22%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) ..................... $ 28,042 $ 9,959 $ 96 $ 14 $ 633
Ratio of Expenses to Average Net Assets (2) ............... 1.08%** 1.05% 1.05% 1.05% 1.05%**
Ratio of Expenses to Average Net Assets Excluding
Interest Expense ........................................ 1.05%** N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net Assets (2) .. 1.78%** 1.16% 1.80% 0.71% 1.09%**
Portfolio Turnover Rate ................................... 48% 53% 49% 49% 65%
-------------------
(2)Effect of voluntary expense limitation during the period:
Per share benefit to net investment income ............ $ 0.01 $ 0.01 $ 0.03 $ 0.03 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets ........................ 1.21%** 1.17% 1.27% 1.32% 1.33%**
Net Investment Income to Average Net Assets ........... 1.67%** 0.95% 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 1997 are based
on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
160
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............ $ 14.39 $ 8.01 $ 9.43 $ 18.73 $ 19.48 $ 21.54
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) ..................... 0.04 0.06 0.12 0.14 0.17 0.18
Net Realized and Unrealized Gain (Loss) on
Investments ................................. (1.44) 6.42 (1.24) (8.93) 0.50 1.11
-------- -------- -------- -------- -------- --------
Total from Investment Operations ............ (1.40) 6.48 (1.12) (8.79) 0.67 1.29
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income ......................... -- (0.10) (0.30) (0.00)+ (0.15) (0.34)
In Excess of Net Investment Income ............ -- -- -- -- (0.00)+ (0.00)+
Net Realized Gain ............................. -- -- -- -- (1.27) (3.01)
In Excess of Net Realized Gain ................ -- -- -- (0.51) -- --
-------- -------- -------- -------- -------- --------
Total Distributions ......................... -- (0.10) (0.30) (0.51) (1.42) (3.35)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD .................. $ 12.99 $ 14.39 $ 8.01 $ 9.43 $ 18.73 $ 19.48
======== ======== ======== ======== ======== ========
TOTAL RETURN .................................... (9.73)% 81.00% (11.38)% (48.29)% 3.49% 6.87%
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) ........... $ 94,999 $103,513 $ 51,334 $ 85,503 $363,498 $314,884
Ratio of Expenses to Average Net Assets (1) ..... 1.05%** 1.07% 1.19% 1.12% 1.00% 1.00%
Ratio of Expenses to Average Net Assets
Excluding Foreign Tax and Interest Expense .... 1.00%** 1.00% 1.00% 1.00% N/A N/A
Ratio of Net Investment Income to Average Net
Assets (1) .................................... 0.57%** 0.58% 1.36% 0.47% 0.74% 0.97%
Portfolio Turnover Rate ......................... 52% 197% 151% 107% 69% 42%
-------------------
(1)Effect of voluntary expense limitation
during the period:
Per share benefit to net investment income .. $ 0.00+ $ 0.06 $ 0.05 $ 0.05 $ 0.05 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets .............. 1.23%** 1.61% 1.79% 1.63% 1.25% 1.18%
Net Investment Income to Average Net Assets.. 0.57%** 0.04% 0.76% 0.29% 0.54% 0.79%
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 ---------------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ...................... $ 14.28 $ 7.97 $ 9.40 $ 18.74 $ 19.55
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) ............................... 0.03 0.05 0.07 0.03 0.11
Net Realized and Unrealized Gain (Loss) on Investments .. (1.43) 6.34 (1.20) (8.86) 0.46
-------- -------- -------- -------- --------
Total from Investment Operations ...................... (1.40) 6.39 (1.13) (8.83) 0.57
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income ................................... -- (0.08) (0.30) (0.00)+ (0.11)
Net Realized Gain ....................................... -- -- -- -- (1.27)
In Excess of Net Realized Gain .......................... -- -- -- (0.51) --
-------- -------- -------- -------- --------
Total Distributions ................................... -- (0.08) (0.30) (0.51) (1.38)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ............................ $ 12.88 $ 14.28 $ 7.97 $ 9.40 $ 18.74
======== ======== ======== ======== ========
TOTAL RETURN .............................................. (9.68)% 79.95% (11.53)% (48.48)% 2.92%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) ..................... $ 2,617 $ 2,828 $ 1,487 $ 1,468 $ 11,002
Ratio of Expenses to Average Net Assets (2) ............... 1.30%** 1.32% 1.47% 1.37% 1.25%**
Ratio of Expenses to Average Net Assets Excluding
Foreign Tax and Interest Expense ........................ 1.25%** 1.25% 1.25% 1.25% N/A
Ratio of Net Investment Income to Average Net Assets (2)... 0.35%** 0.33% 1.06% 0.18% 0.58%**
Portfolio Turnover Rate ................................... 52% 197% 151% 107% 69%
-------------------
(2)Effect of voluntary expense limitation during the period:
Per share benefit to net investment income ........... $ 0.00+ $ 0.08 $ 0.04 $ 0.04 $ 0.04
Ratios before expense limitation:
Expenses to Average Net Assets ....................... 1.49%** 1.87% 2.07% 1.56% 1.52%**
Net Investment Income (Loss) to Average Net Assets ... 0.35%** (0.22)% 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.
161
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED OCTOBER 1,
JUNE 30, YEAR ENDED DECEMBER 31, 1997* TO
2000 --------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................................. $ 7.90 $ 6.63 $ 7.94 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) .......................................... 0.07 0.11 0.26 0.11
Net Realized and Unrealized Gain (Loss) on Investments ............. (0.93) 1.50 (1.24) (2.10)
-------- -------- -------- --------
Total from Investment Operations ................................. (0.86) 1.61 (0.98) (1.99)
-------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income .............................................. -- (0.32) (0.33) (0.07)
In Excess of Net Investment Income ................................. -- (0.02) -- --
-------- -------- -------- --------
Total Distributions .............................................. -- (0.34) (0.33) (0.07)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ....................................... $ 7.04 $ 7.90 $ 6.63 $ 7.94
======== ======== ======== ========
TOTAL RETURN ......................................................... (10.89)% 24.27% (11.82)% (19.92)%
======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) ................................ $ 2,463 $ 2,912 $ 2,447 $ 2,385
Ratio of Expenses to Average Net Assets (1) .......................... 1.01%** 1.01% 1.05% 1.08%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense ... 1.00%** 1.00% 1.00% 1.00%**
Ratio of Net Investment Income (Loss) to Average Net Assets (1) ...... 2.03%** 1.64% 2.47% 5.21%**
Portfolio Turnover Rate .............................................. 50% 98% 261% 38%
-------------------
(1)Effect of voluntary expense limitation during the period:
Per share benefit to net investment income ........................ $ 0.10 $ 0.15 $ 0.36 $ 0.25
Ratios before expense limitation:
Expenses to Average Net Assets .................................... 3.87%** 3.19% 4.52% 12.95%**
Net Investment Income (Loss) to Average Net Assets ................ (0.83)%** (0.54)% (1.00)% (6.66)%**
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED OCTOBER 1,
JUNE 30, YEAR ENDED DECEMBER 31, 1997* TO
2000 --------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................................ $ 7.93 $ 6.66 $ 8.03 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) ......................................... 0.04 0.13 0.12 --
Net Realized and Unrealized Gain (Loss) on Investments ............ (0.91) 1.46 (1.16) (1.97)
-------- -------- -------- --------
Total from Investment Operations ................................ (0.87) 1.59 (1.04) (1.97)
-------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income ............................................. -- (0.30) (0.33) --
In Excess of Net Investment Income ................................ -- (0.02) -- --
-------- -------- -------- --------
Total Distributions ............................................. -- (0.32) (0.33) --
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ...................................... $ 7.06 $ 7.93 $ 6.66 $ 8.03
======== ======== ======== ========
TOTAL RETURN ........................................................ (10.97)% 23.88% (12.53)% (19.70)%
======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) ............................... $ 705 $ 1,372 $ 761 $ 0+
Ratio of Expenses to Average Net Assets (2) ......................... 1.26%** 1.25% 1.38% 1.18%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense .. 1.25%** 1.25% 1.25% N/A
Ratio of Net Investment Income (Loss) to Average Net Assets (2) ..... 1.59%** 1.39% 2.39% 4.24%**
Portfolio Turnover Rate ............................................. 50% 98% 261% 38%
-------------------
(2)Effect of voluntary expense limitation during the period:
Per share benefit to net investment income ...................... $ 0.06 $ 0.17 $0.18 N/A
Ratios before expense limitation:
Expenses to Average Net Assets .................................. 4.06%** 3.10% 5.03% N/A
Net Investment Income (Loss) to Average Net Assets .............. (1.20)%** (0.45)% (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.
162
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............ $ 19.27 $ 9.55 $ 12.97 $ 14.66 $ 13.14 $ 16.30
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income ......................... (0.04) (0.03) 0.16 0.07 0.09 0.08
Net Realized and Unrealized Gain
(Loss) on Investments ....................... (0.87) 9.75 (3.46) (0.29) 1.51 (2.05)
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment
Operations ................................ (0.91) 9.72 (3.30) (0.22) 1.60 (1.97)
---------- ---------- ---------- ---------- ---------- ----------
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)
In Excess of Net Realized Gain ................ -- -- -- (0.64) -- --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions ......................... -- -- (0.12) (1.47) (0.08) (1.19)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD .................. $ 18.36 $ 19.27 $ 9.55 $ 12.97 $ 14.66 $ 13.14
========== ========== ========== ========== ========== ==========
TOTAL RETURN .................................... (4.77)% 101.78% (25.42)% (1.03)% 12.19% (12.77)%
========== ========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) ........... $1,421,652 $1,544,893 $ 772,115 $1,501,386 $1,304,006 $ 876,591
Ratio of Expenses to Average Net Assets ......... 1.61%** 1.64% 1.81% 1.75% 1.74% 1.72%
Ratio of Expenses to Average Net Assets
Excluding Foreign Tax and Interest Expense .... N/A% 1.57% 1.70% N/A N/A N/A
Ratio of Net Investment Income
(Loss) to Average Net Assets .................. (0.43)%** (0.26)% 1.04% 0.40% 0.69% 0.60%
Portfolio Turnover Rate ......................... 53% 133% 98% 90% 55% 54%
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 ---------------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ...................... $ 19.24 $ 9.56 $ 12.98 $ 14.66 $ 13.25
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ................................... (0.03) (0.04) 0.10 0.02 0.04
Net Realized and Unrealized Gain (Loss) on Investments .. (0.90) 9.72 (3.43) (0.28) 1.42
-------- -------- -------- -------- --------
Total from Investment Operations ...................... (0.93) 9.68 (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 ............................ $ 18.31 $ 19.24 $ 9.56 $ 12.98 $ 14.66
======== ======== ======== ======== ========
TOTAL RETURN .............................................. (4.89)% 101.26% (25.65)% (1.31)% (11.04)%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) ..................... $ 21,282 $ 16,999 $ 7,199 $ 9,666 $ 14,213
Ratio of Expenses to Average Net Assets ................... 1.86%** 1.88% 2.06% 2.00% 1.99%**
Ratio of Expenses to Average Net Assets Excluding
Foreign Tax and Interest Expense ........................ 1.82%** 1.81% 1.95% N/A N/A
Ratio of Net Investment Income (Loss) to Average
Net Assets .............................................. (0.68)%** (0.51)% 0.80% 0.11% 0.33%**
Portfolio Turnover Rate ................................... 53% 133% 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.
163
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ---------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.09 $ 15.75 $ 17.96 $ 16.70 $ 13.92 $ 13.94
--------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.13 0.29 0.43 0.39 0.24 0.14
Net Realized and Unrealized Gain
(Loss) on Investments 0.28 1.10 1.08 2.58 2.85 1.37
--------- -------- -------- -------- -------- --------
Total from Investment Operations 0.41 1.39 1.51 2.97 3.09 1.51
--------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income -- (0.32) (0.42) (0.37) (0.25) (0.15)
In Excess of Net Investment Income -- (0.03) -- -- (0.02) --
Net Realized Gain -- (1.70) (3.30) (1.34) (0.04) (1.38)
-------- --------- --------- -------- -------- --------
Total Distributions -- (2.05) (3.72) (1.71) (0.31) (1.53)
-------- --------- --------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 15.50 $ 15.09 $ 15.75 $ 17.96 $ 16.70 $ 13.92
========= ========= ======== ======== ======== ========
TOTAL RETURN 2.78% 9.60% 8.09% 17.88% 22.29% 11.85%
========= ========= ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $94,362 $105,030 $168,712 $242,868 $178,356 $69,583
Ratio of Expenses to Average Net Assets (1) 1.00%** 1.09% 1.00% 1.00% 1.00% 1.00%
Ratio of Expenses to Average Net Assets
Excluding Foreign Tax Expense N/A 1.00% N/A N/A N/A N/A
Ratio of Net Investment Income to Average
Net Assets (1) 1.63%** 1.46% 1.47% 1.96% 1.83% 1.37%
Portfolio Turnover Rate 30% 74% 52% 43% 24% 13%
--------------------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $ 0.01 $ 0.03 $ 0.02 $ 0.02 $ 0.02 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.13%** 1.22% 1.08% 1.09% 1.16% 1.25%
Net Investment Income to Average Net
Assets 1.50%** 1.34% 1.40% 1.87% 1.67% 1.12%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 -------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.11 $15.74 $17.94 $16.67 $14.05
------- ------- ------- ------ -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.07 0.12 0.33 0.28 0.18
Net Realized and Unrealized Gain (Loss) on Investments 0.32 1.23 1.13 2.66 2.73
------- ------- ------- ------ -------
Total from Investment Operations 0.39 1.35 1.46 2.94 2.91
------- ------- ------- ------ -------
DISTRIBUTIONS
Net Investment Income -- (0.26) (0.36) (0.33) (0.23)
In Excess of Net Investment Income -- (0.02) -- -- (0.02)
Net Realized Gain -- (1.70) (3.30) (1.34) (0.04)
------- ------- ------- ------ -------
Total Distributions -- (1.98) (3.66) (1.67) (0.29)
------- ------- ------- ------ -------
NET ASSET VALUE, END OF PERIOD $15.50 $15.11 $15.74 $17.94 $16.67
======= ======= ======= ====== =======
TOTAL RETURN 2.58% 9.36% 7.80% 17.73% 20.76%
======= ======= ======= ====== =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,976 $2,196 $5,181 $4,654 $2,654
Ratio of Expenses to Average Net Assets (2) 1.25%** 1.34% 1.25% 1.25% 1.25%**
Ratio of Expenses to Average Net Assets Excluding Foreign
Tax Expense N/A 1.25% N/A N/A N/A
Ratio of Net Investment Income to Average Net Assets (2) 1.36%** 1.30% 1.15% 1.55% 1.67%**
Portfolio Turnover Rate 30% 74% 52% 43% 24%
---------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.01 $ 0.01 $ 0.02 $ 0.02 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.39%** 1.48% 1.34% 1.34% 1.40%**
Net Investment Income to Average Net Assets 1.23%** 1.16% 1.08% 1.46% 1.52%**
------------------------------------------------------------------------------------------------------------------------------
** Annualized
***The Portfolio began offering Class B Shares on January 2, 1996.
</TABLE>
The accompanying notes are an integral part of the financial statements.
164
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED OCTOBER 1,
JUNE 30, YEAR ENDED DECEMBER 31, 1997* TO
2000 ------------------------ DECEMBER 31,
(UNAUDITED) 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.16 $ 9.58 $ 9.52 $ 10.00
-------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.05 (0.05) 0.12 0.05
Net Realized and Unrealized Gain (Loss) on Investments 0.38 (0.17) 0.33 (0.52)
-------- ------- ------- --------
Total from Investment Operations 0.43 (0.22) 0.45 (0.47)
-------- ------- ------- --------
DISTRIBUTIONS
Net Investment Income -- (0.18) (0.25) (0.01)
In Excess of Net Investment Income -- (0.02) (0.14) --
-------- ------- ------- --------
Total Distributions -- (0.20) (0.39) (0.01)
-------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD $ 9.59 $ 9.16 $ 9.58 $ 9.52
======== ======= ======= ========
TOTAL RETURN 4.69% (2.36)% 4.75% (4.72)%
======== ======= ======= ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $7,611 $9,931 $33,422 $15,177
Ratio of Expenses to Average Net Assets (1) 1.05%** 1.23% 1.03% 1.00%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00%** 1.00% 1.00% N/A
Ratio of Net Investment Income to Average Net Assets (1) 1.50%** 2.33% 1.33% 2.08%**
Portfolio Turnover Rate 51% 35% 119% 47%
-------------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.03 $ 0.01 $ 0.03 $ 0.05
Ratios before expense limitation:
Expenses to Average Net Assets 1.88%** 1.71% 1.43% 3.05%**
Net Investment Income to Average Net Assets 0.67%** 1.85% 0.95% 0.03%**
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED OCTOBER 1,
JUNE 30, YEAR ENDED DECEMBER 31, 1997* TO
2000 ------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.19 $ 9.61 $ 9.52 $10.00
-------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.10 0.19 0.11 0.02
Net Realized and Unrealized Gain (Loss) on Investments 0.31 (0.43) 0.33 (0.50)
-------- ------- ------- --------
Total from Investment Operations 0.41 (0.24) 0.44 (0.48)
-------- ------- ------- --------
DISTRIBUTIONS
Net Investment Income -- (0.16) (0.22) --
In Excess of Net Investment Income -- (0.02) (0.13) --
-------- ------- ------- --------
Total Distributions -- (0.18) (0.35) --
-------- ------- ------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.60 $ 9.19 $ 9.61 $ 9.52
======== ======= ======= =========
TOTAL RETURN 4.46% (2.61)% 4.60% (4.76)%
======== ======= ======= =========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,648 $1,786 $2,531 $ 789
Ratio of Expenses to Average Net Assets (2) 1.30%** 1.47% 1.28% 1.25%**
Ratio of Expenses to Average Net Assets Excluding Interest
Expense 1.25%** 1.25% 1.25% N/A
Ratio of Net Investment Income to Average Net Assets (2) 1.61%** 2.35% 1.15% 1.51%**
Portfolio Turnover Rate 51% 35% 119% 47%
--------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.05 $ 0.04 $ 0.04 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets 2.11%** 1.96% 1.68% 3.12%**
Net Investment Income to Average Net Assets 0.80%** 1.91% 0.77% (0.36)%**
------------------------------------------------------------------------------------------------------------------------------
* Commencement of Operations
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
165
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ----------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.32 $ 20.74 $ 18.52 $ 16.24 $ 14.31 $ 13.40
-------- --------- --------- --------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.13 0.44 0.15 0.21 0.23 0.18
Net Realized and Unrealized Gain (Loss)
on Investments 0.56 0.32 2.55 3.61 3.02 2.26
-------- --------- --------- --------- ------- -------
Total from Investment Operations 0.69 0.76 2.70 3.82 3.25 2.44
-------- --------- --------- --------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.38) (0.17) (0.40) (0.23) (0.22)
In Excess of Net Investment Income -- (0.06) -- -- -- --
Net Realized Gain -- (2.74) (0.31) (1.14) (1.09) (1.31)
-------- --------- --------- --------- ------- -------
Total Distributions -- (3.18) (0.48) (1.54) (1.32) (1.53)
-------- --------- --------- --------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 19.01 $ 18.32 $ 20.74 $ 18.52 $ 16.24 $ 14.31
======== ========= ========= ========= ======= =======
TOTAL RETURN 3.77% 4.01% 14.60% 23.75% 22.83% 18.66%
======== ========= ========= ========= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $45,804 $115,646 $228,748 $108,074 $80,297 $91,675
Ratio of Expenses to Average Net Assets (1) 1.01%** 1.01% 1.00% 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 N/A
Ratio of Net Investment Income to Average Net
Assets (1) 1.02%** 1.26% 0.96% 1.07% 1.38% 1.17%
Portfolio Turnover Rate 30% 41% 39% 30% 26% 28%
------------------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $ 0.02 $ 0.02 $ 0.01 $ 0.02 $ 0.03 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.18%** 1.06% 1.07% 1.11% 1.15% 1.13%
Net Investment Income to Average Net
Assets 0.86%** 1.20% 0.90% 0.96% 1.23% 1.04%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 7,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 ------------------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.20 $ 20.63 $ 18.46 $16.21 $14.36
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.11 0.21 0.15 0.16 0.13
Net Realized and Unrealized Gain (Loss) on
Investments 0.55 0.50 2.46 3.60 3.02
-------- -------- -------- ------- -------
Total from Investment Operations 0.66 0.71 2.61 3.76 3.15
-------- -------- -------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.35) (0.13) (0.37) (0.21)
In Excess of Net Investment Income -- (0.05) -- -- --
Net Realized Gain -- (2.74) (0.31) (1.14) (1.09)
-------- -------- -------- ------- -------
Total Distributions -- (3.14) (0.44) (1.51) (1.30)
-------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 18.86 $ 18.20 $ 20.63 $18.46 $16.21
======== ======== ======== ======= =======
TOTAL RETURN 3.68% 3.75% 14.15% 23.37% 22.04%
======== ======== ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $29,884 $28,089 $13,123 $5,901 $3,928
Ratio of Expenses to Average Net Assets (2) 1.26%** 1.26% 1.25% 1.25% 1.25%**
Ratio of Expenses to Average Net Assets Excluding
Interest Expense 1.25%** 1.25% N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (2) 1.22%** 0.89% 0.68% 0.80% 1.29%**
Portfolio Turnover Rate 30% 41% 39% 30% 26%
------------------------
(2) Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.02 $ 0.01 $ 0.01 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.44%** 1.31% 1.32% 1.36% 1.39%**
Net Investment Income to Average Net Assets 1.04%** 0.83% 0.62% 0.69% 1.15%**
---------------------------------------------------------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
The accompanying notes are an integral part of the financial statements.
166
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.62 $ 18.25 $ 17.16 $ 16.95 $ 15.15 $ 15.34
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.17 0.24 0.27 0.30 0.25 0.16
Net Realized and Unrealized Gain
(Loss) on Investments 1.40 2.80 2.86 2.01 2.71 1.55
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment
Operations 1.57 3.04 3.13 2.31 2.96 1.71
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income -- (0.18) (0.38) (0.48) (0.36) (0.06)
Net Realized Gain -- (1.49) (1.66) (1.62) (0.80) (1.84)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions -- (1.67) (2.04) (2.10) (1.16) (1.90)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 21.19 $ 19.62 $ 18.25 $ 17.16 $ 16.95 $ 15.15
========== ========== ========== ========== ========== ==========
TOTAL RETURN 8.00% 16.91% 18.30% 13.91% 19.64% 11.77%
========== ========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $4,679,066 $4,630,035 $3,400,498 $2,822,900 $2,264,424 $1,598,530
Ratio of Expenses to Average Net
Assets (1) 1.00%** 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income to
Average Net Assets (1) 1.70%** 1.28% 1.33% 1.49% 1.64% 1.38%
Portfolio Turnover Rate 30% 37% 33% 33% 18% 27%
------------------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $ 0.00+ $ 0.00+ $ 0.00+ $ 0.00+ $ 0.00+ $ 0.003
Ratios before expense limitation:
Expenses to Average Net Assets 1.02%** 1.01% 1.02% 1.02% 1.02% 1.03%
Net Investment Income to Average
Net Assets 1.69%** 1.27% 1.32% 1.47% 1.61% 1.35%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> CLASS B
-------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 ----------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.58 $ 18.22 $ 17.13 $16.93 $15.24
------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.14 0.19 0.24 0.23 0.23
Net Realized and Unrealized Gain (Loss) on
Investments 1.39 2.81 2.85 2.02 2.59
------- -------- -------- ------- -------
Total from Investment Operations 1.53 3.00 3.09 2.25 2.82
------- -------- -------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.15) (0.34) (0.43) (0.33)
Net Realized Gain -- (1.49) (1.66) (1.62) (0.80)
------- -------- -------- ------- -------
Total Distributions -- (1.64) (2.00) (2.05) (1.13)
------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 21.11 $ 19.58 $ 18.22 $17.13 $16.93
======= ======== ======== ======= =======
TOTAL RETURN 7.81% 16.68% 18.13% 13.57% 18.58%
======= ======== ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $48,933 $41,374 $17,076 $3,074 $5,393
Ratio of Expenses to Average Net Assets (2) 1.25%** 1.25% 1.25% 1.25% 1.25%**
Ratio of Net Investment Income to Average Net Assets (2) 1.48%** 0.93% 0.96% 1.21% 1.68%**
Portfolio Turnover Rate 30% 37% 33% 33% 18%
-----------
(2) Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.00+ $ 0.00+ $ 0.00+ $ 0.00+ $ 0.00+
Ratios before expense limitation:
Expenses to Average Net Assets 1.27%** 1.26% 1.28% 1.27% 1.27%**
Net Investment Income to Average Net Assets 1.47%** 0.92% 0.95% 1.19% 1.66%**
----------------------------------------------------------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
</TABLE>
The accompanying notes are an integral part of the financial statements.
167
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED MARCH 15,
JUNE 30, YEAR ENDED DECEMBER 31, 1996* TO
2000 ------------------------------------ DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.62 $ 11.57 $ 10.87 $ 10.66 $ 10.00
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.06 0.19 0.14 0.17 0.06
Net Realized and Unrealized Gain (Loss)
on Investments (0.37) 2.64 0.66 0.54 0.76
--------- --------- --------- --------- ---------
Total from Investment Operations (0.31) 2.83 0.80 0.71 0.82
--------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.15) (0.10) (0.41) (0.13)
In Excess of Net Investment Income -- -- -- -- (0.02)
Net Realized Gain -- (0.63) -- (0.09) (0.01)
--------- --------- --------- --------- ---------
Total Distributions -- (0.78) (0.10) (0.50) (0.16)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 13.31 $ 13.62 $ 11.57 $ 10.87 $ 10.66
========= ========= ========= ========= =========
TOTAL RETURN (2.28)% 24.87% 7.33% 6.58% 8.25%
========= ========= ========= ========= =========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 201,493 $ 188,586 $ 269,814 $ 159,096 $ 85,316
Ratio of Expenses to Average Net Assets (1) 1.01%** 1.01% 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 to Average Net Assets(1) 1.00%** 0.89% 1.34% 1.44% 0.99%**
Portfolio Turnover Rate 35% 59% 39% 41% 18%
------------------
(1)Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.00+ $ 0.02 $ 0.01 $ 0.02 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.08%** 1.11% 1.13% 1.19% 1.54%**
Net Investment Income to Average Net Assets 0.93%** 0.80% 1.24% 1.25% 0.44%**
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-----------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED MARCH 15,
JUNE 30, YEAR ENDED DECEMBER 31, 1996* TO
2000 ------------------------------------ DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.58 $ 11.54 $ 10.84 $ 10.62 $ 10.00
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.05 0.11 0.14 0.16 0.01
Net Realized and Unrealized Gain (Loss) on
Investments (0.38) 2.68 0.64 0.52 0.78
--------- --------- --------- --------- ---------
Total from Investment Operations (0.33) 2.79 0.78 0.68 0.79
--------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.12) (0.08) (0.38) (0.13)
In Excess of Net Investment Income -- -- -- -- (0.02)
Net Realized Gain -- (0.63) -- (0.09) (0.01)
--------- --------- --------- --------- ---------
Total Distributions -- (0.75) (0.08) (0.47) (0.16)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 13.25 $ 13.58 $ 11.54 $ 10.84 $ 10.63
========= ========= ========= ========= =========
TOTAL RETURN (2.43)% 24.58% 7.13% 6.33% 7.90%
========= ========= ========= ========= =========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 29,212 $ 30,770 $ 26,151 $ 28,217 $ 23,173
Ratio of Expenses to Average Net Assets (2) 1.26%** 1.25% 1.25% 1.25% 1.25%**
Ratio of Expenses to Average Net Assets Excluding
Interest Expense 1.25%** 1.25% N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (2) 0.70%** 0.87% 1.24% 1.19% 0.60%**
Portfolio Turnover Rate 35% 59% 39% 41% 18%
-----------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.01 $ 0.01 $ 0.01 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.34%** 1.35% 1.37% 1.44% 1.69%**
Net Investment Income to Average Net Assets 0.62%** 0.54% 1.14% 1.00% 0.15%**
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
** Annualized
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
168
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------------
JUNE 30,
2000
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.67 $ 15.25 $ 15.61 $ 16.83 $ 14.94 $ 15.15
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.20 0.22 0.22 0.25 0.21 0.24
Net Realized and Unrealized Gain (Loss) on
Investments 0.80 5.66 0.39 (0.42) 2.29* 0.15
--------- --------- --------- --------- --------- ---------
Total from Investment Operations 1.00 5.88 0.61 (0.17) 2.50 0.39
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.27) (0.24) (0.31) (0.22) (0.23)
In Excess of Net Investment Income -- (0.02) -- (0.05) -- --
Net Realized Gain -- (1.20) (0.79) (0.77) (0.39) (0.37)
--------- --------- --------- --------- --------- ---------
Total Distributions -- (1.49) (1.03) (1.13) (0.61) (0.60)
--------- --------- --------- --------- --------- ---------
TRANSACTION FEES -- 0.03 0.06 0.08 -- --
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 20.67 $ 19.67 $ 15.25 $ 15.61 $ 16.83 $ 14.94
========= ========= ========= ========= ========= =========
TOTAL RETURN 5.03% 39.34% 4.25% (0.55)% 16.82% 2.60%
========= ========= ========= ========= ========= =========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 389,648 $ 357,708 $ 252,642 $ 230,095 $ 234,743 $ 198,669
Ratio of Expenses to Average Net Assets (1) 1.17%** 1.15% 1.15% 1.15% 1.15% 1.15%
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.15%** N/A N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (1) 2.07%** 1.30% 1.23% 1.37% 1.29% 1.72%
Portfolio Turnover Rate 30% 48% 39% 31% 35% 24%
------------------
(1)Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.23%** 1.20% 1.21% 1.22% 1.23% 1.24%
Net Investment Income to Average Net Assets 2.01%** 1.25% 1.18% 1.30% 1.20% 1.63%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes a 1% transaction fee on purchases and redemptions of capital shares.
** Annualized
The accompanying notes are an integral part of the financial statements.
169
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------------
JUNE 30,
2000
(UNAUDITED) 1999++ 1998 1997 1996++ 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.12 $ 6.18 $ 5.89 $ 7.96 $ 9.27 $ 9.83
--------- --------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) (0.01) (0.02) 0.04 0.17 -- 0.04
Net Realized and Unrealized Gain (Loss) on
Investments+ 0.34 3.96 0.48 (0.94) (0.13) (0.40)
--------- --------- --------- --------- --------- --------
Total from Investment Operations 0.33 3.94 0.52 (0.77) (0.13) (0.36)
--------- --------- --------- --------- --------- --------
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 $ 10.45 $ 10.12 $ 6.18 $ 5.89 $ 7.96 $ 9.27
========= ========= ========= ========= ========= ========
TOTAL RETURN 3.26% 63.75% 8.82% (9.23)% (1.40)% (3.64)%
========= ========= ========= ========= ========= ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 80,731 $ 73,666 $ 57,755 $ 77,086 $ 152,229 $119,278
Ratio of Expenses to Average Net Assets (1) 1.06%** 1.01% 1.11% 1.06% 1.00% 1.00%
Ratio of Expenses to Average Net Assets Excluding
Interest Expense 1.00%** 1.00% 1.00% 1.00% N/A N/A
Ratio of Net Investment Income (Loss) to Average Net
Assets (1) (0.21)%** (0.28)% 0.03% (0.21)% (0.04)% 0.15%
Portfolio Turnover Rate 4% 26% 66% 40% 38% 52%
------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.00+ $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.06
Ratios before expense limitation:
Expenses to Average Net Assets 1.17%** 1.14% 1.30% 1.14% 1.07% 1.20%
Net Investment Loss to Average Net Assets (0.31)%** (0.41)% (0.14)% (0.28)% (0.11)% (0.05)%
----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-----------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 ------------------------------------ DECEMBER 31,
(UNAUDITED) 1999++ 1998 1997 1996++
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.02 $ 6.13 $ 5.87 $ 7.94 $ 9.25
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.01 0.08 (0.09) 0.09 (0.02)
Net Realized and Unrealized Gain (Loss) on
Investments 0.31 3.81 0.58 (0.89) (0.14)
--------- --------- --------- --------- ---------
Total from Investment Operations 0.32 3.89 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 $ 10.34 $ 10.02 $ 6.13 $ 5.87 $ 7.94
========= ========= ========= ========= =========
TOTAL RETURN 3.19% 63.46% 8.33% (9.64)% (1.67)%
========= ========= ========= ========= =========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 4,411 $ 3,538 $ 1,083 $ 1,703 $ 3,431
Ratio of Expenses to Average Net Assets (2) 1.31%* 1.26% 1.36% 1.31% 1.25%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.25%** 1.25% 1.25% 1.25% N/A
Ratio of Net Investment Loss to Average Net
Assets (2) (0.44)%** (0.57)% (0.25)% (0.53)% (0.26)%**
Portfolio Turnover Rate 4% 26% 66% 40% 38%
------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $0.00+ $ 0.01 $ 0.02 $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.41%** 1.39% 1.55% 1.38% 1.31%**
Net Investment Loss to Average Net Assets (0.55)%** (0.67)% (0.42)% (0.60)% (0.32)%**
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 a fluctuating market
value of the investments in the Portfolio
++ Per share amounts for the years ended December 31, 1999 and 1996 are based
on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
170
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 18,
JUNE 30, YEAR ENDED DECEMBER 31, 1995* TO
2000 --------------------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998++ 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.32 $ 6.74 $ 10.91 $ 11.32 $ 9.06 $ 10.00
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.04 0.18 0.13 (0.01) 0.14 0.05
Net Realized and Unrealized Gain (Loss) on
Investments (0.12) 4.59 (4.16) 4.32 4.27 (0.92)
--------- --------- --------- --------- --------- ---------
Total from Investment Operations (0.08) 4.77 (4.03) 4.31 4.41 (0.87)
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.19) (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 -- (0.19) (0.14) (4.72) (2.15) (0.07)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.24 $ 11.32 $ 6.74 $ 10.91 $ 11.32 $ 9.06
========= ========= ========= ========= ========= =========
TOTAL RETURN (0.71)% 71.28% (37.10)% 41.28% 48.77% (8.68)%
========= ========= ========= ========= ========= =========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 13,682 $ 13,809 $ 15,012 $ 73,196 $ 30,409 $ 15,376
Ratio of Expenses to Average Net Assets (1) 1.78%** 1.79% 1.81% 1.89% 1.70% 1.70%**
Ratio of Expenses to Average Net Assets Excluding
Foreign Tax and Interest Expense 1.65%** 1.70% 1.64% 1.70% 1.70% 1.70%**
Ratio of Net Investment Income (Loss) to Average
Net Assets (1) 0.63%** 1.40% 1.40% (0.14)% 1.21% 1.62%**
Portfolio Turnover Rate 55% 124% 196% 286% 192% 137%
---------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.03 $ 0.04 N/A $ 0.01 $ 0.05 $ 0.09
Ratios before expense limitation:
Expenses to Average Net Assets 2.21%** 2.12% N/A 1.96% 2.18% 3.13%**
Net Investment Income (Loss) to Average Net
Assets 0.20%** 1.07% N/A (0.21)% 0.75% (0.48)%**
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 --------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998++ 1997 1996
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.36 $ 6.78 $ 10.80 $ 11.31 $ 9.44
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.01 0.19 0.12 -- 0.09
Net Realized and Unrealized Gain (Loss) on
Investments (0.11) 4.58 (4.09) 4.21 3.90
--------- --------- --------- --------- ---------
Total from Investment Operations (0.10) 4.77 (3.97) 4.21 3.99
--------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.19) -- -- (0.10)
Net Realized Gain -- -- (0.05) (4.04) (2.02)
In Excess of Net Realized Gain -- -- -- (0.68) --
--------- --------- --------- --------- ---------
Total Distributions -- (0.19) (0.05) (4.72) (2.12)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.26 $ 11.36 $ 6.78 $ 10.80 $ 11.31
========= ========= ========= ========= =========
TOTAL RETURN (0.88)% 70.85% (36.86)% 40.37% 42.44%
========= ========= ========= ========= =========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 1,430 $ 1,387 $ 1,148 $ 6,709 $ 1,333
Ratio of Expenses to Average Net Assets (2) 2.03%** 2.05% 2.01% 2.14% 1.95%**
Ratio of Expenses to Average Net Assets Excluding
Foreign Tax and Interest Expense 1.90%** 1.95% 1.85% 1.95% 1.95%**
Ratio of Net Investment Income
(Loss) to Average Net Assets (2) 0.33%** 1.04% 1.24% (0.34)% 0.89%**
Portfolio Turnover Rate 55% 124% 196% 286% 192%
------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.01 $ 0.05 N/A $ 0.00+ $ 0.05
Ratios before expense limitation:
Expenses to Average Net Assets 2.46%** 2.35% N/A 2.21% 2.43%**
Net Investment Income (Loss) to Average
Net Assets (0.08)%** 0.75% 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.
171
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ----------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 25.04 $ 19.04 $ 16.93 $ 14.94 $ 14.14 $ 12.02
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) (0.01) (0.02) 0.04 0.06 0.17 0.22
Net Realized and Unrealized Gain (Loss) on
Investments 1.59 7.49 3.17 4.48 4.07 4.93
--------- --------- --------- --------- --------- ---------
Total from Investment Operations 1.58 7.47 3.21 4.54 4.24 5.15
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- -- (0.03) (0.06) (0.17) (0.28)
In Excess of Net Investment Income -- (0.00)+ -- (0.00)+ -- --
Net Realized Gain -- (1.47) (0.64) (2.49) (3.27) (2.75)
In Excess of Net Realized Gain -- -- (0.43) -- -- --
--------- --------- --------- --------- --------- ---------
Total Distributions -- (1.47) (1.10) (2.55) (3.44) (3.03)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 26.62 $ 25.04 $ 19.04 $ 16.93 $ 14.94 $ 14.14
========= ========= ========= ========= ========= =========
TOTAL RETURN 6.14% 39.89% 19.04% 31.32% 30.97% 45.02%
========= ========= ========= ========= ========= =========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,072,755 $ 977,005 $ 784,565 $ 591,789 $ 352,703 $ 158,112
Ratio of Expenses to Average Net Assets (1) 0.80%** 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Net Investment Income (Loss) to Average (0.09)%** (0.10)% 0.22% 0.35% 1.12% 1.57%
Net Assets (1)
Portfolio Turnover Rate 37% 91% 156% 177% 186% 186%
------------------
(1)Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.80%** 0.80% 0.80% 0.82% 0.88% 0.88%
Net Investment Income (Loss) to Average Net Assets (0.09)%** (0.10)% 0.22% 0.33% 1.04% 1.49%
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 --------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 24.90 $ 18.97 $ 16.91 $ 14.92 $ 14.22
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) (0.03) (0.04) 0.00 0.04 0.13
Net Realized and Unrealized Gain (Loss)
on Investments 1.57 7.44 3.15 4.46 3.99
--------- --------- --------- --------- ---------
Total from Investment Operations 1.54 7.40 3.15 4.50 4.12
--------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- -- (0.02) (0.02) (0.15)
In Excess of Net Investment Income -- (0.00)+ -- -- --
Net Realized Gain -- (1.47) (0.64) (2.49) (3.27)
In Excess of Net Realized Gain -- -- (0.43) -- --
--------- --------- --------- --------- ---------
Total Distributions -- (1.47) (1.09) (2.51) (3.42)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 26.44 $ 24.90 $ 18.97 $ 16.91 $ 14.92
========= ========= ========= ========= =========
TOTAL RETURN 6.06% 39.61% 18.71% 31.05% 29.92%
========= ========= ========= ========= =========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 367,618 $ 246,889 $ 83,330 $ 27,879 $ 5,498
Ratio of Expenses to Average Net Assets (2) 1.05%** 1.05% 1.05% 1.05% 1.05%**
Ratio of Net Investment Income (Loss) to Average Net
Assets (2) (0.34)%** (0.34)% (0.02)% 0.10% 0.91%**
Portfolio Turnover Rate 37% 91% 156% 177% 186%
------------------
(2)Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $ 0.00+ $ 0.00+ $ 0.00+ $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.05%** 1.05% 1.05% 1.07% 1.12%**
Net Investment Income (Loss) to Average Net Assets (0.34)%** (0.34)% (0.20)% 0.80% 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.
172
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
FOCUS EQUITY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED MARCH 18
JUNE 30, YEAR ENDED DECEMBER 31, 1995* TO
2000 ------------------------------------------------------ DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.70 $ 17.50 $ 15.78 $ 14.43 $ 12.17 $ 10.00
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.03) (0.06) 0.00+ 0.01 0.18 0.15
Net Realized and Unrealized Gain
(Loss) on Investments 1.31 7.89 2.42 4.58 4.73 3.95
-------- -------- -------- -------- -------- --------
Total from Investment Operations 1.28 7.83 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 -- (5.63) (0.38) (3.23) (2.48) (1.78)
In Excess of Net Realized Gain -- -- (0.32) -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions -- (5.63) (0.70) (3.24) (2.65) (1.93)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 20.98 $ 19.70 $ 17.50 $ 15.78 $ 14.43 $ 12.17
======== ======== ======== ======== ======== ========
TOTAL RETURN 6.45% 46.44% 15.35% 33.31% 40.90% 41.25%
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $142,315 $136,128 $130,734 $155,087 $ 68,480 $ 28,548
Ratio of Expenses to Average Net Assets (1) 1.00%** 1.01% 1.01% 1.02% 1.00% 1.00%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense N/A 1.00% 1.00% 1.00% N/A N/A
Ratio of Net Investment Income to
Average Net Assets (1) (0.28)%** (0.33)% 0.01% 0.08% 1.26% 1.64%**
Portfolio Turnover Rate 50% 155% 373% 302% 380% 309%
-------------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment income $ 0.00+ $ 0.01 $ 0.01 $ 0.01 $ 0.03 $ 0.06
Ratios before expense limitation:
Expenses to Average Net Assets 1.03%** 1.07% 1.03% 1.08% 1.24% 1.59%**
Net Investment Income to Average Net Assets (0.31)%** (0.39)% (0.01)% 0.02% 1.02% 1.05%**
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 ---------------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.50 $ 17.40 $ 15.72 $ 14.42 $ 12.25
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)(2) (0.05) (0.08) (0.06) (0.01) 0.13
Net Realized and Unrealized Gain (Loss) on Investments 1.29 7.81 2.44 4.55 4.67
-------- -------- -------- -------- --------
Total from Investment Operations 1.24 7.73 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 -- (5.63) (0.38) (3.23) (2.48)
In Excess of Net Realized Gain -- -- (0.32) -- --
-------- -------- -------- -------- --------
Total Distributions -- (5.63) (0.70) (3.24) (2.63)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 20.74 $ 19.50 $ 17.40 $ 15.72 $ 14.42
======== ======== ======== ======== ========
TOTAL RETURN 6.31% 46.13% 15.15% 32.90% 39.72%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 23,927 $ 22,168 $ 16,682 $ 18,277 $ 8,805
Ratio of Expenses to Average Net Assets (2) 1.25%** 1.26% 1.26% 1.27% 1.25%**
Ratio of Expenses to Average Net Assets Excluding
Interest Expense N/A 1.25% 1.25% 1.25% N/A
Ratio of Net Investment Income to Average Net Assets(2) (0.53)%** (0.58)% (0.26)% (0.18)% 0.95%**
Portfolio Turnover Rate 50% 155% 373% 302% 380%
-------------------
(2)Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.00+ $ 0.01 $ 0.00+ $ 0.00+ $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.28%** 1.32% 1.28% 1.33% 1.47%**
Net Investment Income to Average Net Assets (0.56)%** (0.64)% (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.
173
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.32 $ 8.07 $ 7.72 $ 13.50 $ 21.49 $ 16.12
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.06) (0.05) 0.09 (0.07) (0.19) (0.18)
Net Realized and Unrealized Gain (Loss) on
Investments 2.53 7.40 1.97 1.09 0.89 5.55
-------- -------- -------- -------- -------- --------
Total from Investment Operations 2.47 7.35 2.06 1.02 0.70 5.37
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income -- -- (0.09) -- -- --
Net Realized Gain -- (2.10) (1.62) (6.80) (8.69) --
-------- -------- -------- -------- -------- --------
Total Distributions -- (2.10) (1.71) (6.80) (8.69) --
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 15.79 $ 13.32 $ 8.07 $ 7.72 $ 13.50 $ 21.49
======== ======== ======== ======== ======== ========
TOTAL RETURN 18.62% 96.45% 27.54% 11.36% 3.72% 33.31%
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 91,527 $ 77,193 $ 73,276 $ 57,777 $ 62,793 $119,378
Ratio of Expenses to Average Net Assets (1) 1.25%** 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of Net Investment Income (Loss)
to Average Net Assets (1) (0.73)%** (0.59)% 1.06% (0.87)% (0.88)% (0.76)%
Portfolio Turnover Rate 82% 204% 331% 228% 33% 25%
-------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.003
Ratios before expense limitation:
Expenses to Average Net Assets 1.32%** 1.43% 1.35% 1.34% 1.30% 1.26%
Net Investment Income to Average Net
Assets (0.81)%** (0.78)% 0.96% (0.95)% (0.92)% (0.77)%
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** to
2000 ---------------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.01 $ 7.93 $ 7.63 $ 13.45 $ 21.47
---------- --------- --------- --------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) (0.08) (0.08) 0.09 (0.06) (0.15)
Net Realized and Unrealized Gain (Loss) on
Investments 2.48 7.26 1.90 1.04 0.82
---------- --------- --------- --------- ----------
Total from Investment Operations 2.40 7.18 1.99 0.98 0.67
---------- --------- --------- --------- ----------
DISTRIBUTIONS
Net Investment Income -- -- (0.07) -- --
Net Realized Gain -- (2.10) (1.62) (6.80) (8.69)
---------- --------- --------- --------- ----------
Total Distributions -- (2.10) (1.69) (6.80) (8.69)
---------- --------- --------- --------- ----------
NET ASSET VALUE, END OF PERIOD $ 15.41 $ 13.01 $ 7.93 $ 7.63 $ 13.45
======== ======== ======== ======== ========
TOTAL RETURN 18.52% 95.97% 26.86% 11.13% 3.58%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 80,148 $ 14,775 $ 1,282 $ 1,313 $ 3,997
Ratio of Expenses to Average Net Assets (2) 1.50%** 1.50% 1.50% 1.50% 1.50%**
Ratio of Net Investment Income (Loss) to Average Net
Assets (2) (1.13)%** (0.87)% 0.88% (1.12)% (1.09)%**
Portfolio Turnover Rate 82% 204% 331% 228% 33%
-------------------
(2)Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.01 $ 0.02 $ 0.01 $ 0.00+ $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.60%** 1.66% 1.60% 1.58% 1.54%**
Net Investment Income (Loss) to Average Net Assets (1.22)%** 1.03% 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.
174
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED SEPTEMBER 16,
JUNE 30, YEAR ENDED DECEMBER 31, 1996* TO
2000 ------------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998++ 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 38.91 $ 17.98 $ 11.73 $ 10.71 $ 10.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.20) (0.28) (0.13) 0.07 (0.02)
Net Realized and Unrealized Gain (Loss) on
Investments 7.31 28.07 6.45 3.75 0.73
-------- -------- -------- -------- --------
Total from Investment Operations 7.11 27.79 6.32 3.82 0.71
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income -- -- -- (0.26) --
Net Realized Gain -- (6.86) (0.07) (1.28) --
In Excess of Net Realized Gain -- -- -- (1.00) --
Return of Capital -- -- -- (0.26) --
-------- -------- -------- -------- --------
Total Distributions -- (6.86) (0.07) (2.80) --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 46.02 $ 38.91 $ 17.98 $ 11.73 $ 10.71
======== ======== ======== ======== ========
TOTAL RETURN 18.27% 160.62% 53.90% 37.27% 7.10%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $141,303 $ 82,190 $ 27,506 $ 31,788 $ 3,595
Ratio of Expenses to Average Net Assets (1) 1.27%** 1.26% 1.29% 1.25% 1.25%**
Ratio of Expenses to Average Net Assets Excluding
Interest Expense 1.25%** 1.25% 1.25% N/A N/A
Ratio of Net Investment Income to Average Net Assets (1) (1.05)%** (1.06)% (0.95)% (1.07)% (0.70)%**
Portfolio Turnover Rate 65% 250% 265% 622% 77%
-------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.01 $ 0.00+ $ 0.07 $ 0.08 $ 0.22
Ratios before expense limitation:
Expenses to Average Net Assets 1.31%** 1.28% 1.82% 2.47% 8.51%**
Net Investment Income to Average Net Assets (1.09)%** (1.09)% (1.47)% (2.30)% (7.96)%**
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED SEPTEMBER 16,
JUNE 30, YEAR ENDED DECEMBER 31, 1996* TO
2000 ---------------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998++ 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 38.69 $ 17.92 $ 11.72 $ 10.71 $ 10.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) (0.18) (0.35) (0.16) 0.04 (0.02)
Net Realized and Unrealized Gain (Loss) on
Investments 7.19 27.98 6.43 3.74 0.73
-------- -------- -------- -------- --------
Total from Investment Operations 7.01 27.63 6.27 3.78 0.71
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income -- -- -- (0.25) --
Net Realized Gain -- (6.86) (0.07) (1.28) --
In Excess of Net Realized Gain -- -- -- (1.00) --
Return of Capital -- -- -- (0.24) --
-------- -------- -------- -------- --------
Total Distributions -- (6.86) (0.07) (2.77) --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 45.70 $ 38.69 $ 17.92 $ 11.72 $ 10.71
======== ======== ======== ======== ========
TOTAL RETURN 18.14% 160.26% 53.52% 36.90% 7.10%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 9,868 $ 4,192 $ 850 $ 2,394 $ 1,487
Ratio of Expenses to Average Net Assets (2) 1.52%** 1.51% 1.55% 1.50% 1.50%**
Ratio of Expenses to Average Net Assets Excluding
Interest Expense 1.50%** 1.50% 1.50% N/A N/A
Ratio of Net Investment Income to Average Net Assets (2) (1.30)%** (1.31)% (1.32)% (1.41)% (1.00)%**
Portfolio Turnover Rate 65% 250% 265% 622% 77%
-------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.01 $ 0.00+ $ 0.07 $ 0.04 $ 0.19
Ratios before expense limitation:
Expenses to Average Net Assets 1.56%** 1.53% 2.08% 2.72% 9.14%**
Net Investment Income to Average Net Assets (1.34)%** (1.32)% (1.84)% (2.63)% (8.65)%**
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
** Annualized
+ 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.
175
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JULY 31,
JUNE 30, YEAR ENDED DECEMBER 31, 1997* TO
2000 ---------------------------- DECEMBER 31,
(UNAUDITED)++ 1999++ 1998++ 1997++
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.34 $ 12.43 $ 10.31 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.02 0.11 0.09 0.06
Net Realized and Unrealized Gain (Loss) on Investments (0.29) 2.30 2.10 0.33
-------- -------- -------- --------
Total from Investment Operations (0.27) 2.41 2.19 0.39
-------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income -- (0.11) (0.05) (0.05)
In Excess of Net Investment Income -- -- -- (0.03)
Net Realized Gain -- (2.34) -- --
In Excess of Net Realized Gain -- (0.05) (0.02) --
-------- -------- -------- --------
Total Distributions -- (2.50) (0.07) (0.08)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 12.07 $ 12.34 $ 12.43 $ 10.31
======== ======== ======== ========
TOTAL RETURN (2.19)% 20.25% 21.26% 3.94%
======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 19,457 $ 22,430 $ 66,640 $ 20,914
Ratio of Expenses to Average Net Assets (1) 0.81%** 0.83% 0.80% 0.80%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 0.80%** 0.80% N/A N/A
Ratio of Net Investment Income to Average Net Assets (1) 0.28%** 0.35% 0.87% 1.32%**
Portfolio Turnover Rate 66% 182% 228% 15%
-------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.03 $ 0.10 $ 0.03 $ 0.07
Ratios before expense limitation:
Expenses to Average Net Assets 1.23%** 1.17% 1.05% 2.37%**
Net Investment Income to Average Net Assets (0.14)%** 0.00% 0.59% (0.25)%**
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
---------------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JULY 31,
JUNE 30, YEAR ENDED DECEMBER 31, 1997* TO
2000 ---------------------------- DECEMBER 31,
(UNAUDITED)++ 1999++ 1998++ 1997++
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.33 $ 12.42 $ 10.31 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.01 0.03 0.06 0.02
Net Realized and Unrealized Gain (Loss) on Investments (0.29) 2.36 2.10 0.37
-------- -------- -------- --------
Total from Investment Operations (0.28) 2.39 2.16 0.39
-------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income -- (0.08) (0.03) (0.05)
Net Realized Gain -- (2.33) -- (0.03)
In Excess of Net Realized Gain -- (0.07) (0.02) --
-------- -------- -------- --------
Total Distributions -- (2.48) (0.05) (0.08)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 12.05 $ 12.33 $ 12.42 $ 10.31
======== ======== ======== ========
TOTAL RETURN (2.27)% 19.99% 20.95% 3.93%
======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 1,082 $ 1,533 $ 1,431 $ 102
Ratio of Expenses to Average Net Assets (2) 1.06%** 1.08% 1.05% 1.05%**
Ratio of Expenses to Average Net Assets Excluding Interest 1.05%** 1.05% N/A N/A
Ratio of Net Investment Income to Average Net Assets (2) 0.22%** 0.15% 0.52% 0.48%**
Portfolio Turnover Rate 66% 182% 228% 15%
-------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.00+ $ 0.08 $ 0.03 $ 0.00
Ratios before expense limitation:
Expenses to Average Net Assets 1.47%** 1.42% 1.34% 2.63%**
Net Investment Income to Average Net Assets (0.20)%** (0.24)% 0.24% (0.32)%**
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
** Annualized
+ Amount is less than $0.01 per share.
++ Per share amounts for the years ended December 31, 1999, 1998, and 1997
are based on average shares outstanding.
The accompanying ntoes are an integral part of the financial statements.
176
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
-------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED FEBRUARY 24,
JUNE 30, YEAR ENDED DECEMBER 31, 1995* TO
2000 ---------------------------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.84 $ 12.71 $ 15.38 $ 14.41 $ 11.42 $ 10.00
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.27 0.81 0.47 0.42 0.37 0.26
Net Realized and Unrealized Gain
(Loss) on Investments 1.45 (0.98) (2.32) 3.40 4.02 1.84
-------- -------- -------- -------- -------- --------
Total from Investment Operations 1.72 (0.17) (1.85) 3.82 4.39 2.10
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.13) (0.66) (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 -- (0.04) (0.23) (0.26) -- --
-------- -------- -------- -------- -------- --------
Total Distributions (0.13) (0.70) (0.82) (2.85) (1.40) (0.68)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 13.43 $ 11.84 $ 12.71 $ 15.38 $ 14.41 $ 11.42
======== ======== ======== ======== ======== ========
TOTAL RETURN 14.66% (1.48)% (12.29)% 27.62% 39.56% 21.07%
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $498,083 $311,064 $259,589 $361,549 $210,368 $ 69,509
Ratio of Expenses to Average Net
Assets (1) 1.00%** 1.00% 1.00% 1.00% 1.00% 1.00%**
Ratio of Net Investment Income to
Average Net Assets (1) 2.63%** 6.52% 3.33% 2.72% 3.08% 4.04%**
Portfolio Turnover Rate 12% 47% 117% 135% 171% 158%
-------------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $ 0.00+ $ 0.00+ $ 0.00+ $ 0.01 $ 0.02 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.03%** 1.02% 1.04% 1.04% 1.14% 1.33%**
Net Investment Income to Average
Net Assets 2.59%** 6.51% 3.30% 2.68% 2.93% 3.71%**
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
---------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 ------------------------------------ DECEMBER 31,
(UNAUDITED) 1999 1998++ 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.80 $ 12.67 $ 15.34 $ 14.39 $ 11.50
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.25 0.82 0.47 0.47 0.35
Net Realized and Unrealized Gain (Loss) on
Investments 1.45 (1.02) (2.35) 3.29 3.92
------- ------- ------- ------- -------
Total from Investment Operations 1.70 (0.20) (1.88) 3.76 4.27
------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income (0.12) (0.63) (0.46) (0.39) (0.37)
Net Realized Gain -- -- (0.10) (2.16) (1.01)
In Excess of Net Realized Gain -- (0.04) (0.23) (0.26) --
------- ------- ------- ------- -------
Total Distributions (0.12) (0.67) (0.79) (2.81) (1.38)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 13.38 $ 11.80 $ 12.67 $ 15.34 $ 14.39
======= ======= ======= ======= =======
TOTAL RETURN 14.56% (1.73)% (12.52)% 27.21% 38.23%
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $16,999 $13,418 $13,523 $21,231 $ 8,734
Ratio of Expenses to Average Net Assets (2) 1.25%** 1.25% 1.25% 1.25% 1.25%**
Ratio of Net Investment Income to Average Net Assets (2) 2.26%** 6.13% 3.23% 3.49% 2.91%**
Portfolio Turnover Rate 12% 47% 117% 135% 171%
-------------------
(2) Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.00+ $ 0.00+ $ 0.01 $ 0.00+ $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.29%** 1.27% 1.29% 1.28% 1.37%**
Net Investment Income to Average Net Assets 2.23%** 6.12% 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 finanical statements.
177
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
-------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.63 $ 10.78 $ 13.62 $ 13.89 $ 13.94 $ 11.50
------- ------- ------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.06 0.26 0.20 0.35 0.41 0.38
Net Realized and Unrealized Gain (Loss) on
Investments 0.22 0.97 0.98 3.51 2.27 3.30
------- ------- ------- ------- -------- --------
Total from Investment Operations 0.28 1.23 1.18 3.86 2.68 3.68
------- ------- ------- ------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.04) (0.17) (0.21) (0.35) (0.41) (0.47)
Net Realized Gain -- (2.09) (3.81) (3.78) (2.32) (0.77)
In Excess of Net Realized Gain -- (0.12) -- -- -- --
------- ------- ------- ------- -------- --------
Total Distributions (0.04) (2.38) (4.02) (4.13) (2.73) (1.24)
------- ------- ------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.87 $ 9.63 $ 10.78 $ 13.62 $ 13.89 $ 13.94
======= ======= ======= ======= ======= =======
TOTAL RETURN 2.88% 11.63% 8.79% 29.20% 19.73% 33.69%
======= ======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $55,772 $46,768 $57,543 $86,054 $106,128 $147,365
Ratio of Expenses to Average Net Assets (1) 0.72%** 0.73% 0.70% 0.70% 0.70% 0.70%
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 0.70%** 0.70% N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (1) 1.20%** 1.25% 1.36% 2.15% 2.62% 3.01%
Portfolio Turnover Rate 27% 80% 153% 36% 42% 43%
-------------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $ 0.01 $ 0.03 $ 0.02 $ 0.02 $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.85%** 0.86% 0.82% 0.80% 0.78% 0.77%
Net Investment Income to Average Net
Assets 1.20%** 1.12% 1.25% 2.06% 2.55% 2.94%
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
---------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 ------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.60 $10.76 $13.59 $13.89 $14.06
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.01 0.20 0.07 0.28 0.29
Net Realized and Unrealized Gain (Loss) on Investments 0.26 0.99 1.08 3.51 2.25
------ ------ ------ ------ ------
Total from Investment Operations 0.27 1.19 1.15 3.79 2.54
------ ------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.03) (0.13) (0.17) (0.31) (0.39)
Net Realized Gain -- (2.02) (3.81) (3.78) (2.32)
Net Realized Gain -- (0.20) N/A N/A N/A
------ ------ ------ ------ ------
Total Distributions (0.03) (2.35) (3.98) (4.09) (2.71)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.84 $ 9.60 $10.76 $13.59 $13.89
====== ====== ====== ====== ======
TOTAL RETURN 2.82% 11.22% 8.59% 28.70% 18.57%
====== ====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 777 $ 921 $1,045 $2,246 $2,555
Ratio of Expenses to Average Net Assets (2) 0.97%** 0.98% 0.95% 0.95% 0.95%**
Ratio of Expenses to Average Net Assets Excluding
Interest Expense 0.95%** 0.95% N/A N/A N/A
Ratio of Net Investment Income to Average Net Assets (2) 0.96%** 1.01% 1.12% 1.86% 2.33%**
Portfolio Turnover Rate 27% 80% 153% 36% 42%
-------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.01 $ 0.03 $ 0.02 $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.11%** 1.13% 1.07% 1.04% 1.03%**
Net Investment Income to Average Net Assets 0.96%** 0.87% 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.
178
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
-------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ------------------------------------------------------------------
(UNAUDITED) 1999++ 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 3.00 $ 2.61 $ 5.77 $ 7.54 $ 8.59 $ 8.59
------- ------- ------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.16 0.43 1.13 0.74 1.54 1.36
Net Realized and Unrealized Gain (Loss)
on Investments 0.05 0.34 (3.19) 0.55 2.79 0.91
------- ------- ------- -------- -------- --------
Total from Investment Operations 0.21 0.77 (2.06) 1.29 4.33 2.27
------- ------- ------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income -- (0.37) (1.08) (0.71) (1.17) (1.86)
In Excess of Net Investment Income -- (0.00)+ (0.02) -- (0.01) --
Net Realized Gain -- -- -- (2.17) (4.20) (0.41)
In Excess of Net Realized Gain -- -- -- (0.08) -- --
Return of Capital -- (0.01) -- (0.10) -- --
------- ------- ------- -------- -------- --------
Total Distributions -- (0.38) (1.10) (3.06) (5.38) (2.27)
------- ------- ------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 3.21 $ 3.00 $ 2.61 $ 5.77 $ 7.54 $ 8.59
======= ======= ======= ======= ======== ========
TOTAL RETURN 7.00% 29.22% (35.95)% 18.29% 50.52% 28.23%
======= ======= ======= ======= ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $64,832 $52,654 $46,234 $142,382 $152,142 $181,878
Ratio of Expenses to Average Net Assets 1.16%** 1.40% 2.38% 1.60% 2.70% 1.75%
Ratio of Expenses to Average Net Assets
Excluding Foreign Tax Expenses 1.09%** 1.29% 1.34% N/A N/A N/A
Ratio of Net Investment Income to Average
Net Assets 10.48%** 13.12% 11.61% 8.06% 11.66% 14.70%
Portfolio Turnover Rate 178% 249% 457% 417% 560% 406%
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-----------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 ----------------------------------- DECEMBER 31,
(UNAUDITED) 1999++ 1998++ 1997++ 1996
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 3.03 $ 2.66 $ 5.77 $ 7.53 $ 8.68
------ ------ ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.17 0.28 1.13 0.69 1.01
Net Realized and Unrealized Gain (Loss) on Investments 0.04 0.46 (3.17) 0.59 3.20
------ ------ ------- ------ ------
Total from Investment Operations 0.21 0.74 (2.04) 1.28 4.21
------ ------ ------- ------ ------
DISTRIBUTIONS
Net Investment Income -- (0.05) (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 -- (0.32) -- (0.10) --
------ ------ ------- ------ ------
Total Distributions -- (0.37) (1.07) (3.04) (5.36)
------ ------ ------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 3.24 $ 3.03 $ 2.66 $ 5.77 $ 7.53
====== ====== ======= ====== ======
TOTAL RETURN 6.93% 28.01% (35.37)% 18.05% 48.52%
====== ====== ======= ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 505 $ 860 $ 1,187 $2,281 $4,253
Ratio of Expenses to Average Net Assets 1.41%** 1.65% 2.62% 1.91% 2.81%**
Ratio of Expenses to Average Net Assets Excluding Foreign
Tax Expense 1.34%** 1.55% 1.60% N/A N/A
Ratio of Net Investment Income to Average Net Assets 10.55%** 12.85% 11.09% 7.87% 11.09%**
Portfolio Turnover Rate 178% 249% 457% 417% 560%
------------------------------------------------------------------------------------------------------------------------------
</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.
179
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
-------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 -------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------
<S>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.24 $ 11.08 $ 10.88 $ 10.58 $ 10.81 $ 9.82
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.34 0.64 0.62 0.65 0.67 0.72
Net Realized and Unrealized Gain
(Loss) on Investments -- (0.81) 0.22 0.33 (0.20) 1.06
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.34 (0.17) 0.84 0.98 0.47 1.78
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.28) (0.64) (0.61) (0.68) (0.70) (0.79)
In Excess of Net Investment Income -- -- -- (0.00)+ (0.00)+ --
Net Realized Gain -- -- (0.03) -- -- --
In Excess of Net Realized Gain -- (0.03) -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions (0.28) (0.67) (0.64) (0.68) (0.70) (0.79)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.30 $ 10.24 $ 11.08 $ 10.88 $ 10.58 $ 10.81
======== ======== ======== ======== ======== ========
TOTAL RETURN 3.34% (1.56)% 7.93% 9.54% 4.61% 18.76%
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $163,221 $171,467 $212,718 $183,192 $130,733 $165,527
Ratio of Expenses to Average Net Assets (1) 0.45%** 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of Net Investment Income to Average
Net Assets (1) 6.53%** 5.87% 5.63% 6.11% 6.30% 6.85%
Portfolio Turnover Rate 92% 97% 176% 163% 183% 172%
-------------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $ 0.01 $ 0.01 $ 0.01 $ 0.02 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.57%** 0.57% 0.58% 0.60% 0.60% 0.59%
Net Investment Income to Average Net
Assets 6.41%** 5.75% 5.51% 5.97% 6.15% 6.71%
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
2000 ------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
<S>
NET ASSET VALUE, BEGINNING OF PERIOD $10.25 $11.10 $10.89 $10.58 $10.81
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.33 0.61 0.61 0.64 0.64
Net Realized and Unrealized Gain (Loss) on Investments 0.01 (0.80) 0.22 0.33 (0.19)
------ ------ ------ ------ ------
Total from Investment Operations 0.34 (0.19) 0.83 0.97 0.45
------ ------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.28) (0.63) (0.59) (0.66) (0.68)
Net Realized Gain -- -- (0.03) -- --
In Excess of Net Realized Gains -- (0.03) -- -- --
------ ------ ------ ------ ------
Total Distributions (0.28) (0.66) (0.62) (0.66) (0.68)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.31 $10.25 $11.10 $10.89 $10.58
====== ====== ====== ====== ======
TOTAL RETURN 3.29% (1.76)% 7.85% 9.48% 4.35%
====== ====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,895 $2,084 $3,649 $4,834 $1,462
Ratio of Expenses to Average Net Assets (2) 0.60%** 0.60% 0.60% 0.60% 0.60%**
Ratio of Net Investment Income to Average Net Assets (2) 6.38%** 5.69% 5.50% 5.93% 6.15%**
Portfolio Turnover Rate 92% 97% 176% 163% 183%
-------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.01 $ 0.01 $ 0.01 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.72%** 0.72% 0.72% 0.74% 0.74%**
Net Investment Income to Average Net Assets 6.27%** 5.58% 5.38% 5.78% 6.01%**
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
The accompanying notes are an integral part of the financial statements.
180
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ------------------------------------------------------------------
(UNAUDITED) 1999++ 1998++ 1997++ 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.22 $ 12.51 $ 11.15 $ 11.30 $ 11.22 $ 10.29
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.29 0.51 0.55 0.56 0.61 0.76
Net Realized and Unrealized Gain (Loss) on
Investments (0.38) (1.37) 0.98 (0.40) 0.08 1.15
-------- -------- -------- -------- -------- --------
Total from Investment Operations (0.09) (0.86) 1. 53 0.16 0.69 1.91
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income -- (0.39) (0.17) (0.31) (0.61) (0.98)
In Excess of Net Investment Income -- (0.03) -- -- -- --
Return of Capital -- (0.01) -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions -- (0.43) (0.17) (0.31) (0.61) (0.98)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.13 $ 11.22 $ 12.51 $ 11.15 $ 11.30 $ 11.22
======== ======== ======== ======== ======== ========
TOTAL RETURN (0.80)% (6.84)% 13.84% 1.50% 6.44% 19.32%
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 31,052 $ 34,225 $ 45,884 $ 84,635 $112,888 $102,852
Ratio of Expenses to Average Net Assets (1) 0.50%** 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of Net Investment Income to Average Net
Assets (1) 4.92%** 4.01% 4.76% 5.05% 5.50% 6.79%
Portfolio Turnover Rate 42% 102% 110% 116% 258% 207%
-------------------
(1) Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.02 $ 0.03 $ 0.03 $ 0.02 $ 0.02 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 0.87%** 0.76% 0.81% 0.71% 0.72% 0.71%
Net Investment Income to Average Net Assets 4.58%** 3.75% 4.48% 4.84% 5.29% 6.58%
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** to
2000 ---------------------------------------- DECEMBER 31,
(UNAUDITED) 1999++ 1998++ 1997++ 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.19 $ 12.48 $ 11.13 $ 11.29 $ 11.23
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.27 0.45 0.53 0.54 0.48
Net Realized and Unrealized Gain (Loss) on Investments (0.38) (1.32) 0.98 (0.40) 0.18
-------- -------- -------- -------- --------
Total from Investment Operations (0.11) (0.87) 1.51 0.14 0.66
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income -- (0.39) (0.16) (0.30) (0.60)
In Excess of Net Investment Income -- (0.03) -- -- --
-------- -------- -------- -------- --------
Total Distributions -- (0.42) (0.16) (0.30) (0.60)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.08 $ 11.19 $ 12.48 $ 11.13 $ 11.29
======== ======== ======== ======== ========
TOTAL RETURN (0.89)% (7.09)% 13.68% 1.29% 6.12%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 316 $ 322 $ 362 $ 366 $ 1,559
Ratio of Expenses to Average Net Assets (2) 0.65%** 0.65% 0.65% 0.65% 0.65%**
Ratio of Net Investment Income to Average Net Assets (2) 5.04%** 3.86% 4.54% 4.88% 5.28%**
Portfolio Turnover Rate 42% 102% 110% 116% 258%
-------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.02 $ 0.03 $ 0.03 $ 0.02 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.02%** 0.91% 0.99% 0.86% 0.86%**
Net Investment Income to Average Net Assets 4.70%** 3.60% 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, 1999, 1998 and 1997
are based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
181
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INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.58 $ 10.75 $ 11.58 $ 10.91 $ 10.45 $ 9.55
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.51 0.94 1.00 1.00 1.03 1.14
Net Realized and Unrealized Gain (Loss) on
Investments (0.73) (0.14) (0.66) 0.67 0.47 0.97
-------- -------- -------- -------- -------- --------
Total from Investment Operations (0.22) 0.80 0.34 1.67 1.50 2.11
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.41) (0.95) (0.98) (1.00) (1.05) (1.20)
In Excess of Net Investment Income -- (0.01) (0.00)+ -- (0.00)+ --
Net Realized Gain -- -- (0.14) -- -- --
In Excess of Net Realized Gain -- -- (0.04) -- -- --
Return of Capital -- (0.01) (0.01) -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions (0.41) (0.97) (1.17) (1.00) (1.05) (1.20)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.95 $ 10.58 $ 10.75 $ 11.58 $ 10.91 $ 10.46
======== ======== ======== ======== ======== ========
TOTAL RETURN (2.15)% 7.77% 3.03% 15.87% 15.01% 23.35%
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $108,830 $136,386 $128,227 $113,006 $ 95,663 $62,245
Ratio of Expenses to Average Net Assets (1) 0.61%** 0.59% 0.67% 0.69% 0.75% 0.75%
Ratio of Net Investment Income to Average Net
Assets (1) 9.57%** 8.72% 8.70% 8.70% 9.78% 11.09%
Portfolio Turnover Rate 15% 58% 93% 111% 117% 90%
-------------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment income N/A N/A N/A N/A $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets N/A N/A N/A N/A 0.82% 0.83%
Net Investment Income to Average Net Assets N/A N/A N/A N/A 9.71% 11.01%
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** to
2000 ---------------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.55 $ 10.73 $ 11.56 $ 10.90 $ 10.49
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.46 0.92 0.90 0.97 0.98
Net Realized and Unrealized Gain (Loss) on
Investments (0.70) (0.15) (0.59) 0.65 0.45
-------- -------- -------- -------- --------
Total from Investment Operations (0.24) 0.77 0.31 1.62 1.43
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.39) (0.93) (0.95) (0.96) (1.02)
In Excess of Net Investment Income -- (0.01) (0.00)+ -- --
Net Realized Gain -- -- (0.14) -- --
In Excess of Net Realized Gain -- -- (0.04) -- --
Return of Capital -- (0.01) (0.01) -- --
-------- -------- -------- -------- --------
Total Distributions (0.39) (0.95) (1.14) (0.96) (1.02)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.92 $ 10.55 $ 10.73 $ 11.56 $ 10.90
======== ======== ======== ======== ========
TOTAL RETURN (2.25)% 7.44% 2.79% 15.48% 14.37%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 26,921 $ 48,457 $ 56,804 $ 7,213 $ 5,665
Ratio of Expenses to Average Net Assets (2) 0.86%** 0.85% 0.95% 0.93% 1.00%**
Ratio of Net Investment Income to Average Net Assets (2) 9.28%** 8.49% 8.73% 8.48% 9.49%**
Portfolio Turnover Rate 15% 58% 93% 111% 117%
-------------------
(2) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income N/A N/A N/A N/A $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets N/A N/A N/A N/A 1.05%**
Net Investment Income to Average Net Assets N/A N/A N/A N/A 9.44%**
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
182
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
--------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1,000
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.028 0.047 0.051 0.051 0.049 0.054
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income (0.028) (0.047) (0.051) (0.051) (0.049) (0.054)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ========== ========== ==========
TOTAL RETURN 2.83% 4.80% 5.20% 5.20% 5.03% 5.51%
========== ========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,842,420 $2,845,304 $1,958,177 $1,506,210 $1,284,633 $ 836,693
Ratio of Expenses to Average Net Assets 0.49%** 0.05% 0.49% 0.49% 0.52% 0.51%
Ratio of Net Investment Income to Average
Net Assets 5.67%** 4.73% 5.07% 5.12% 4.92% 5.37%
-----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 ------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.017 0.027 0.030 0.031 0.030 0.034
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income (0.017) (0.027) (0.030) (0.031) (0.030) (0.034)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ========== ========== ==========
TOTAL RETURN 1.92% 2.77% 3.00% 3.17% 3.02% 3.44%
========== ========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,690,050 $1,405,646 $ 990,579 $ 804,607 $ 721,410 $ 451,519
Ratio of Expenses to Average Net Assets 0.49%** 0.50% 0.50% 0.50% 0.53% 0.52%
Ratio of Net Investment Income to Average
Net Assets 3.37%** 2.76% 2.96% 3.14% 2.98% 3.38%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Annualized
The accompanying notes are an integral part of the financial statements.
183
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------
Morgan Stanley Dean Witter Institutional Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. As of June 30, 2000, the Fund is
comprised of twenty-five separate, active, diversified and non-diversified
portfolios (individually referred to as a "Portfolio", collectively as the
"Portfolios"). At June 30, 2000, each Portfolio (with the exception of the
International Small Cap, Money Market and Municipal Money Market Portfolios)
offers two classes of shares -- Class A and Class B. Both classes of shares
have identical voting rights (except that shareholders of a Class have
exclusive voting rights regarding any matter relating solely to that Class of
shares), dividend, liquidation and other rights.
The investment objectives of each of the Portfolios are described in detail
in the Investment Overviews appearing elsewhere in this Semi-Annual Report.
Generally, the investment objective of the domestic and international equity
portfolios is to seek capital appreciation by investing in equity and
equity-related securities. The investment objective of the domestic and
international fixed income portfolios is primarily to seek a high total
return consistent with preservation of capital. The investment objective of
the money market portfolios is to seek current income and preserve capital.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles. 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 take into account broker dealer market price quotations for
institutional size trading in similar groups of securities, security quality,
maturity, coupon and other security characteristics as well as any
development 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 investments for which
market values are not readily available, including restricted securities, are
valued at fair value as determined in good faith under procedures adopted 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 based on net investment income, net realized
gains and net unrealized appreciation as income and/or capital gains are
earned. Taxes may also be based on the movement of foreign currency and are
accrued based on the value of investments denominated in such currency.
3. REPURCHASE AGREEMENTS: The Portfolios may enter into repurchase agreements
under which a Portfolio lends excess cash and takes possession of securities
with an agreement that the counterparty will repurchase such securities. In
connection with transactions in repurchase agreements, a bank as custodian
for the Fund takes possession of the underlying securities which are held as
collateral, with a market value at least equal to the amount of the
repurchase transaction, including principal and accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to determine the adequacy
of the collateral. In the event of default on the obligation to repurchase,
the Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
counterparty to the agreement, realization and/or retention of the collateral
or proceeds may be subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and
records of the Fund are maintained in U.S. dollars. Foreign currency amounts
are translated into U.S. dollars at the mean of the bid and asked prices of
such currencies against U.S. dollars last quoted by a major bank as follows:
------------------------------------------------------------------------------
184
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000 (UNAUDITED)
- investments, other assets and liabilities - at the prevailing rates of
exchange on the valuation date;
- investment transactions, investment income and expenses - 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) on investments in securities 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, fluctuations of exchange
rates in relation to the U.S. dollar, the possibility of lower levels of
government supervision and regulation of foreign securities markets and the
possibility of political or economic instabilty.
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, violations 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 on the Statement of Net
Assets.
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolios may enter into
foreign currency exchange contracts generally to attempt to protect
securities and related receivables and payables against changes in future
foreign currency exchange rate and, in certain situations, to gain exposure
to foreign currencies. A foreign currency exchange contract is an agreement
between two parties to buy or sell currency at a set price on a future date.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is marked-to-market daily and the change in
market value is recorded by the Portfolios as unrealized gain or loss. The
Portfolios record realized gains or losses when the contract is closed equal
to the difference between the value of the contract at the time it was opened
and the value at the time it was closed. Credit 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 gains on the contracts, if any, at the date of default. Risks may
also arise from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
6. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: Each
Portfolio may make forward commitments to purchase or sell securities.
Payment and delivery for securities which have been purchased or sold on a
forward commitment basis can take place up to 120 days after the date of the
transaction. Additionally, certain Portfolios may purchase securities on a
when-issued or delayed delivery basis. Securities purchased on a when-issued
or delayed delivery basis are purchased for delivery beyond the normal
settlement date at a stated price and yield, and no income accrues to the
Portfolio on such securities prior to delivery. When the Portfolio enters
into a purchase transaction on a when-issued or delayed delivery basis, it
either establishes a segregated account in which it maintains liquid assets
in an amount at least equal in value to the Portfolio's commitments to
purchase such securities or designates such assets as segregated on the
Portfolio's records. Purchasing securities on a forward commitment or
when-issued or delayed-delivery basis may involve a risk that the market
price at the time of delivery may be lower than the agreed upon purchase
price, in which case there could be an unrealized loss at the time of
delivery.
------------------------------------------------------------------------------
185
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------
Purchasing investments on a when issued or delayed delivery basis may be
considered a form of leverage which may increase the impact that gains or
losses may have on a Portfolio.
7. LOAN AGREEMENTS: Certain Portfolios may invest in fixed and floating rate
loans ("Loans") arranged through private negotiations between an issuer of
sovereign debt obligations and one or more financial institutions ("Lenders")
deemed to be creditworthy by the investment adviser. A Portfolio's
investments in Loans may be in the form of participations in Loans
("Participations") or assignments of all or a portion of Loans
("Assignments") from third parties. A Portfolio's investment in
Participations typically results in the Portfolio having a contractual
relationship with only the Lender and not with the borrower. The Portfolios
have the right to receive payments of principal, interest and any fees to
which it is entitled only upon receipt by the Lender of the payments from the
borrower. The Portfolios generally have no right to enforce compliance by the
borrower under 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 and any intermediaries between the Lender and the
Portfolio. When a Portfolio purchases Assignments from Lenders, it typically
acquires direct rights against the borrower on the Loan. Because Assignments
are arranged through private negotiations between potential assignees and
potential assignors, the rights and obligations acquired by the Portfolio as
the purchaser of an Assignment may differ from, and be more limited than,
those held by the assigning Lender.
8. SHORT SALES: Certain Portfolios may sell securities short. A short sale is
a transaction in which a 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 Portfolio is 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. Dividends and interest
payable on such securities sold short are treated as dividend expense and
interest expense, respectively, in the statement of operations. 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 Portfolio will either designate on the
Portfolio's records or place in a segregated account with its Custodian an
amount of cash, U.S. government securities or other liquid high grade debt
obligations equal to the difference, if any, between (1) the market value of
the securities sold at the time they were sold short and (2) 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 the
purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases cannot exceed the total amount invested.
9. SECURITY LENDING: Certain Portfolios may lend investment securities to
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 earned on loan collateral.
Any increase or decline 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 by the securities lending agent
in accordance with pre-established guidelines. A portion of the interest
received on the loan collateral is retained by the Portfolio, and the
remainder is rebated to the borrower of the securities. From the interest
retained by the Portfolio, 25% is paid to the securities lending agent for
its services. The net amount of interest earned, after the interest rebate
and allocation to the securities lending agent, is included in the Statement
of Operations as interest income. The value of loaned securities and related
collateral outstanding at June 30, 2000 are as follows:
<TABLE>
<CAPTION>
VALUE OF LOANED VALUE OF
SECURITIES COLLATERAL
PORTFOLIO (000) (000)
--------- --------------- ----------
<S> <C> <C>
Active International Allocation $ 38,169 $ 39,112
Emerging Markets 89,324 89,994
International Equity 533,477 558,719
International Magnum 14,394 14,899
</TABLE>
The following Portfolios have earned interest income on securities lending
(after rebates to borrowers and allocation to the securities lending agent):
<TABLE>
<CAPTION>
NET INTEREST EARNED
PORTFOLIO BY PORTFOLIO (000)
--------- -------------------
<S> <C>
Active International Allocation ........ $ 138
Emerging Markets ....................... 5
International Equity ................... 1,595
International Magnum ................... 48
</TABLE>
------------------------------------------------------------------------------
186
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000 (UNAUDITED)
10. 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.
11. 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, government
securities or other high grade liquid investments 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 the contract was entered
into 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 their
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 contract 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 hedged investments.
12. 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.
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.
Income 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 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. Credit
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. Risks also arise from potential for losses from
adverse market movements; and such losses could exceed the related amounts
shown in the Statement of Net Assets.
13. 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 put option, a
Portfolio, in exchange for the premium, accepts the risk of having to
purchase a security at an exercise price that is above the current market
price.
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INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------
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 instruments 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.
14. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Dividend
income is recorded on the ex-dividend date (except for certain foreign
dividends which may be recorded as soon as the Fund is informed of such
dividends) net of applicable withholding taxes where recovery of such taxes
is not reasonably assured. Interest income is recognized on the accrual basis
except where collection is in doubt. Discounts and premiums on securities
purchased (other than mortgage-backed securities) are amortized according to
the effective yield method over their respective lives. Most expenses of the
Fund can be directly attributed to a particular Portfolio. Expenses which
cannot be directly attributed are apportioned among the Portfolios based upon
relative net assets. Income, expenses (other than class specific expenses)
and realized and unrealized gains or losses are allocated to each class of
shares based upon their relative net assets. Dividends to the shareholders of
the Money Market and the Municipal Money Market Portfolios are accrued daily
and are distributed on or about the 15th of each month. Distributions for the
remaining Portfolios are recorded on the ex-distribution date.
The U.S. Real Estate Portfolio owns shares of real estate investment trusts
("REITs") which report information on the source of their distributions
annually. A portion of distributions received from REITs during the year is
estimated to be a return of capital and is recorded as a reduction of their
cost.
The amount and character of income and capital gain distributions to be paid
by the Portfolios of the Fund are determined in accordance with Federal
income tax regulations, which may differ from generally accepted accounting
principles. The book/tax differences are either considered temporary or
permanent in nature.
Temporary differences are attributable to differing book and tax treatments
for the timing of the recognition of gains and losses on certain investment
transactions and the timing of the deductibility of certain expenses.
Permanent book and tax basis differences may result in reclassification among
undistributed net investment income (loss), accumulated net realized gain
(loss) and paid in capital. Permanent book and taxes 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-half 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.
B. ADVISER: Morgan Stanley Dean Witter Investment Management, (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
ADVISORY -----------------
PORTFOLIO 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
Focus Equity ............. 0.80 1.00 1.25
Small Company 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 .... 0.75 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
Money Market ............. 0.30 0.55 0.80
Municipal Money Market ... 0.30 0.57 N/A
</TABLE>
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------
Morgan Stanley Dean Witter Advisors Inc., (the "Sub-Advisor" or "MSDW
Advisors"), provides sub-advisory dervices to the Money Market and Municipal
Money Market Portfolios. MSDW Advisors receives a sub-advisory fee from the
investment advisory fees paid to MSDW Investment Management by the Money
Market and Municipal Money Market Portfolios.
C. ADMINISTRATOR: MSDW Investment Management also provides the Fund with
administrative services pursuant to an administrative agreement for a monthly
fee which on an annual basis equals 0.15% of the average daily net assets of
each Portfolio, plus reimbursement of out-of-pocket expenses. Under an
agreement between MSDW Investment Management and The Chase Manhattan Bank
("Chase"), Chase Global Funds Services Company ("CGFSC"), an affiliate of
Chase, provides certain administrative services to the Fund. For such
services, MSDW Investment Management pays Chase a portion of the fee MSDW
Investment Management receives from the Fund. Certain employees of CGFSC are
officers of the Fund. In addition, the Fund incurs local administration fees
in connection with doing business with certain emerging market countries.
D. DISTRIBUTOR: Morgan Stanley & Co., Incorporated (the "Distributor"), a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., and an affiliate
of MSDW Investment Management, serves as the distributor of the Fund and
provides Class B shareholders of the applicable Portfolios with distribution
services pursuant to a Distribution Plan (the "Plan") in accordance with Rule
12b-1 under the Investment Company Act of 1940. Under the Plan, the
Distributor is entitled to receive from each applicable Portfolio, a
distribution fee, which is accrued daily and paid quarterly, at an annual
rate of 0.25% of the Class B shares' average daily net assets. The
Distributor may voluntarily waive from time to time all or any portion of its
distribution fee. The Distributor has agreed to reduce its fees to 0.15% of
the Class B shares' average daily net assets for the Fixed Income and Global
Fixed Income Portfolios.
E. CUSTODIAN: Chase serves as custodian for the Fund in accordance with a
custodian agreement.
F. DIRECTOR'S FEES: 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 certain
Portfolios' shares or invested in U.S. Treasury Bills, as defined under the
Compensation Plan. The deferred fees payable, under the Compensation Plan, at
June 30, 2000, totaled $957,000 and are included in Directors' Fees and
Expenses Payable for the applicable Portfolio on the Statement of Net Assets.
G. CREDIT FACILITY: The Fund, along with an affiliated open-end fund
(collectively, the "Funds"), has a 364-day Credit Agreement with a bank group
comprised of major money center banks. Under the terms of the Agreement, the
Funds are provided with a revolving credit facility (the "Facility") allowing
the Funds to borrow, subject to the limitations set forth in each Fund's
registration statement, amounts that, in the aggregate for the Funds, will
not exceed $235 million. The Funds pay a commitment fee on the unused portion
of the Facility at an annual rate of 0.09%. Fees incurred in connection with
the arrangement of the Facility totaled approximately $225,000. The
commitment fee and the arrangement fee are allocated to the Funds based on an
estimate of the potential amount available to each Fund under their
respective limitations. Such allocated costs are further allocated to the
Portfolios based on their net assets. Amounts drawn down on the Facility bear
interest at the annual rate equal to the then prevailing Federal Funds rate
plus 0.50%, which is borne by the respective borrowing Portfolio. For the six
month period ended June 30, 2000, there were no amounts drawn down on the
Facility.
H. PURCHASES AND SALES: During the six month period ended June 30, 2000,
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.......... $ 254,386 $ 223,014
Asian Equity............................. 56,408 53,085
Asian Real Estate........................ 1,581 2,161
Emerging Markets......................... 780,077 852,240
European Equity.......................... 29,336 38,583
European Real Estate..................... 4,910 7,170
Global Equity............................ 27,769 94,394
International Equity..................... 1,295,158 1,388,022
International Magnum..................... 85,782 70,785
International Small Cap.................. 139,128 106,121
Japanese Equity.......................... 9,964 2,935
Latin American........................... 8,935 8,389
Focus Equity............................. 80,112 80,364
Small Company Growth..................... 183,968 114,282
Equity Growth............................ 621,646 489,196
Technology............................... 131,756 78,945
U.S. Equity Plus......................... 13,939 16,709
U.S. Real Estate......................... 188,776 46,076
Value Equity............................. 20,869 13,688
Emerging Markets Debt.................... 109,794 98,515
Fixed Income............................. 123,896 120,028
Global Fixed Income...................... 11,036 10,804
High Yield............................... 23,901 61,024
</TABLE>
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189
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------
During the six month period ended June 30, 2000 purchases and sales of
long-term U.S. Government securities by the Fixed Income and Global Fixed
Income Portfolios were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
PORTFOLIO (000) (000)
--------- --------- -----
<S> <C> <C>
Fixed Income..................... $ 38,596 $ 56,015
Global Fixed Income.............. 1,901 3,320
</TABLE>
During the six month period ended June 30, 2000, the following Portfolios
paid brokerage commissions to Morgan Stanley & Co., an affiliated
broker/dealer, of approximately
<TABLE>
<CAPTION>
BROKERAGE
COMMISSION
PORTFOLIO (000)
--------- ----------
<S> <C>
Active International Allocation................. $ 1
Asian Equity.................................... 30
Asian Real Estate............................... 4
Emerging Markets................................ 110
European Equity................................. 10
Global Equity................................... 21
International Equity............................ 390
International Magnum............................ 13
Focus Equity.................................... 1
U.S. Real Estate................................ 1
</TABLE>
I. OTHER: At June 30, 2000, cost, unrealized appreciation, unrealized
depreciation, and net unrealized appreciation (depreciation) for U.S. Federal
income tax purposes of the investments of each of the Portfolios were:
<TABLE>
<CAPTION>
NET
APPREC.
COST APPREC. DEPREC. (DEPREC.)
PORTFOLIO (000) (000) (000) (000)
--------- -------- --------- --------- --------
<S> <C> <C> <C> <C>
Active International
Allocation................. $ 597,132 $ 53,995 $ (33,358) $ 20,637
Asian Equity................. 86,427 16,238 (6,379) 9,859
Asian Real Estate............ 2,870 436 (126) 310
Emerging Markets............. 1,433,609 290,641 (180,697) 109,944
European Equity.............. 89,419 12,202 (4,543) 7,659
European Real Estate......... 9,513 420 (960) (540)
Global Equity................ 75,192 7,341 (6,309) 1,032
International Equity......... 4,485,459 912,621 (154,411) 758,210
International Magnum......... 213,308 42,239 (9,459) 32,780
International Small Cap...... 373,415 65,932 (43,277) 22,655
Japanese Equity.............. 57,605 30,019 (2,302) 27,717
Latin American............... 14,750 2,082 (2,014) 68
Equity Growth................ 1,010,324 453,215 (17,229) 435,986
Focus Equity................. 133,491 36,729 (2,115) 34,614
Small Company Growth......... 165,671 27,823 (15,595) 12,228
Technology................... 122,837 40,480 (11,028) 29,452
U.S. Equity Plus............. 18,498 2,944 (903) 2,041
U.S. Real Estate............. 501,270 41,777 (24,837) 25,877
Value Equity................. 53,999 7,771 (5,230) 2,541
Emerging Markets Debt........ 63,457 2,981 (1,652) 1,295
Fixed Income................. 193,240 523 (7,590) (7,067)
Global Fixed Income.......... 32,652 486 (2,350) (1,864)
High Yield................... 150,351 2,098 (17,931) (15,833)
Money Market................. 2,850,127 -- -- --
Municipal Money Market....... 1,713,877 -- -- --
</TABLE>
At June 30, 2000, 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 2007 TOTAL
--------- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Asian Equity....... $ -- $ -- $17,985 $ 67,603 $ -- $ 85,588
Asian Real Estate.. -- -- -- 2,345 -- 2,345
Emerging
Markets.......... -- -- -- 224,775 -- 224,775
European
Real Estate....... -- -- 40 1,452 4,709 6,201
Japanese Equity.... -- 1,668 11,123 23,700 583 37,074
Latin American..... -- -- -- 15,815 5,508 21,323
Emerging
Markets Debt...... -- -- -- 89,125 9,618 98,743
Fixed Income....... -- -- -- -- 1,385 1,385
Global Fixed
Income............ 1,568 -- -- -- 53 1,621
High Yield......... -- -- -- -- 4,826 4,826
Money Market....... -- 295 -- -- -- 295
Municipal Money
Market............ -- 22 -- 2 69 93
</TABLE>
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 year ended December 31, 1999, the Portfolio intends to
defer to January 1, 2000 for U.S. Federal income tax purposes, post-October
currency losses and post-October capital losses.
<TABLE>
<CAPTION>
CAPITAL CURRENCY
LOSSES LOSSES
PORTFOLIO (000) (000)
---------- ------- --------
<S> <C> <C>
Active International Allocation............... $ -- $2,668
Asian Equity.................................. -- 6
Asian Real Estate............................. 6 1
Emerging Markets.............................. -- 388
European Equity............................... -- 146
Japanese Equity............................... -- 200
Latin American................................ 217 11
U.S. Real Estate.............................. 1,672 --
Value Equity.................................. 395 --
Emerging Markets Debt......................... 171 --
Fixed Income.................................. 484 --
Global Fixed Income........................... -- 83
High Yield.................................... 61 --
</TABLE>
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------
At June 30, 2000, 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. Further, at times during the six month period ended
June 30, 2000, certain of the Portfolios' investments were concentrated in a
limited number of countries and regions. This concentration may further
increase the risk of the Portfolio.
The Emerging Markets Debt and High Yield Portfolios hold a significant portion
of their investment in securities which are traded by one market maker who may
also be utilized by these Portfolios to provide pricing information used to
value such investments. The amounts which will be realized upon disposition of
these securities may differ from the value reflected on the Statement of Net
Assets.
Settlement and registration of foreign securities transactions may be subject
to significant risks 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 registrars 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. From time to time, certain
Portfolios may have shareholders that hold a significant portion of a
Portfolio's outstanding shares. Investment decisions of these shareholders
could have a material impact on those Portfolios.
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<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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President, BGK Properties
John A. Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chief Executive Officer,
Pinnacle Trading, L.L.C.
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
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
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
FOR CURRENT PERFORMANCE, CURRENT NET ASSET VALUE AND INFORMATION REGARDING
THE INVESTMENTS COMPRISING THE PORTFOLIOS, OR FOR ASSISTANCE WITH YOUR
ACCOUNT, PLEASE CONTACT THE FUND AT (800) 548-7786, OR VISIT OUR WEBSITE AT
www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS
ON JULY 5, 2000, PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG LLP
AS ITS INDEPENDENT ACCOUNTANTS.
--------------------------------------------------------------------------------
192
