<PAGE>
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MORGAN STANLEY DEAN WITTER
[GRAPHIC] MORGAN STANLEY
DEAN WITTER
INSTITUTIONAL FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1999
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
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 ................................................. 22
Emerging Markets .................................................. 27
European Equity ................................................... 36
European Real Estate .............................................. 41
Global Equity ..................................................... 47
International Equity .............................................. 53
International Magnum .............................................. 58
International Small Cap ........................................... 66
Japanese Equity ................................................... 71
Latin American .................................................... 75
U.S. Equity Portfolios:
Equity Growth ..................................................... 80
Focus Equity ...................................................... 85
Small Company Growth .............................................. 90
Technology ........................................................ 95
U.S. Equity Plus .................................................. 99
U.S. Real Estate .................................................. 105
Value Equity ...................................................... 110
Fixed Income Portfolios:
Emerging Markets Debt ............................................. 115
Fixed Income ...................................................... 120
Global Fixed Income ............................................... 124
High Yield ........................................................ 128
Municipal Bond .................................................... 134
Money Market Portfolios:
Money Market ...................................................... 137
Municipal Money Market ............................................ 141
Statements of Operations.............................................. 148
Statements of Changes in Net Assets................................... 152
Financial Highlights.................................................. 165
Notes to Financial Statements......................................... 190
Report of Independent Accountants..................................... 198
Federal Tax Information............................................... 199
Directors and Officers ............................................... 200
</TABLE>
This report is authorized for distribution only when preceded or accompanied by
prospectuses of the Morgan Stanley Dean Witter Institutional Fund, Inc.
Prospectuses describe in detail each of the Portfolio's investment policies to
the prospective investor. Please read the prospectuses carefully before you
invest or send money.
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[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 to you the Fund's Annual Report for the year ended
December 31, 1999. Our Fund currently offers 26 portfolios providing investors
with a full array of global and domestic equity and fixed income products.
Together, the Fund's portfolios allow investors to meet specific investment
needs or to allocate assets among different portfolios to implement an overall
investment strategy.
In this Report, you will find portfolio manager commentary, performance
statistics and other useful information for each of the Fund's portfolios.
Additionally, we have provided a performance summary for all portfolios on pages
4 and 5 of this Report.
MARKET OVERVIEW
- ---------------
Global equity markets finished 1999 with strong gains, as the global economy
began to heal after the Asian and Russian economic crises experienced in 1997
and 1998. The S&P 500 Index delivered its fifth year of double-digit returns
rising 21.0% in calendar year 1999. The MSCI EAFE Index returned 27.0%, beating
the S&P 500 Index for the first time in five years, despite weak currencies in
Europe. Emerging markets, which had been performance laggards since the Mexico
devaluation of 1994, finally recovered. The MSCI Emerging Markets Free Index
rose 66.4%, overcoming the Brazilian devaluation of the first quarter. The most
disappointing asset class was fixed income. As global growth stabilized and
resumed, inflationary fears mounted driving bond yields higher in the U.S. and
Europe. The Lehman Aggregate Bond Index returned -0.8% during a volatile year.
Although the U.S. bull market in the first half of 1999 showed signs of
broadening, market leadership narrowed dramatically in the second half. Value
stocks, which began to outperform growth in February and March, stagnated later
in the year, as inflation fears moderated and economic growth surprised on the
upside. The year ended with growth stocks (+33.2%) again dominating value stocks
(+7.4%) by a wide margin. Although rising interest rates and inflation
expectations are usually bad for stocks, markets have shrugged off rising rates
as growth surprises outpaced inflation surprises throughout 1999. This growth
environment was also reflected in the bond market. As investor confidence
improved, risk tolerance rose to more normal levels, benefiting spread products,
which had suffered large losses in the flight to quality at the end of 1998.
Fixed income spreads narrowed, and investment grade governments and corporates
(-2.1%) underperformed mortgages (+2.0%), high yield debt (+1.7%), and emerging
market debt (+26.0%).
Non-U.S. stock market performance was strong, despite being held back by weaker
European currencies. The strongest performing regions were those which had
suffered the most over the past three years of currency crises and debt
deflation. Japan led the developed markets, rising 61.5% in 1999, as the
Japanese economy bottomed and began to recover. The combination of low
valuations, low interest rates, and a better earnings outlook was a powerful
contributor to the rise in the Japanese market and a strengthening of the yen.
Pacific region stock performance (+38.1%) was also strong, but was highly
differentiated, as the countries hardest hit by the emerging market debt crisis,
Hong Kong (+59.5%) and Singapore (+60.2%), outperformed the more stable
economies of Australia (+17.6%) and New Zealand (+12.9%). European stock
performance was mixed during the year. In the first half, Eurozone economic
performance disappointed on the downside, as Germany continued to lag
contributing to poor equity performance and a weaker currency. Although European
economic performance was more robust in the second half, the Euro continued to
weaken, closing the year 15% below its January 1 level. Europe returned 15.9% in
1999. Emerging markets benefited from a sharp economic rebound in 1999, coupled
with a return to a more normal risk environment, which attracted capital to
emerging markets. Asian economies bottomed in the early part of the year, and
began a steep trajectory of recovery. The depegging of Asian currencies from the
U.S. dollar enabled many countries to exercise more flexibility in economic
management, and, to some extent, decreased their vulnerability to rising U.S.
interest rates. With the bottoming of Latin America in the second half of 1999,
the emerging market recovery from the Asian and Russian crises was complete.
MARKET OUTLOOK
- --------------
Whereas global healing was the theme of 1999, we expect synchronized global
growth to be the theme of 2000. This environment is bullish for corporate
profits, particularly in non-U.S. markets, where the growth cycle is in a much
earlier stage and substantial slack remains in the economy. Non-U.S. equity
markets have started to outperform the U.S. in the second half and we expect
this trend to continue in 2000. As growth in the global economy continues apace,
a key concern for investors will be inflation and interest rates. Although
central banks have tightened enough over the past 12 months to neutralize the
liquidity injected after the Russian crisis of 1998, they have acted cautiously
in light of potential Y2K problems. With Y2K having passed uneventfully, central
banks are now free to respond more aggressively to potential inflationary
pressures. The Federal Reserve is expected to increase rates at the February
meeting, and the U.S. bond market has already priced in a total of
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2
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
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PRESIDENT'S LETTER
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75 basis points of tightening. In Europe growth has accelerated in the fourth
quarter, causing many forecasters to expect the European Central Bank to tighten
in the spring.
Despite our rosy outlook for economic growth, we remain cautious towards
equities. As the Fed acts to slow the U.S. economy, profitability could be
squeezed, pressuring U.S. equity valuations. Because the U.S. market continues
to behave as the bellwether market, a sharp fall in U.S. equity prices would
likely lead other markets to fall in sympathy. We approach the investment
environment in 2000 with caution in the U.S. markets, as bond yields continue to
rise, and overvaluation levels have reached those of July 1987. We are more
optimistic in the non-U.S., where inflationary pressures are more dormant, and
growth appears to be accelerating.
We hope you find the enclosed Report informative. As always, we very much
appreciate your continued support of the Fund and look forward to a successful
2000.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT
January 2000
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3
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
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PERFORMANCE SUMMARY (UNAUDITED)
DECEMBER 31, 1999
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<TABLE>
<CAPTION>
ONE YEAR
INCEPTION DATES TOTAL RETURN
-------------------- ----------------------------------
COMPARABLE
CLASS A CLASS B CLASS A CLASS B INDICES
-------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS:
Active International Allocation 1/17/92 1/02/96 27.82% 26.63% 26.96% (1)
Asian Equity 7/01/91 1/02/96 81.00 79.95 59.40 (2)
Asian Real Estate 10/01/97 10/01/97 24.27 23.88 20.46 (3)
Emerging Markets 9/25/92 1/02/96 101.78 101.26 66.41 (4)
European Equity 4/02/93 1/02/96 9.60 9.36 15.89 (5)
European Real Estate 10/01/97 10/01/97 -2.36 -2.61 3.40 (6)
Global Equity 7/15/92 1/02/96 4.01 3.75 24.94 (7)
International Equity 8/04/89 1/02/96 16.91 16.68 26.96 (1)
International Magnum 3/15/96 3/15/96 24.87 24.58 26.96 (1)
International Small Cap 12/15/92 -- 39.34 -- 17.67 (8)
Japanese Equity 4/25/94 1/02/96 63.75 63.46 61.53 (9)
Latin American 1/18/95 1/02/96 71.28 70.85 58.89 (10)
65.45 (11)
U.S. EQUITY PORTFOLIOS:
Equity Growth 4/02/91 1/02/96 39.89 39.61 21.04 (12)
Focus Equity 3/08/95 1/02/96 46.44 46.13 21.04 (12)
Small Company Growth 11/01/89 1/02/96 96.45 95.97 21.26 (13)
Technology 9/16/96 9/16/96 160.62 160.26 21.04 (12)
U.S. Equity Plus 7/31/97 7/31/97 20.25 19.99 21.04 (12)
U.S. Real Estate 2/24/95 1/02/96 -1.48 -1.73 -4.62 (14)
Value Equity 1/31/90 1/02/96 11.63 11.22 21.04 (12)
FIXED INCOME PORTFOLIOS:
Emerging Markets Debt 2/01/94 1/02/96 29.22 28.01 25.97 (15)
Fixed Income 5/15/91 1/02/96 -1.56 -1.76 -0.82 (16)
Global Fixed Income 5/01/91 1/02/96 -6.84 -7.09 -5.08 (17)
High Yield 9/28/92 1/02/96 7.77 7.44 3.28 (18)
Municipal Bond 1/18/95 -- -1.79 -- -0.14 (19)
MONEY MARKET PORTFOLIOS:
Money Market 11/15/88 -- -- -- --
Municipal Money Market 2/10/89 -- -- -- --
</TABLE>
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<TABLE>
<CAPTION>
YIELD INFORMATION AS OF DECEMBER 31, 1999
-----------------------------------------
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 15.66% 15.36% Money Market 5.33% 5.47% 5.28% 5.21%(20)
Fixed Income 6.77 6.62 Municipal Money Market 3.84 3.91 3.26 3.17 (21)
Global Fixed Income 4.64 4.48
High Yield 10.58 10.33
Municipal Bond 4.97 --
</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
<PAGE>
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<TABLE>
<CAPTION>
FIVE YEAR TEN YEAR SINCE INCEPTION
AVERAGE ANNUAL AVERAGE ANNUAL AVERAGE ANNUAL
TOTAL RETURN TOTAL RETURN TOTAL RETURN
------------------- ------------------- --------------------------------------------------
COMPARABLE COMPARABLE COMPARABLE COMPARABLE
CLASS A INDICES CLASS A INDICES CLASS A INDICES-CLASS A CLASS B INDICES-CLASS B
------- ---------- ------- ---------- ------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL AND INTERNATIONAL EQUITY
PORTFOLIOS:
Active International Allocation 15.15% 12.83%(1) -- -- 12.33% 11.66%(1) 15.98% 13.24%(1)
Asian Equity -1.71 0.78 (2) -- -- 9.06 10.20 (2) -4.15 -1.21 (2)
Asian Real Estate -- -- -- -- -5.64 -13.86 (3) -6.00 -13.86 (3)
Emerging Markets 7.84 2.00 (4) -- -- 13.45 9.49 (4) 13.17 3.71 (4)
European Equity 13.80 22.12 (5) -- -- 16.08 19.57 (5) 13.79 22.08 (5)
European Real Estate -- -- -- -- -1.14 1.33 (6) -1.34 1.33 (6)
Global Equity 16.54 19.76 (7) -- -- 17.02 16.52 (7) 15.57 19.42 (7)
International Equity 16.07 12.83 (1) 13.21% 7.01%(1) 13.21 7.35 (1) 16.74 13.24 (1)
International Magnum -- -- -- -- 12.16 14.09 (1) 11.87 14.09 (1)
International Small Cap 11.60 -1.76 (8) -- -- 14.97 4.46 (8) -- --
Japanese Equity 8.97 1.96 (9) -- -- 7.52 2.07 (9) 12.01 2.48 (9)
Latin American -- -- -- -- 15.80 8.98 (10) 21.20 12.83 (10)
-- -- -- -- 15.80 9.69 (11) 21.20 13.85 (11)
U.S. EQUITY PORTFOLIOS:
Equity Growth 32.93 28.55 (12) -- -- 21.28 19.35 (12) 29.63 26.18 (12)
Focus Equity -- -- -- -- 36.58 28.31 (12) 32.98 26.18 (12)
Small Company Growth 31.00 16.69 (13) 19.43 13.40 (13) 19.78 13.26 (13) 30.09 13.87 (13)
Technology -- -- -- -- 71.47 28.15 (12) 71.13 28.15 (12)
U.S. Equity Plus -- -- -- -- 18.75 21.26 (12) 18.52 21.26 (12)
U.S. Real Estate -- -- -- -- 13.68 8.30 (14) 10.89 6.38 (14)
Value Equity 20.22 28.55 (12) -- -- 13.93 19.21 (12) 16.53 26.18 (12)
FIXED INCOME PORTFOLIOS:
Emerging Markets Debt 13.57 16.58 (15) -- -- 8.53 9.95 (15) 9.75 13.86 (15)
Fixed Income 7.65 7.73 (16) -- -- 7.24 7.41 (16) 4.89 5.21 (16)
Global Fixed Income 6.45 6.69 (17) -- -- 6.38 7.62 (17) 3.22 3.76 (17)
High Yield 12.79 9.07 (18) -- -- 11.18 8.82 (18) 9.90 7.07 (18)
Municipal Bond -- -- -- -- 4.67 6.02 (19) -- --
MONEY MARKET PORTFOLIOS:
Money Market -- -- -- -- -- -- -- --
Municipal Money Market -- -- -- -- -- -- -- --
</TABLE>
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INDICES:
(1) MSCI EAFE (Europe, Australasia, and Far East)
(2) MSCI All-Country Far East Free ex-Japan
(3) GPR General Real Estate Securities Index -- Far East
(4) 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) MSCI Emerging Markets Global Latin America
(12) S&P 500
(13) Russell 2000
(14) National Association of Real Estate Investment Trusts (NAREIT) Equity Index
(15) J.P. Morgan Emerging Markets Bond Plus
(16) Lehman Aggregate Bond
(17) J.P. Morgan Traded Global Bond
(18) CS First Boston High Yield
(19) Lehman 7-Year Municipal Bond
(20) IBC Money Fund Comparable Yield
(21) 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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5
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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 DECEMBER 31, 1999)
[CHART]
<TABLE>
<S> <C>
Australia (1.4%)
Austria (0.2%)
Brazil (1.1%)
Finland (2.9%)
France (5.6%)
Germany (7.1%)
Hong Kong (2.9%)
India (0.5%)
Italy (3.5%)
Japan (26.1%)
Netherlands (4.7%)
Portugal (0.7%)
Singapore (2.2%)
South Korea (1.0%)
Spain (3.0%)
Sweden (3.1%)
Switzerland (5.0%)
United Kingdom (13.1%)
Other (15.9%)
</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.
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Active International
Allocation Portfolio- MSCI EAFE
Class A Index(1)
--------------------- ----------
<S> <C> <C>
1/17/92* $ 500,000 $ 500,000
10/31/92 _________ _________
12/31/92 _________ _________
12/31/93 _________ _________
12/31/94 _________ _________
12/31/95 _________ _________
12/31/96 _________ _________
12/31/97 _________ _________
12/31/98 _________ _________
12/31/99 $1,261,357 $1,200,786
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------
AVERAGE ANNUAL
ONE AVERAGE ANNUAL SINCE
YEAR FIVE YEARS INCEPTION
------ -------------- ---------------
<S> <C> <C> <C>
PORTFOLIO-- CLASS A ..... 27.82% 15.15% 12.33%
PORTFOLIO-- CLASS B ..... 26.63 N/A 15.98
INDEX-- CLASS A ......... 26.96 12.83 11.66
INDEX-- CLASS B ......... 26.96 N/A 13.24
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe,
Australasia and the Far East (includes dividends net of withholding taxes).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The 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 global investing.
For the year ended December 31, 1999, the Portfolio had a total return of 27.82%
for the Class A shares and 26.63% for the Class B shares compared to 26.96% for
the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index"). For
the five-year period ended December 31, 1999, the average annual total return
for the Class A shares was 15.15% compared to 12.83% for the Index. For the
period from inception on January 17, 1992 through December 31, 1999, the average
annual total return for the Class A shares was 12.33% compared to 11.66% for the
Index. For the period from inception on January 2, 1996 through December 31,
1999, the average annual total return for the Class B shares was 15.98% compared
to 13.24% for the Index.
Equity markets around the world ended the decade on adrenaline, surging in the
last few weeks of the year to bring the annual Index return to 26.96%. At long
last we can say that international markets outperformed the almighty U.S.
(21.04% in 1999); a trend we expect to continue for the next few years.
The Portfolio gained a little ground on the Index in the fourth quarter. We went
into the long awaited Y2K period fully invested - putting virtually all cash to
work very close to the market bottom in mid-October. We eliminated cash by
increasing positions in Germany, getting to benchmark weight in Finland
(dominated by Nokia) and further increasing the Japanese technology tilt. We
also invested 2.6% in emerging markets; specifically Korea, India and Brazil.
In reviewing our decision-making for the entire year, we conclude that we erred
on the side of caution. Although our early regional calls on Asia and Japan were
correct, we continued to hold some residual cash and were too
- -------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS
OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES
MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY
THE MSCI EAFE INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST
PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS
FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL
INVESTING.
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Active International Allocation Portfolio
6
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
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INVESTMENT OVERVIEW
- -------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
suspicious of technology/telecommunications valuations in the first three
quarters of 1999. Currency hedging was also a net detraction, as we got on the
wrong side of the euro gyrations; being underweight euro, but not explicitly
hedged until too late, as the new currency plummeted 17% in the first half of
1999. It was a year in which being aggressive and speculative was rewarded;
imagination proving a better investment tool than valuation and historic equity
relationships with interest rates. The first few days of the new millennium
have shown us the potential gravitational strength of these old relationships,
but it still is too early to come to any firm conclusions. We entered the new
year slightly underweight telecommunications as a whole, but overweight in
technology compared to the Index. We are closely watching (and feeling)
economic and market developments, as we examine our fully invested positions,
particularly our weights in the high beta, "communication/information"
sectors. There is no question about the transforming power of the Internet; the
issue is which market segments will profit from it, and to what extent the
future has been excessively discounted. The sharp break here early in the New
Year demonstrates how fragile psychology really is.
In Europe we continue to hold our tilt into European real estate. European real
estate companies are selling at about a 20% discount to the private market value
of their underlying properties across most of Europe. Our experts believe
European real estate is about three to five years behind the cycle in the U.S
with a good chance of a strong performance burst as economies recover. In the
meantime, European real estate stocks have shown strong defensive
characteristics in weak market periods.
Turning to the broader international universe, we continue to believe the major
regional markets are supported by moderate economic growth and reform-driven
increases in capital returns. Japan is still early in a secular bull market
cycle, Asia is using the economic upswing to follow through on cost cutting and
reforms, and Europe, though vulnerable to high valuation levels and a tight
correlation to the U.S., should benefit from accelerating economic growth and
supply side reforms. We believe that global inflation, with the exception of the
U.S., is benign. Cyclical pressures - in the likes of Europe - should be offset
by fierce global competition and positive structural change.
In Germany, recent proposals to sharply cut capital gains taxes represent a
crossing of the Rubicon. Our experts believe that the elimination of capital
gains taxes on domestic share divestitures will unleash a massive corporate
restructuring in this largest of European economies, increasing capital
efficiencies in Germany and sending competitive shock waves across the
continent. The fact that these proposals came from the SPD party which eighteen
months ago proposed marking all corporate assets to market for immediate tax
assessments illustrates the extent of cultural leadership change.
Similarly, the very negative local press resulting from the recent disclosure of
illegal funding (i.e. suitcases of cash) for Germany's CDU party (former
Chancellor Kohl's party) should help to expose and weaken the unhealthy
post-World War II based relationships between German politicians and companies,
banks and utilities. This, like the unwinding of Japanese ties between
government ministries and the "kieretsu" system of joint share holdings, is
important to the continuation of the process of privatization and deregulation.
Only through dynamic reform, can Europe's economy finally enjoy a long cycle of
strong growth and low inflation. We believe this change is occurring - and at an
accelerating pace.
Japan, we have discussed ad nauseam. Our only additional thoughts are that
growth could actually surprise sharply on the upside. While it is still a long
shot - growth in 2000 could be closer to 3% - versus current consensus of less
than 1.0%. Unemployment looks as if it has bottomed, unit labor costs continue
to plummet, and we are encouraged by Japan's rapid adoption of technology.
Although we, like many others, were discouraged by the pre-Christmas
announcement postponing the limitation of government guarantees on all bank
deposits - we have not yet lost faith in Japan's will to change - at all levels
of society.
In sum, we continue to believe that the U.S. is the linchpin for global markets.
If the U.S. is range-bound or moves moderately in either direction we believe
Europe, Japan and Pacific ex-Japan can trade based on rising economic growth,
continued corporate and government restructuring, and improved earnings. While
we are encouraged by the evident lack of strong inflation in the U.S., we
believe Alan Greenspan has made it clear that he will not tolerate rising wage
pressures. We continue to nervously watch the Fed; anxious that they tap on the
brakes without causing global reverberations.
Ann D. Thivierge
PORTFOLIO MANAGER
Barton M. Biggs
PORTFOLIO MANAGER
January 2000
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Active International Allocation Portfolio
7
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (83.8%)
AUSTRALIA (1.4%)
24,086 Amcor Ltd................................................. $ 113
35,167 AMP Ltd................................................... 388
14,129 Australian Gas Light Co., Ltd............................. 83
8,091 Brambles Industries Ltd................................... 224
41,770 Broken Hill Proprietary Co., Ltd.......................... 548
23,271 Coca Cola Amatil Ltd...................................... 64
40,647 Coles Myer Ltd............................................ 210
29,964 Colonial Ltd.............................................. 134
3,928 CSL Ltd................................................... 56
4,588 F.H. Faulding & Co., Ltd.................................. 30
65,662 Fosters Brewing Group Ltd................................. 188
49,989 General Property Trust.................................... 81
8,601 Gio Australia Holdings Ltd................................ 13
44,513 Goodman Fielder Ltd....................................... 40
5,159 ICI Australia Ltd......................................... 28
10,113 Leighton Holdings Ltd..................................... 39
19,871 Lend Lease Corp., Ltd..................................... 278
13,643 Mayne Nickless Ltd........................................ 35
52,345 National Australia Bank Ltd............................... 800
130,744 News Corp., Ltd........................................... 1,269
51,742 Normandy Mining Ltd....................................... 37
17,499 North Ltd................................................. 41
41,844 Pacific Dunlop Ltd........................................ 59
15,129 QBE Insurance Group Ltd................................... 70
4,729 Rio Tinto Ltd............................................. 102
22,328 Santos Ltd................................................ 61
14,524 Schroders Property Fund................................... 22
23,670 Southcorp Holdings Ltd.................................... 83
12,055 Stockland Trust Group..................................... 25
(c)11,718 Suncorp-Metway Ltd........................................ 63
12,061 TABCORP Holdings Ltd...................................... 82
360,602 Telstra Corp., Ltd........................................ 1,959
6,888 Wesfarmers Ltd............................................ 57
1,661 Westfield Trust........................................... 3
48,104 Westfield Trust........................................... 94
(c)67,204 Westpac Banking Corp...................................... 463
46,446 WMC Ltd................................................... 256
42,392 Woolworths Ltd............................................ 146
--------
8,244
--------
AUSTRIA (0.2%)
(c)159 Austria Mikro Systeme International AG.................... 5
1,170 Austria Tabakwerke AG..................................... 57
5,990 Bank Austria AG........................................... 338
250 Bau Holding AG............................................ 9
486 BBag Oest Brau Beteiligungs AG............................ 20
553 Boehler-Uddeholm AG....................................... 26
90 BWT AG.................................................... 12
375 EA-Generali AG............................................ 63
1,127 Flughafen Wein AG......................................... 39
111 Lenzing AG................................................ 6
637 Mayr-Melnhof Karton AG.................................... 30
1,621 Oest Elektrizatswirts AG, Class A......................... 228
1,420 OMV AG.................................................... 138
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
795 VA Technologie AG......................................... $ 52
3,664 Wienerberger Baustoffindustrie AG......................... 80
--------
1,103
--------
BRAZIL (1.1%)
59,000 Aracruz Celulose (Preferred).............................. 143
39,661,000 Banco Bradesco............................................ 251
38,494,000 Banco Bradesco (Preferred)................................ 302
5,154,000 Banco Itau (Preferred).................................... 442
252,000 Brahma (Preferred)........................................ 184
11,799,000 CEMIG (Preferred)......................................... 265
26,625,000 Centrais Eletricus Brasileras............................. 582
21,000 CIA Vale Do Rio Doce, Class A (Preferred)................. 581
4,081,000 Cinoabgua Siderurgica Nacional............................ 158
6,081,000 Companhia Brasileira de Distribuicao Grupo Pao
de Acucar (Preferred).................................... 205
13,236,000 Embratel (Preferred)...................................... 341
3,467,000 Petrobras................................................. 768
2,608,000 Petrobras (Preferred)..................................... 664
18,000 Souza Cruz S.A............................................ 133
13,385,000 Tele Centro Sul (Preferred)............................... 245
13,640,000 Tele Norte Leste (Preferred).............................. 366
12,616,000 Telecomunicacoes de Sao Paulo............................. 175
24,306,000 Telesp (Preferred)........................................ 589
11,506,000 Telesp Celular (Preferred)................................ 204
--------
6,598
--------
CANADA (0.0%)
(a)1 Boliden Limited - SDR..................................... --
--------
FINLAND (2.9%)
61,600 Merita Ltd., plc Class A.................................. 363
(c)4,700 Metra , Class B........................................... 88
12,300 Metso Oyj................................................. 160
69,600 Nokia Oyj................................................. 12,633
6,906 Outokumpu Oyj............................................. 98
4,200 Oyj Hartwell Abp.......................................... 61
800 Pohjola Insurance Co., Class B............................ 48
16,900 Raisio Group plc.......................................... 67
7,300 Sampo Insurance Co., plc, Class A......................... 255
(a)437 Sanitec Oyj............................................... 6
33,831 Sonera Oyj................................................ 2,321
4,700 Tieto Corp................................................ 294
17,500 UPM-Kymmene Oyj........................................... 706
--------
17,100
--------
FRANCE (5.6%)
5,790 Accor..................................................... 280
6,373 Alcatel Alsthom........................................... 1,465
10,098 Axa....................................................... 1,409
14,102 Banque Nationale de Paris................................. 1,303
855 Bouygues.................................................. 544
3,772 Canal Plus................................................ 550
2,295 Cap Gemini Sogeti......................................... 583
10,512 Carrefour................................................. 1,941
(c)2,339 Casino Guichard-Perrachon................................. 268
3,045 Cie de Saint Gobain....................................... 573
19 Compangnie Financiere de Paribas.......................... 2
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
Active International Allocation Portfolio
8
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
FRANCE (CONT.)
4,007 Dassault Systemes S.A..................................... $ 261
1,319 Eridania Beghin-Say....................................... 142
411 Essilor International..................................... 128
(c)47,499 France Telecom............................................ 6,289
3,480 Gecina.................................................... 393
1,924 Groupe Danone............................................. 454
8,270 Immeubles de France....................................... 151
(c)3,078 Klepierre................................................. 298
2,805 L'Air Liquide............................................. 470
(c)2,011 L'OREAL................................................... 1,615
4,372 Lagardere S.C.A........................................... 238
2,695 LVMH Moet Hennessy Louis Vuitton.......................... 1,209
4,368 Lyonnaise des Eaux........................................ 701
(c)6,574 Michelin Compagnie Generale des Establissements, Class B.. 259
2,681 Pechiney.................................................. 192
2,170 Pernod Ricard............................................. 124
3,612 Pinault-Printemps-Re doute S.A............................ 954
1,300 PSA Peugeot Citroen....................................... 296
22,074 Rhone-Poulenc, Class A.................................... 1,284
220 Sagem..................................................... 153
(a)13,244 Sanofi.................................................... 552
5,294 Schneider................................................. 416
888 Silic..................................................... 142
4,397 Simco (RFD)............................................... 356
1,880 Soceite BIC............................................... 86
1,820 Societe Fonciere Lyonnaise................................ 238
2,948 Societe Generale, Class A................................. 687
1,052 Sodexho Alliance.......................................... 186
(a)7,684 STMicroelectronics N.V.................................... 1,184
5,074 Thomson CSF............................................... 168
20,370 Total Fina, Class B....................................... 2,722
2,512 Unibail................................................... 317
8,497 Usinor Sacilor............................................ 160
2,735 Valeo..................................................... 211
14,451 Vivendi................................................... 1,306
--------
33,260
--------
GERMANY (6.9%)
10,708 Allianz AG................................................ 3,601
15,900 BASF AG................................................... 832
15,350 Bayer AG.................................................. 731
19,470 Bayerische Vereinsbank AG................................. 1,331
8,150 Beiersdorf AG............................................. 551
6,017 Continential AG........................................... 121
26,934 DaimlerChrysler AG........................................ 2,116
25,600 Deutsche Bank AG.......................................... 2,170
140,708 Deutsche Telekom AG....................................... 9,910
4,550 Douglas Holding AG........................................ 193
18,667 Dresdner Bank AG.......................................... 1,014
2,950 Fresenius Medical Care AG................................. 251
3,500 Gehe AG................................................... 136
4,348 IVG Holding AG............................................ 70
4,630 Linde AG.................................................. 256
(c)6,600 MAN AG.................................................... 248
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
25,984 Mannesmann AG............................................. $ 6,299
11,893 Metro AG.................................................. 651
7,207 Muechener Rueck AG (Registered)........................... 1,839
(c)6,100 Preussag AG............................................... 343
21,623 RWE AG.................................................... 861
2,647 SAP AG.................................................... 1,302
25,383 Siemens AG................................................ 3,250
(a)16,100 Thyssen Krupp AG.......................................... 499
22,900 VEBA AG................................................... 1,120
33,648 Viag AG................................................... 629
9,230 Volkswagen AG............................................. 521
--------
40,845
--------
HONG KONG (2.8%)
104,650 Bank of East Asia Ltd..................................... 291
182,000 Cheung Kong Holdings Ltd.................................. 2,312
139,000 CLP Holdings Ltd.......................................... 640
165,000 Hang Lung Development Co.................................. 187
160,700 Hang Seng Bank Ltd........................................ 1,835
409,700 Hong Kong & China Gas Co., Ltd............................ 561
73,000 Hong Kong & Shanghai Hotel Ltd............................ 48
(c)765,412 Hong Kong Telecommunications Ltd.......................... 2,210
(c)112,200 Hopewell Holdings Ltd..................................... 67
302,000 Hutchison Whampoa Ltd..................................... 4,390
92,791 Hysan Development Co., Ltd................................ 118
164,360 New World Development Co., Ltd............................ 370
(c)25,000 Shangri-La Asia Ltd....................................... 29
267,013 Sino Land Co.............................................. 154
50,000 South China Morning Post Holdings Ltd..................... 43
194,000 Sun Hung Kai Properties Ltd............................... 2,021
124,500 Swire Pacific Ltd., Class A............................... 735
34,000 Television Broadcasts Ltd................................. 232
185,600 Wharf Holdings Ltd........................................ 431
--------
16,674
--------
INDIA (0.5%)
7,500 Cipla Ltd................................................. 240
54,250 Container Corp. of India Ltd.............................. 306
13,000 Hero Honda Motors Ltd..................................... 337
86,000 Housing Development Finance Corp., Ltd.................... 319
1,550 Infosys Technology Ltd.................................... 517
67,250 Reliance Industries Ltd................................... 361
47,500 Tata Engineering & Locomotive Co., Ltd.................... 220
28,500 Tata Tea Ltd.............................................. 344
47,000 Titan Industries Ltd...................................... 156
--------
2,800
--------
ITALY (3.5%)
(c)67,911 Assicurazioni Generali S.p.A.............................. 2,246
(c)11,164 Autogrill S.p.A........................................... 141
(c)230,882 Banca di Roma............................................. 297
250,731 Banco Ambrosiano Veneto S.p.A............................. 1,019
20,318 Banco Popolare di Milano.................................. 158
97,182 Benetton Group S.p.A...................................... 223
(a)48,646 Beni Stabili S.p.A........................................ 17
4,925 Cartiere Burgo............................................ 32
245,895 Credito Italiano S.p.A.................................... 1,210
(a)347,390 Enel S.p.A................................................ 1,457
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
Active International Allocation Portfolio
9
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
ITALY (CONT.)
405,023 ENI S.p.A................................................. $ 2,230
(a)10,169 Fiat S.p.A................................................ 291
23,905 Impregilo S.p.A........................................... 15
(c)73,100 Instituto Bancario San Paolo di Torino.................... 994
26,213 Italgas................................................... 99
(c)67,490 Mediaset S.p.A............................................ 1,051
32,442 Mediobanca S.p.A.......................................... 331
11 Montedison S.p.A. Di Risp (NCS)........................... --
(a,c)177,256 Olivetti S.p.A............................................ 514
101,282 Parmalat Finanziaria S.p.A................................ 130
127,771 Pirelli S.p.A............................................. 351
27,849 R.A.S. S.p.A.............................................. 280
6,936 Reno de Medici S.p.A...................................... 19
12,220 Rinascente S.p.A.......................................... 79
7,959 SAI....................................................... 89
(c)10,517 Sirti S.p.A............................................... 38
(c)20,052 Snia BPD S.p.A............................................ 22
394,539 Telecom Italia Mobile S.p.A............................... 4,412
93,805 Telecom Italia Mobile S.p.A. (RNC)........................ 447
(c)171,721 Telecom Italia S.p.A...................................... 2,424
19,346 Telecom Italia S.p.A. (RNC)............................... 118
(c)252,957 Unione Immobiliare S.p.A.................................. 117
--------
20,851
--------
JAPAN (26.1%)
(c)6,400 Acom Co., Ltd............................................. 627
10,390 Advantest Corp............................................ 2,744
65,400 Ajinomoto Co., Inc........................................ 681
(c)8,000 Alps Electric Co.......................................... 122
120,900 Asahi Bank Ltd............................................ 745
21,000 Asahi Breweries Ltd....................................... 230
64,000 Asahi Chemical Industry Co., Ltd.......................... 329
98,800 Asahi Glass Co., Ltd...................................... 764
20,000 Bank of Fukuoka........................................... 139
87,800 Bank of Yokohama Ltd...................................... 405
5,000 Benesse Corp.............................................. 1,203
39,000 Bridgestone Corp.......................................... 858
81,600 Canon, Inc................................................ 3,241
49,800 Casio Computer Co., Ltd................................... 414
90 Central Japan Railway Co.................................. 564
21,600 Chugai Pharmaceuticals Co., Ltd........................... 233
1,000 Credit Saison Co., Ltd.................................... 17
(c)3,000 CSK Corp.................................................. 487
48,600 Dai Nippon Printing Co., Ltd.............................. 775
(c)56,600 Daiei, Inc................................................ 224
600 Daikin Industries Ltd..................................... 8
(a)8,000 Dainippon Screen Manufacturing............................ 48
151,000 Daiwa Bank Ltd............................................ 443
44,600 Daiwa House Industry Co., Inc............................. 332
57,000 Daiwa Securities Co., Ltd................................. 892
18,600 Denso Corp................................................ 444
211 East Japan Railway Co..................................... 1,137
33,800 Ebara Corp................................................ 377
11,900 Fanuc Ltd................................................. 1,514
(c)144,000 Fuji Bank................................................. 1,399
32,000 Fuji Photo Film Ltd....................................... 1,168
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
4,400 Fuji Soft ABC, Inc........................................ $ 344
177,200 Fujitsu Ltd............................................... 8,077
38,800 Furukawa Electric Co., Ltd................................ 588
11,000 Gunma Bank Ltd............................................ 72
1,900 Hirose Electric Co., Ltd.................................. 426
318,000 Hitachi Ltd............................................... 5,101
25,000 Honda Motor Co., Ltd...................................... 929
5,000 Hoya Corp................................................. 394
131,000 Industrial Bank of Japan.................................. 1,262
22,000 Ito-Yokado Co., Ltd....................................... 2,389
3,000 Japan Airlines Co., Ltd................................... 9
3,600 Joyo Bank Ltd............................................. 17
20,800 Jusco Co., Ltd............................................ 362
103,400 Kajima Corp............................................... 309
58,800 Kansai Electric Power Co., Ltd............................ 1,024
29,000 Kao Corp.................................................. 827
61,000 Kawasaki Steel Corp....................................... 109
(c)66,200 Kinki Nippon Railway Co., Ltd............................. 266
77,400 Kirin Brewery Co., Ltd.................................... 814
82,400 Komatsu Ltd............................................... 379
3,200 Konami Co., Ltd........................................... 571
125,000 Kubota Corp............................................... 478
19,900 Kyocera Corp.............................................. 5,158
600 Kyowa Hakko Kogyo Co., Ltd................................ 4
13,000 Marui Co., Ltd............................................ 194
187,000 Matsushita Electric Industrial Co., Ltd................... 5,177
1,900 Meitec Corp............................................... 60
78,000 Mitsubishi Chemical Corp.................................. 275
220,800 Mitsubishi Electric Corp.................................. 1,426
45,000 Mitsubishi Estate Co., Ltd................................ 439
233,000 Mitsubishi Heavy Industries Ltd........................... 777
72,400 Mitsubishi Materials Corp................................. 177
64,000 Mitsubishi Trust & Banking Co............................. 563
800 Mitsui & Co., Ltd......................................... 6
28,400 Mitsui Fudosan Co., Ltd................................... 192
86,200 Mitsui Trust & Banking Co., Ltd........................... 195
(c)43,800 Mitsukoshi Ltd............................................ 154
24,000 Murata Manufacturing Co., Ltd............................. 5,634
(c)17,800 Mycal Corp................................................ 78
146,400 NEC Corp.................................................. 3,487
36,600 NGK Insulators Ltd........................................ 272
33,000 NGK Spark Plug Co., Ltd................................... 302
2,900 Nichiei Co., Ltd. (Kyoto)................................. 63
(c)2,000 Nidec Corp................................................ 577
18,000 Nikon Corp................................................ 528
13,200 Nintendo Corp., Ltd....................................... 2,192
(c)40,800 Nippon Express Co., Ltd................................... 226
20,600 Nippon Meat Packers, Inc.................................. 267
94,800 Nippon Oil Co., Ltd....................................... 417
436,000 Nippon Steel Co........................................... 1,019
590 Nippon Telegraph & Telephone Corp. (NTT).................. 10,100
82,000 Nippon Yusen Kabushiki Kaisha............................. 335
85,600 Nissan Motor Co., Ltd..................................... 337
91,000 Nomura Securities Co., Ltd................................ 1,642
100,400 Oji Paper Co., Ltd. (New)................................. 604
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
Active International Allocation Portfolio
10
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
JAPAN (CONT.)
13,000 Omron Corp................................................ $ 300
18,000 Onward Kashiyama Co., Ltd................................. 247
4,500 Oriental Land Co., Ltd.................................... 387
2,200 Orix Corp................................................. 495
105,600 Osaka Gas Co., Ltd........................................ 254
20,000 Pioneer Electric Corp..................................... 528
5,000 Promise Co., Ltd.......................................... 254
12,400 Rohm Co., Ltd............................................. 5,094
139,000 Sakura Bank Ltd........................................... 805
24,800 Sankyo Co., Ltd........................................... 509
162,000 Sanyo Electric Co., Ltd................................... 658
15,800 Secom Co., Ltd............................................ 1,739
(c)10,600 Sega Enterprises Ltd...................................... 337
45,600 Sekisui House Co., Ltd.................................... 404
84,200 Sharp Corp................................................ 2,154
7,800 Shimano, Inc.............................................. 137
76,600 Shimizu Corp.............................................. 253
8,000 Shin-Etsu Chemical Co., Ltd............................... 344
20,000 Shiseido Co., Ltd......................................... 292
38,600 Shizuoka Bank Ltd......................................... 396
15,000 Skylark Co., Ltd.......................................... 353
3,800 SMC Corp.................................................. 840
8,500 Softbank Corp............................................. 8,132
37,900 Sony Corp................................................. 11,233
145,000 Sumitomo Bank............................................. 1,984
97,600 Sumitomo Chemical Co., Ltd................................ 458
400 Sumitomo Corp............................................. 4
71,400 Sumitomo Electric Industries.............................. 825
400 Sumitomo Forestry Co., Ltd................................ 3
38,800 Sumitomo Metal & Mining Co................................ 87
(c)105,400 Taisei Corp., Ltd......................................... 200
21,800 Taisho Pharmaceutical Co., Ltd............................ 640
(c)18,000 Taiyo Yuden Co., Ltd...................................... 1,067
54,600 Takeda Chemical Industries................................ 2,697
6,700 Takefuji Corp............................................. 838
47,400 Teijin Ltd................................................ 175
11,000 Terumo Corp............................................... 294
(c)206,000 The Bank of Tokyo-Mitsubushi Ltd.......................... 2,869
56,400 Tobu Railway Co., Ltd..................................... 166
14,000 Tohoku Electric Power Co., Ltd............................ 208
99,800 Tokai Bank Ltd............................................ 629
73,000 Tokio Marine & Fire Insurance Co., Ltd.................... 853
14,000 Tokyo Broadcasting System, Inc............................ 474
71,800 Tokyo Electric Power Co................................... 1,924
14,000 Tokyo Electron Ltd........................................ 1,917
102,600 Tokyo Gas Co.............................................. 250
59,400 Tokyu Corp................................................ 145
38,600 Toppan Printing Co., Ltd.................................. 385
55,100 Toray Industries, Inc..................................... 213
293,000 Toshiba Corp.............................................. 2,236
55,600 Toto Ltd.................................................. 336
2,000 Toyo Information Systems.................................. 141
112,000 Toyota Motor Corp......................................... 5,423
102,400 Ube Industries Ltd........................................ 213
19,000 Yamanouchi Pharmaceutical Co.............................. 664
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
45,000 Yokogawa Electric Corp.................................... $ 317
--------
154,968
--------
NETHERLANDS (4.7%)
84,426 ABN Amro Holding N.V...................................... 2,111
32,370 Aegon N.V................................................. 3,130
7,300 Akzo Nobel N.V............................................ 367
5,264 Buhrmann N.V.............................................. 79
34,516 Elsevier N.V.............................................. 413
3,832 Getronics N.V............................................. 306
4,812 Hagemeyer N.V............................................. 112
17,824 Heineken N.V.............................................. 870
54,116 ING Groep N.V............................................. 3,271
34,200 Koninklijke Ahold N.V..................................... 1,013
1,515 Nedlloyd Groep N.V........................................ 42
5,322 Oce N.V................................................... 90
19,135 Phillips Electronics N.V.................................. 2,605
(a)11,215 Rodamco Continental Europe NV............................. 453
123,467 Royal Dutch Petroleum Co.................................. 7,576
21,412 Royal KPN N.V............................................. 2,092
2,847 Stork N.V................................................. 42
28,255 TNT Post Group N.V........................................ 811
21,620 Uni Ivest N.V............................................. 279
33,469 Unilever N.V.............................................. 1,851
4,195 Vedior N.V................................................ 43
16,784 Wolters Kluwer N.V........................................ 569
--------
28,125
--------
NORWAY (0.0%)
450 Steen & Storm ASA......................................... 6
--------
PORTUGAL (0.7%)
103,545 Banco Commercial Portugues (Registered)................... 575
12,702 Banco Espirito Santo e Comercial de Lisboa (Registered)... 357
56,050 Banco Portugues de Investimento (New)..................... 239
31,305 Brisa-Auto Estradas....................................... 241
2,326 Cia de Seguros Tranquilidade (Registered)................. 71
1 Cimpor SGPS............................................... --
200 Cin-Corparacao Industial do Norte......................... 5
63,151 EDP-Electricidade de Portugal............................. 1,104
537 INAPA-Investimentos Participacoes e Gestao................ 4
8,498 Jeronimo Martins SGPS..................................... 218
11,271 Portucel Industrial-Empressa.............................. 78
76,770 Portugal Telecom (Registered)............................. 843
358 Sociedade de Construcoes Soares da Costa.................. 1
(a)3,032 Somague-Sociedade Gestora de Participacoes................ 11
4,830 Sonae Investmentos........................................ 255
1,789 UNICER-Uniao Cervejeira................................... 36
--------
4,038
--------
SINGAPORE (2.2%)
86,000 City Developments Ltd..................................... 503
(c)11,850 Creative Technology Ltd................................... 215
37,000 Cycle & Carriage Ltd...................................... 114
(a)163,300 DBS Group Holdings Ltd.................................... 2,677
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
Active International Allocation Portfolio
11
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
SINGAPORE (CONT.)
166,500 DBS Land Ltd.............................................. $ 328
38,000 First Capital Corp., Ltd.................................. 51
41,800 Fraser & Neave Ltd........................................ 154
109,000 Hotel Properties Ltd...................................... 98
104,750 Keppel Corp., Ltd......................................... 274
59,000 NatSteel Ltd.............................................. 118
85,000 Neptune Orient Lines Ltd. (Foreign)....................... 114
155,188 Oversea-Chinese Banking Corp. (Foreign)................... 1,426
56,000 Parkway Holdings Ltd...................................... 127
235,644 Sembcorp Industries Ltd................................... 321
156,000 Singapore Airlines Ltd. (Foreign)......................... 1,770
48,018 Singapore Press Holdings Ltd.............................. 1,041
388,000 Singapore Technologies Engineering Ltd.................... 601
(c)618,600 Singapore Telecommunications Ltd.......................... 1,278
202,000 United Industrial Corp., Ltd.............................. 114
126,880 United Overseas Bank Ltd. (Foreign) ...................... 1,120
78,000 United Overseas Land Ltd. ................................ 73
31,000 Venture Manufacturing (Singapore) Ltd. ................... 355
--------
12,872
--------
SOUTH KOREA (1.0%)
19,386 Hyundai Motor Co., Ltd. .................................. 307
31,330 Kookmin Bank ............................................. 491
29,225 Korea Eelectric Power Corp. .............................. 906
25,940 L.G. Chemical Ltd. ....................................... 820
6,054 L.G. Securities .......................................... 251
(d)2,118 Pohang Iron & Steel Co., Ltd. ............................ 242
7,414 Samsung Electro-Mechanics Co. ............................ 493
5,720 Samsung Electronics Co. .................................. 1,340
63,452 Shinhan Bank ............................................. 687
63 SK Telecom Co., Ltd. ..................................... 226
--------
5,763
--------
SPAIN (3.0%)
3,890 Acerinox ................................................. 155
4,526 ACS Actividades .......................................... 108
(a)10,557 Aguas de Barcelona ....................................... 155
(a,c)6,460 Altadis .................................................. 92
34,173 Argentaria ............................................... 804
19,526 Autopistas Concesionaria Espanola ........................ 190
2,402 Azucarera Ebro Agricolas ................................. 35
(c)153,813 Banco Bilbao Vizcaya (Registered) ........................ 2,193
263,622 Banco Santander .......................................... 2,988
6,486 Corporacion Financiera Alba .............................. 222
5,430 Corporacion Mapfre ....................................... 89
70,435 Endesa ................................................... 1,400
1 Ercros ................................................... --
(a)6,892 Fomento Construction y Cantractas ........................ 140
33,009 Gas Natural SDG .......................................... 761
12,990 Grupo Dragados, S.A. ..................................... 115
66,400 Iberdrola ................................................ 921
19,281 Inmobiliaria Metropolitana Vasco Central ................. 334
(a)2,800 Inmobiliaria Urbis S.A. .................................. 13
14,399 Prima Immobiliaria S.A. .................................. 125
71,583 Repsol ................................................... 1,662
(a,c)7,209 SOL Melia S.A. ........................................... 82
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
13,205 Tabacalera ............................................... $ 189
(a)170,526 Telefonica ............................................... 4,264
(a)16,707 Telepizza ................................................ 71
21,964 Union Electrica Fenosa ................................... 384
57 Uralita .................................................. --
59,932 Vallehermoso ............................................. 422
115 Viscofan Envolturas Celulosicas .......................... 1
(c)3,616 Zardoya Otis ............................................. 36
--------
17,951
--------
SWEDEN (3.1%)
(c)9,050 Atlas Copco AB, Class A .................................. 268
5,100 Atlas Copco AB, Class B .................................. 145
18,020 Castellum AB ............................................. 176
25,260 Diligentia AB ............................................ 208
41,900 Drott AB, Class B ........................................ 479
22,000 Electrolux AB, Series B .................................. 554
132,900 Ericsson LM, Class B ..................................... 8,562
10,810 Fastighets AB Tornet ..................................... 150
37,700 ForeningsSparbanken AB ................................... 555
55,200 Hennes & Mauritz AB, Class B ............................. 1,853
(a)5,383 Netcom Systems AB, Class B ............................... 379
5,100 OM Gruppen AB ............................................ 111
6,200 S.K.F. AB, Class B ....................................... 151
14,100 Sandvik AB, Class A ...................................... 443
5,600 Sandvik AB, Class B ...................................... 179
28,140 Securitas AB, Class B .................................... 510
36,600 Skandia Forsakrings AB ................................... 1,108
42,800 Skandinaviska Enskilda Banken, Class A ................... 433
9,000 Skanska AB, Class B ...................................... 336
15,200 Svenska Cellulosa AB, Class B ............................ 451
46,200 Svenska Handelsbanken, Class A ........................... 582
4,600 Svenskt Stal AB (SSAB), Series A ......................... 72
10,100 Trelleborg AB, Class B ................................... 91
3,300 Volvo AB, Class A ........................................ 84
12,650 Volvo AB, Class B ........................................ 328
5,100 WM-Data AB, Class B ...................................... 316
--------
18,524
--------
SWITZERLAND (5.0%)
(a)16,539 ABB AG ................................................... 2,024
1,045 Adecco ................................................... 814
185 Alusuisse-Lonza Holdings Ltd. (Registered) ............... 137
15,400 CS Holding AG (Registered) ............................... 3,063
180 Georg Fischer AG ......................................... 62
2,115 Nestle (Registered) ...................................... 3,877
3,670 Novartis AG (Registered) ................................. 5,391
79 Roche Holding AG (Bearer) ................................ 1,291
411 Roche Holding AG (Registered) ............................ 4,881
90 SAirgroup ................................................ 18
290 SMH AG (Bearer) .......................................... 334
240 Sulzer AG (Registered) ................................... 156
840 Swiss Reinsurance (Registered) ........................... 1,726
3,240 Swisscom AG (Registered) ................................. 1,311
11,599 UBS (Registered) ......................................... 3,134
365 Valora Holding AG ........................................ 98
</TABLE>
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
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
SWITZERLAND (CONT.)
2,700 Zurich Allied AG ......................................... $ 1,540
--------
29,857
--------
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 (13.1%)
17,719 3I Group plc ............................................. 316
53,563 Abbey National plc ....................................... 856
34,817 Albert Fisher Group plc .................................. 6
1,851 Alldays plc .............................................. 2
2,415 Allders plc .............................................. 5
58,643 Allied Zurich plc ........................................ 691
7,063 AMEC plc ................................................. 28
20,002 Amvescap plc ............................................. 233
20,898 Anglian Water plc ........................................ 191
34,741 Arjo Wiggins Appleton plc ................................ 126
(a)5,627 ARM Holdings plc ......................................... 380
21,152 Associated British Ports Holdings plc .................... 97
64,153 Astra Zeneca Group plc ................................... 2,661
43,513 BAA plc .................................................. 306
53,303 Barclays plc ............................................. 1,534
10,099 Barratt Developments plc ................................. 47
27,053 Bass plc ................................................. 337
1,209 BBA Group plc ............................................ 10
25,448 Beazer Group plc ......................................... 59
17,594 Berisford plc ............................................ 96
(a)137,240 BG plc ................................................... 887
35,417 BICC plc ................................................. 52
21,425 BOC Group plc ............................................ 460
37,939 Boots Co. plc ............................................ 369
581,216 BP Amoco plc ............................................. 5,843
35,348 BPB Industries plc ....................................... 205
117,357 British Aerospace plc .................................... 777
58,654 British American Tobacco plc ............................. 333
247,592 British Land Co. plc ..................................... 1,639
59,331 British Sky Broadcasting plc ............................. 955
299,381 British Telecommunications plc ........................... 7,316
115,810 Burford Holdings plc ..................................... 192
28,406 Burmah Castrol plc ....................................... 518
(c)70,701 Cable & Wireless plc ..................................... 1,198
84,716 Cadbury Schweppes plc .................................... 512
20,299 Canary Wharf Finance plc ................................. 126
6,118 Capital Group plc ........................................ 111
32,370 Capital Shopping Centers plc ............................. 178
85,194 Caradon plc .............................................. 213
10,413 Carillion plc ............................................ 19
11,379 Carpetright plc .......................................... 98
159,822 Centrica plc ............................................. 453
4,309 Cobham plc ............................................... 54
36,806 Commercial Union plc ..................................... 593
25,488 Compass Group plc ........................................ 350
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
(a)45,366 Corus Group plc .......................................... $ 118
2,363 Delta plc ................................................ 5
120,057 Diageo plc ............................................... 966
4,384 Dialog Corp. plc ......................................... 7
12,948 Dixons Group plc ......................................... 311
5,841 EMAP plc ................................................. 121
64,737 EMI Group plc ............................................ 635
26,630 Enterprise Oil plc ....................................... 181
25,800 FirstGroup plc ........................................... 100
21,058 FKI plc .................................................. 82
9,250 Frogmore Estates plc ..................................... 71
54,218 GKN plc .................................................. 854
117,363 Glaxo Wellcome plc ....................................... 3,317
64,246 Granada Group plc ........................................ 651
170,780 Grantchester Holdings plc ................................ 419
104,500 Great Portland Estates plc ............................... 324
37,062 Great Universal Stores plc ............................... 217
90,967 Halifax plc .............................................. 1,009
80,350 Hammerson plc ............................................ 556
25,623 Hanson plc ............................................... 215
26,401 Hays plc ................................................. 420
53,005 Hilton Group ............................................. 170
13,575 House of Fraser .......................................... 17
231,942 HSBC Holdings plc ........................................ 3,233
9,035 Hyder plc ................................................ 42
24,877 IMI plc .................................................. 108
29,662 Imperial Chemical Industries plc ......................... 314
158,240 Invensys plc ............................................. 861
14,587 Jarvis plc ............................................... 52
29,407 Johnson Matthey plc ...................................... 328
19,291 Kelda Group plc .......................................... 109
55,767 Kingfisher plc ........................................... 619
6,302 Laird Group plc .......................................... 25
168,245 Land Securities plc ...................................... 1,886
70,346 Lasmo plc ................................................ 134
227,756 Legal & General Group plc ................................ 620
11,777 Lex Service plc .......................................... 71
11,340 Limit plc ................................................ 27
191,131 Lloyds TSB Group plc ..................................... 2,391
11,804 Logica plc ............................................... 304
21,361 London Clubs International plc ........................... 42
7,019 London Forfaiting Co. plc ................................ 4
18,604 Lonrho plc ............................................... 188
1,872 Low & Bonar plc .......................................... 4
1,810 Manchester United plc .................................... 6
96,509 Marconi plc .............................................. 1,707
103,929 Marks and Spencer plc .................................... 495
237 Mayflower Corp. plc ...................................... 1
2,171 McKechnie plc ............................................ 12
5,553 Meggitt plc .............................................. 17
108,586 MEPC plc ................................................. 815
58,404 MISYS plc ................................................ 910
50,775 National Power plc ....................................... 294
42,137 NEC plc .................................................. 167
16,137 NEXT plc ................................................. 155
18,927 Nycomed Amersham plc ..................................... 118
</TABLE>
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
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM (CONT.)
890 Ocean Group plc .......................................... $ 17
28,443 Parity plc ............................................... 175
29,296 Peninsular & Oriental Steam Navigation ................... 489
11,486 Pennon Group plc ......................................... 98
178,701 Pilkington plc ........................................... 244
78,655 Prudential Corp. plc ..................................... 1,550
2,294 Psion plc ................................................ 100
(a)14,800 Quintain Estates & Development plc ....................... 42
10,414 Racal Electronic plc ..................................... 93
17,911 Railtrack Group plc ...................................... 301
62,124 Rank Group plc ........................................... 197
47,708 Reed International plc ................................... 357
124,404 Rentokil Initial plc ..................................... 454
50,503 Reuters Group plc ........................................ 693
26,392 Rexam plc ................................................ 107
20,988 Rio Tinto plc ............................................ 507
37,612 Rolls-Royce plc .......................................... 130
12,052 Rugby Group plc .......................................... 26
72,318 Sainsbury (J) plc ........................................ 408
4,107 Schroders plc ............................................ 83
5,310 Scotia Holdings plc ...................................... 11
187 Scottish and Southern Energy ............................. 1
47,576 Scottish Hydro-Electric plc .............................. 380
53,424 Scottish Power plc ....................................... 405
13,741 SEMA Group plc ........................................... 247
1,614 Skillsgroup plc .......................................... 8
126,343 Slough Estates plc ....................................... 719
33,296 Smith & Nephew plc ....................................... 112
193,141 Smithkline Beecham plc ................................... 2,464
5,565 Smiths Industries plc .................................... 83
45,467 Stagecoach Holdings plc .................................. 117
10,413 Tarmac plc ............................................... 92
32,085 Tate & Lyle plc .......................................... 206
18,917 Taylor Woodrow plc ....................................... 41
(a)33,200 TBI plc .................................................. 40
81,094 Tesco plc ................................................ 246
20,033 Thames Water plc ......................................... 250
6,861 The Berkeley Group plc ................................... 79
36,210 The Sage Group plc ....................................... 442
19,443 TI Group plc ............................................. 149
1,574 Torotrac plc ............................................. 7
7,125 Trinity Mirror plc ....................................... 76
108,494 Unilever plc ............................................. 798
27,355 United Utilities plc ..................................... 284
1,012,258 Vodafone Group plc ....................................... 5,015
72,190 Wates City Of London Properties plc ...................... 106
1,107 Wickes plc ............................................... 5
16,674 William Baird plc ........................................ 15
52,998 WPP Group plc ............................................ 840
--------
77,566
--------
TOTAL COMMON STOCKS (Cost $395,040) ....................................... 497,145
--------
PREFERRED STOCKS (0.3%)
AUSTRIA (0.0%)
3 Bau Holding AG ........................................... --
--------
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
GERMANY (0.2%)
1,867 SAP AG ................................................... $ 1,140
3,000 Volkswagen AG ............................................ 97
--------
1,237
--------
HONG KONG (0.1%)
78,000 Johnson Electric Holdings Ltd. ........................... 501
--------
ITALY (0.0%)
1,957 Fiat S.p.A. .............................................. 28
--------
NETHERLANDS (0.0%)
37,485 Unilever N.V. ............................................ 190
--------
TOTAL PREFERRED STOCKS (Cost $1,415) ...................................... 1,956
--------
<CAPTION>
NO. OF
RIGHTS
- ---------------
<C> <S> <C>
RIGHTS (0.0%)
BRAZIL (0.0%)
(a,d)38,494,000 Banco Bradesco S.A. ...................................... 18
(a,d)39,661,000 Banco Bradesco S.A. ...................................... --
--------
18
--------
ITALY (0.0%)
80,465 Montedison S.p.A. ........................................ 132
--------
PORTUGAL (0.0%)
(a)358 Sociedade de Construcoes Soares da Costa, S.A. ........... --
--------
TOTAL RIGHTS (Cost $134) .................................................. 150
--------
<CAPTION>
NO. OF
WARRANTS
- ---------------
<C> <S> <C>
WARRANTS (0.0%)
FRANCE (0.0%)
(a)3,497 Banque Nationale de Paris (Cost $0) ...................... 16
--------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<C> <S> <C>
FIXED INCOME SECURITIES (0.0%)
FRANCE (0.0%)
$ 136 Casino Guichard-Perrachon, Series XW, 4.50%, 7/12/01 ..... 138
--------
PORTUGAL (0.0%)
(a)10 Jeronimo Martins SGPS, Zero Coupon, 12/30/04 ............. 6
--------
UNITED KINGDOM (0.0%)
19 BG Transco Holdings plc, 7.06%, 12/14/09 (Floating Rate) . 31
19 BG Transco Holdings plc, 4.19%, 12/14/22 (Floating Rate) . 30
19 BG Transco Holdings plc, 7.00%, 12/16/24 ................. 30
--------
91
--------
TOTAL FIXED INCOME SECURITIES (Cost $143) ................................. 235
--------
TOTAL FOREIGN SECURITIES (84.1%) (Cost $396,732) .......................... 499,502
--------
</TABLE>
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
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (18.9%)
SHORT-TERM INVESTMENTS HELD AS COLLATERAL ON LOANED SECURITIES (3.9%)
$ 850 Australia New Zealand, N.Y, Yankee CD, 6.67%, 1/27/00 .... $ 850
600 Baltimore Gas and Electric, MTN, 6.56%, 1/14/00 .......... 600
600 Banco Pop Di Milano, N.Y, Yankee CD, 6.37%, 1/31/00 ...... 600
750 Bank of Montreal, Yankee CD, 4.95%, 1/03/00 .............. 750
675 Bank of Nova Scotia, Toronto, TD, 4.5%, 1/03/00 .......... 675
675 Barclays Nassau, TD, 5.00%, 1/03/00 ...................... 675
500 Bayerische Landesbank, Yankee CD, 6.49%, 1/18/00 ......... 499
4,500 Bear Stearns Repo, 4.53%, dated 12/31/99, due 1/03/00 to
be repurchased at $4,502, collateralized by U.S. Agency
Mortgages having various maturities and interest rates
valued at $4,590 ....................................... 4,500
500 Bear Stearns, CP, 4.90%, 1/03/00 ......................... 500
671 British Aerospace North America, CP, 6.69%, 1/20/00 ...... 671
425 Credit Suisse, G.C., TD, 5.00%, 1/03/00 .................. 425
4,500 CS First Boston Repo, 3.75%, dated 12/31/99, due 1/03/00
to be repurchased at $4,501, collateralized by U.S.
Agency Mortgages having various maturities and interest
rates valued at $4,590 ................................. 4,500
250 CS First Boston Inc., MTN, 4.74%, 1/03/00 ................ 250
624 Deutsche Bank N.Y., Yankee CD, 6.49%, 1/13/00 ............ 624
400 Dresdner Bank, N.Y., Yankee CD, 6.48%, 1/24/00 ........... 400
675 Fifth Third Bank, G.C., TD, 5.00%, 1/03/00 ............... 675
595 General Electric Credit, CP, 6.24%, 2/18/00 .............. 595
675 Natwest Bank, N.A., Nassau, TD, 4.50%, 1/03/00 ........... 675
354 Salomon Smith Barney, Inc. Repo, 4.55%, dated 12/31/99,
due 1/03/00 to be purchased at $354, collateralized by
U.S. Agency Mortgages having various maturities and
interest rates valued at $361 .......................... 354
500 Societe Generale, N.Y., Yankee CD, 4.75%, 1/03/99 ........ 500
675 Sun Trust Bank, Atlanta, TD, 4.50%, 1/03/00 .............. 675
850 Svenska Handelsbank, N.Y., Yankee CD, 6.67%, 1/27/00 ..... 850
600 Toyota Motor Credit Corp., MTN, 6.11%, 4/10/00 ........... 600
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------------
<C> <S> <C>
$ 675 UBS Finance (Delaware), Inc., CP, 5.00%, 1/03/00 ......... $ 675
675 Westdeutsche Landesbank G.C., TD, 9.50%, 1/03/00 ......... 675
--------
TOTAL SECURITIES HELD FOR COLLATERAL ON LOANED SECURITIES (COST $22,793) .. 22,793
--------
REPURCHASE AGREEMENT (15.0%)
89,183 Chase Securities, Inc., 2.60%, dated 12/31/99, due
1/03/00, to be repurchased at $89,202, collateralized by
U.S. Treasury Bonds, 6.125%, due 12/31/01, valued at
$91,010 (Cost $89,183).................................. 89,183
--------
TOTAL SHORT-TERM INVESTMENTS (Cost $111,976) .............................. 111,976
--------
FOREIGN CURRENCY (0.3%)
AUD 132 Australian Dollar ........................................ 87
BRL 4 Brazilian Real ........................................... 2
GBP 352 British Pound ............................................ 569
HKD 837 Hong Kong Dollar ......................................... 108
INR 967 Indian Rupee ............................................. 22
JPY 37,372 Japanese Yen ............................................. 366
NOK 20 Norwegian Krone .......................................... 2
SGD 213 Singapore Dollar ......................................... 128
SEK 2,517 Swedish Krona ............................................ 296
CHF 317 Swiss Franc .............................................. 199
--------
TOTAL FOREIGN CURRENCY (Cost $1,772) ...................................... 1,779
--------
TOTAL INVESTMENTS (103.3%) (Cost $510,480) ................................ 613,257
--------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (2.3%)
Net Receivable for Variation on Futures Contracts ............. $ 8,329
Due from Broker ............................................... 3,925
Receivable for Portfolio Shares Sold .......................... 573
Dividends Receivable .......................................... 485
Foreign Withholding Tax Reclaim Receivable .................... 214
Receivable for Investments Sold ............................... 41
Interest Receivable ........................................... 16
Other ......................................................... 27 13,610
--------
LIABILITIES (5.6%)
Collateral on Loaned Securities ............................... (22,793)
Bank Overdraft Payable ........................................ (8,074)
Net Unrealized Loss on Foreign Currency Exchange Contracts .... (1,266)
Investment Advisory Fees Payable .............................. (785)
Custodian Fees Payable ........................................ (100)
Administrative Fees Payable ................................... (81)
Payable for Investments Purchased ............................. (57)
Security Lending Fees Payable ................................. (10)
Payable for Portfolio Shares Redeemed ......................... (8)
Other Liabilities ............................................. (127) (33,301)
-------- --------
NET ASSETS (100%) ............................................... $593,566
========
</TABLE>
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
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
- --------------------------------------------------------------------------------------
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital ........................................................... $474,434
Distributions in Excess of Net Investment Income .......................... (2,119)
Accumulated Net Realized Gain ............................................. 11,433
Unrealized Appreciation on Investments, Futures and Foreign Currency
Translations ............................................................ 109,818
--------
NET ASSETS ................................................................ $593,566
========
CLASS A:
- --------
NET ASSETS ................................................................ $583,607
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 40,937,254 outstanding $0.001 par value shares (authorized
500,000,000 shares)...................................................... $ 14.26
========
CLASS B:
- --------
NET ASSETS ................................................................ $ 9,959
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 690,880 outstanding $0.001 par value shares (authorized
500,000,000 shares) ..................................................... $ 14.41
========
</TABLE>
- -------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at December 31,
1999, 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 5,991 6,072 3/07/00 U.S.$ 6,282 6,282 210
U.S.$ 22,218 22,218 3/07/00 EUR 20,864 21,142 (1,076)
U.S.$ 813 813 3/09/00 AUD 1,267 832 19
U.S.$ 46,570 46,570 3/10/00 EUR 43,342 43,931 (2,639)
GBP 21,494 34,716 3/10/00 U.S.$ 34,476 34,476 (240)
U.S.$ 35,578 35,578 3/10/00 GBP 21,494 34,716 (862)
EUR 20,418 20,696 3/10/00 U.S.$ 22,105 22,105 1,409
U.S.$ 39,540 39,540 3/17/00 JPY 4,203,973 41,641 2,101
JPY 2,594,981 25,703 3/17/00 U.S.$ 25,260 25,260 (443)
GBP 18,186 29,372 3/24/00 U.S.$ 29,776 29,776 404
U.S.$ 24,095 24,095 3/24/00 GBP 15,023 24,264 169
U.S.$ 24,144 24,144 5/12/00 GBP 14,860 23,995 (149)
GBP 14,860 23,996 5/12/00 U.S.$ 23,827 23,827 (169)
-------- -------- -------
$333,513 $332,247 $(1,266)
======== ======== =======
</TABLE>
- -------------------------------------------------------------------------------
(a) --Non-income producing security
(c) --All or a portion of security on loan at December
31, 1999 -- See Note A-9 to financial statements.
(d) --Security valued at fair value -- See Note A-1 to
financial statements.
CD --Certificate of Deposit
CP --Commercial Paper
EUR --European Monetary Unit
MTN --Medium Term Note
NCS --Non-Convertible Shares
PCL --Public Company Limited
RFD --Ranked for Dividend
RNC --Non-Convertible Savings Shares
TD --Time Deposit
Floating Rate -- Interest rate changes on these instruments are based on changes
in a designated base rate. The rates shown are those in effect on
December 31, 1999.
Due from Broker represents cash held by broker as initial margin on futures
contracts.
- -------------------------------------------------------------------------------
FUTURES CONTRACTS:
At December 31, 1999, the following futures contracts were open:
<TABLE>
<CAPTION>
NET
UNREALIZED
NUMBER NOTIONAL APPRECIATION
OF VALUE EXPIRATION (DEPRECIATION)
CONTRACTS (000) DATE (000)
--------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
LONG:
Aust All Ord.
(Australia) 17 U.S.$ 853 March-00 $ 3
CAC 40 Index
(France) 340 U.S.$20,620 March-00 1,916
DAX Index (Germany) 118 U.S.$21,338 March-00 3,324
IBEX Index (Spain) 311 U.S.$ 3,696 January-00 115
TOPIX Index (Japan) 276 U.S.$46,028 March-00 3,157
SHORT:
FT-SE Index (United
Kingdom) 47 U.S.$ 5,327 March-00 (186)
------
$8,329
======
</TABLE>
- -------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT ................................. $ 96,605 16.3%
CONSUMER GOODS .................................... 89,899 15.1
ENERGY ............................................ 39,547 6.7
FINANCE ........................................... 110,829 18.7
GOLD MINES ........................................ 36 --
MATERIALS ......................................... 22,271 3.7
MULTI-INDUSTRY .................................... 9,066 1.5
SERVICES .......................................... 131,249 22.1
-------- ----
$499,502 84.1%
======== ====
</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 DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
China (0.6%)
Hong Kong (30.2%)
India (0.4%)
Indonesia (1.9%)
Malaysia (3.7%)
Philippines (1.0%)
Singapore (13.8%)
South Korea (23.3%)
Taiwan (17.6%)
Thailand (3.0%)
Other (4.5%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
MSCI Combined
Asian Equity Far East
Portfolio ex-Japan Index
------------ --------------
<S> <C> <C>
7/01/91* $ 500,000 $ 500,000
10/31/91 __________ __________
10/31/92 __________ __________
12/31/92 __________ __________
12/31/93 __________ __________
12/31/94 __________ __________
12/31/95 __________ __________
12/31/96 __________ __________
12/31/97 __________ __________
12/31/98 __________ __________
12/31/99 $1,045,376 $1,122,610
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) ALL-COUNTRY FAR
EAST FREE EX-JAPAN INDEX(1)
- --------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YEAR YEARS INCEPTION
------ ------- ---------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A ......... 81.00% -1.71% 9.06%
PORTFOLIO -- CLASS B ......... 79.95 N/A -4.15
INDEX -- CLASS A ............. 59.40 0.78 10.20
INDEX -- CLASS B ............. 59.40 N/A -1.21
</TABLE>
1. The MSCI All-Country Far East Free ex-Japan Index is an unmanaged index of
common stocks and includes Indonesia, Hong Kong, Malaysia, the Philippines,
Korea, Singapore, Taiwan and Thailand (includes dividends).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the Asian Equity Portfolio is to seek long-term
capital appreciation by investing primarily in equity securities which are
traded on recognized exchanges of Hong Kong, Singapore, Malaysia, Thailand,
Indonesia and the Philippines. The Portfolio may also invest in equity
securities traded on markets in Taiwan, South Korea, India, Pakistan, Sri Lanka
and other Asian developing markets which are open for foreign investment. The
Portfolio does not intend to invest in securities which are principally traded
in Japan or in companies organized under the laws of Japan.
For the year ended December 31, 1999, the Portfolio had a total return of 81.00%
for the Class A shares and 79.95% for the Class B shares compared to 59.40% for
the Morgan Stanley Capital International (MSCI) All-Country Far East Free
ex-Japan Index (the "Index"). For the five-year period ended December 31, 1999,
the average annual total return for the Class A shares was -1.71% compared to
0.78% for the Index. For the period from inception on July 1, 1991 through
December 31, 1999, the average annual total return for the Class A shares was
9.06% compared to 10.20% for the Index. For the period from inception on January
2, 1996 through December 31, 1999, the average annual total return for the Class
B shares was -4.15% compared to -1.21% for the Index.
Most of the markets in the Index rose in 1999. Continuing a trend that started
mid-year, performance at the country level varied more than during the first
half of the year. Echoing trends in the developed markets, technology and
telecommunications stocks, particularly mobile telecommunications, tended to
outperform while banks, manufacturers and other "Old Economy" stocks generally
lagged.
Most Asian markets performed well during the year due to higher than expected
economic growth and corporate earnings and continued positive liquidity
conditions. During the first half of the year, market breadth was very strong
with most sectors participating in the rallies. Breadth narrowed during the
fourth quarter in line with the global pattern and outperformers were typically
technology or telecommunications related. Overall market valuations as of year
end were at fairly high multiples relative to
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS
OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES
MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY
THE MSCI ALL-COUNTRY FAR EAST FREE EX-JAPAN INDEX AND ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S
FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
- --------------------------------------------------------------------------------
Asian Equity Portfolio
17
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
historical norms of most markets but the outlook for corporate earnings in 2000
remains quite strong. Economic growth expectations have been upgraded
significantly across Asia, although the rate of change of improvement will slow
in 2000 as low base effects drop out. Korea has led the growth revival, but
laggard economies like Hong Kong and Thailand demonstrated faster growth trends
in the third and fourth quarters as well. Currencies were stable compared to the
U.S. dollar but there is pressure on some currencies to appreciate, particularly
if the yen remains relatively strong.
Most countries in the region reported increases in exports of electronics
components during 1999. This growth has contributed significantly to GDP growth
upgrades in Taiwan, South Korea, Singapore and Malaysia. Global price pressures
have forced manufacturers to cut costs, which often means sourcing more from
low-cost Asian producers. The trend towards greater outsourcing, firmly
established among American companies, is being adopted by an increasing number
of Japanese companies. Outsourcing is also broadening from the personal computer
supply chain to include other technology applications including
telecommunications. The Portfolio has a significant exposure to a number of
Asian electronics companies in Taiwan, Korea, Singapore and Thailand, and these
investments performed well as order books gained momentum.
Trends which need to be monitored include U.S. monetary tightening, domestic
pressures for higher interest rates in a number of Asian countries, possible
negative terms of trade conditions if oil prices maintain current strength and a
heavy calendar of new Asian equity issues in 2000. Most markets performed well
despite the headwinds of rising global interest rates in 1999 given limited
foreign debt financing needs and healthy domestic liquidity. The U.S. current
account deficit is a significant issue for the global economy; a best case
scenario would be a gradual slowdown in the growth of U.S. consumption
accompanied by accelerated growth in demand in Europe, Japan and the rest of
Asia. The rise in the price of oil is similar to a tax hike for most of Asia;
Indonesia and Malaysia are the only net beneficiaries of higher prices. Japanese
economic recovery is very positive for Asia and Japanese corporate restructuring
opens up new opportunities for outsourcing across a range of manufacturing
industries. Political factors to watch in 2000 include parliamentary or
presidential elections in Korea, Taiwan and Thailand, although we currently do
not expect major market risks from these events. We expect that the bulk of
market returns in 2000 will be generated through earnings growth rather than
further multiple expansion. Asian markets have stabilized after the economic
crisis conditions of 1997 and 1998 and interest rates have fallen back to normal
levels. We expect strong earnings growth from many companies. We will also
continue to invest in corporate restructuring stories, as restructuring received
added impetus from the crisis and should lead to higher sustainable returns on
capital in the future.
We expected Y2K concerns to affect liquidity in the fourth quarter but the
millennium date change turned out to be a `non-event'. Going forward we think
that the outlook for non-Japan Asia as an asset class continues to be positive.
While the risks from a volatile U.S. market and a Fed tightening are well known,
Asia is likely to weather that trend much better. The restructuring undertaken
by Asian companies over the last 2 years should enable the return on equity for
the region to exceed historic levels over the next 3 years. This shift upwards
is more likely to be structural than cyclical. The strategy of focusing on stock
selection, with an emphasis on attractively valued companies that should exceed
consensus expectations, remains unchanged.
Ashutosh Sinha
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
Asian Equity Portfolio
18
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (95.2%)
CHINA (0.6%)
632,200 Hengan International Group Co., Ltd. .... $ 175
471,000 Huaneng Power International, Inc. ....... 112
1,064,000 Yanzhou Coal Mining Co., Ltd. ........... 294
619,000 Zhejiang Expressway Co., Ltd. ........... 94
---------------
675
---------------
HONG KONG (30.2%)
205,000 Asia Satellite Telecommunications
Holdings Ltd. ......................... 647
261,000 Cathay Pacific Airways Ltd. ............. 465
427,900 Cheung Kong Holdings Ltd. ............... 5,436
408,000 China Telecom Ltd. ...................... 2,551
(a)229,000 Great Wall Technology Co. ............... 222
84,300 Hang Seng Bank Ltd. ..................... 962
686,000 Hong Kong & China Gas Co., Ltd. ......... 940
131,000 Hong Kong Land Holdings Ltd. ............ 194
1,062,500 Hong Kong Telecommunications Ltd. ....... 3,069
512,800 Hutchison Whampoa Ltd. .................. 7,454
206,000 Jardine International Motor
Holdings Ltd. ......................... 103
76,000 Johnson Electric Holdings Ltd. .......... 488
136,000 Kerry Properties Ltd. ................... 191
(a)421,200 Li & Fung Ltd. .......................... 1,057
393,200 New World China Land Ltd. ............... 145
213,000 New World Development Co., Ltd. ......... 480
808,000 Sino Land Co. ........................... 465
107,000 SmarTone Telecommunications
Holdings Ltd. ........................... 516
318,600 Sun Hung Kai Properties Ltd. ............ 3,320
234,200 Swire Pacific Ltd., Class A ............. 1,383
178,800 Television Broadcasts Ltd. .............. 1,219
(a)304,000 Timeless Software Ltd. .................. 176
140,000 Wing Hang Bank Ltd. ..................... 479
(a)58,000 Yue Yuen Industrial Holdings ............ 139
---------------
32,101
---------------
INDIA (0.4%)
(a,d)11,500 HCL Technologies Ltd. ................... 153
785 Hero Honda Motors Ltd. .................. 21
(a)30,400 Moer Bear (India) Ltd. .................. 244
50 Tata Engineering & Locomotive Co., Ltd. . --
531 Tata Infotech Ltd. ...................... 11
---------------
429
---------------
INDONESIA (1.9%)
772,000 Aneka Tambang ........................... 155
161,000 Gudang Garam ............................ 433
(a)3,100 Gulf Indonesia Resources Ltd. .......... 25
230,500 Indofood Sukses Makmur Tbk .............. 289
190,000 Semen Gresik ............................ 301
69,480 Telekomunikasi Indonesia ADR ............. 764
---------------
1,967
---------------
MALAYSIA (3.7%)
170,400 British American Tobacco Bhd ............ 1,300
133,000 Carlsberg Brewery Malaysia Bhd .......... 410
239,800 Malayan Banking Bhd ..................... 852
40,000 Nestle (Malaysia) Bhd ................... 173
356,000 Public Bank Bhd ......................... 311
102,000 Sime Darby Bhd .......................... 129
99,000 Tanjong plc ............................. 219
126,000 Telekom Malaysia Bhd .................... 487
---------------
3,881
---------------
PHILIPPINES (0.9%)
108,300 ABS-CBN Broadcasting Corp. .............. 134
18,480 Philippine Long Distance Telephone Co. .. 470
153,555 San Miguel Corp., Class B ............... 217
757,500 SM Prime Holdings, Inc. ................. 143
---------------
964
---------------
SINGAPORE (13.8%)
(a)118,000 Chartered Semiconductor
Manufacturing Ltd. .................... 645
119,600 City Developments Ltd. .................. 700
(a)124,235 DBS Group Holdings Ltd. ................. 2,036
206,000 DBS Land Ltd. ........................... 406
233,000 Gul Technologies ........................ 257
132,000 Natsteel Electronics Ltd. ............... 697
225,000 Neptune Orient Lines Ltd. (Foreign) ..... 301
249,000 Omni Industries Ltd. .................... 452
(a)101,224 Overseas Union Bank Ltd. ................ 593
209,000 Overseas-Chinese Banking Corp.
(Foreign) ............................ 1,920
108,200 Sembawang Logistics Ltd. ............... 439
129,000 Singapore Airlines Ltd. ................ 1,464
52,900 Singapore Press Holdings Ltd. .......... 1,147
458,000 Singapore Technologies Engineering
Ltd. ................................. 709
427,000 Singapore Telecommunications Ltd. ...... 882
91,001 United Overseas Bank Ltd. (Foreign) .... 803
109,700 Venture Manufacturing (Singapore)
Ltd. ................................. 1,258
---------------
14,709
---------------
SOUTH KOREA (23.3%)
5,470 Cheil Jedang Corp. ..................... 631
17,960 Daeduck Electronics Co. ................ 213
12,540 Dongwon Securities Co. ................. 271
53,630 Good Morning Securities Co., Ltd. ...... 256
30,110 Hana Bank .............................. 235
7,940 Hankuk Glass Industry Co., Ltd. ........ 150
29,080 Housing & Commerical Bank, Korea ....... 922
(a)15,160 Humax Co., Ltd. ........................ 256
23,396 Hyundai Electronics Industries Co. ..... 497
(a)94,036 Hyundai Motor Co.-GDR .................. 1,011
(a)6,250 Insung Information ..................... 214
67,662 Kookmin Bank ........................... 1,061
4,200 Korea Chemical Co., Ltd. ............... 274
114,630 Korea Electric Power Corp. ADR ......... 1,920
(a)13,920 Korea Technology Banking Co. ........... 135
27,200 Korea Telecom Corp. ADR ................ 2,033
18,430 L.G. Chemical Ltd. ..................... 583
35,990 Mirae Co. .............................. 280
(a)11,860 Pantech Co., Ltd ....................... 266
47,000 Pohang Iron & Steel Co., Ltd. ADR ...... 1,645
9,769 Samsung Electro-Mechanics Co. .......... 649
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Asian Equity Portfolio
19
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
SOUTH KOREA (CONT.)
36,035 Samsung Electronics Co. ................. $ 8,441
73,614 SK Telecom Co., Ltd. ADR ................ 2,825
---------------
24,768
---------------
TAIWAN (17.6%)
(a,d)14,352 Acer Peripherals GDR .................... 595
3,200 Acer Peripherals, Inc. .................. 13
(a)352,850 Acer, Inc. .............................. 1,062
(a)186,696 Advanced Semiconductor
Engineering, Inc. ..................... 666
19,000 Ambit Microsystems Corp. ................ 141
(a)7,400 ASE Test Ltd. ........................... 180
97,375 Asustek Computer, Inc. .................. 1,027
1,003,850 China Steel Corp. ....................... 742
(a)356,760 Chinatrust Commercial Bank .............. 415
(a)66,378 Compal Electronics, Inc. ................ 223
(a)96,500 Compeq Manufacturing Co., Ltd. .......... 526
98,000 Delta Electronics, Inc. ................. 425
(a)300,840 Evergreen Marine Corp. .................. 247
253,434 Far East Textile Ltd. ................... 606
(a,e)4,000 Far East Textile Ltd. GDR 96
(a)205,000 First Commercial Bank ................... 255
159,000 Formosa Plastics Corp. .................. 317
(a)145,288 Hon Hai Precision Industry .............. 1,083
319,700 International Commercial Bank of
China ................................. 359
337,080 Nan Ya Plastics Corp. ................... 741
98,544 President Chain Store Corp. ............. 435
(a)3,000 Ritek Corp. GDR ......................... 35
(a)29,000 Ritek Inc. .............................. 176
(a)238,710 Siliconware Precision Industries
Co. ................................... 608
(a)406,000 Taishin International Bank .............. 228
(a)725,035 Taiwan Semiconductor
Manufacturing Co. ..................... 3,858
(a)810,351 United Micro Electronics Corp.,
Ltd. .................................. 2,892
280,160 United World Chinese Commercial Bank .... 338
(a)73,000 Universal Scientific IND ................ 230
106,000 Wyse Technology Taiwan Ltd. ............. 206
---------------
18,725
---------------
THAILAND (2.8%)
57,300 Advanced Information Service PCL
(Foreign) .............................. 961
(d)51,000 BEC World PCL (Foreign) ................. 360
34,545 Delta Electronics (Thailand) PCL
(Foreign) .............................. 411
360,400 Golden Land Property Development
PCL (Foreign) ......................... 187
94,066 Siam Cement PCL (Foreign) ............... 505
348,700 Thai Farmers Bank PCL (Foreign) ......... 583
---------------
3,007
---------------
TOTAL COMMON STOCKS (Cost $75,905) 101,226
---------------
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- -----------------------------------------------------------------------------
<S> <C>
WARRANTS (0.3%)
PHILIPPINES (0.1%)
(a)224,190 Jollibee FoodsCorp, expiring
3/24/03 ............................... $ 95
---------------
THAILAND (0.2%)
(a)547,200 Siam Commercial Bank PCL
(Foreign), expiring 5/10/02 ........... 254
---------------
TOTAL WARRANTS (Cost $140) .................................. 349
---------------
TOTAL FOREIGN SECURITIES (95.5%) (Cost $76,045) ............. 101,575
---------------
FACE
AMOUNT
(000)
- --------------
FOREIGN CURRENCY (0.2%)
HKD 438 Hong Kong Dollar ................................. 56
INR 264 Indian Rupee ..................................... 6
MYR 308 Malaysian Ringgit ................................ 81
PKR 128 Pakistani Rupee .................................. 2
KRW 7,283 South Korean Won ................................. 7
TWD 291 Taiwan Dollar .................................... 9
---------------
TOTAL FOREIGN CURRENCY (Cost $162) .......................... 161
---------------
TOTAL INVESTMENTS (95.7%) (Cost $76,207) .................. 101,736
---------------
OTHER ASSETS (4.6%)
<S> <C> <C>
Cash $ 4,586
Receivable for Portfolio Shares Sold ......... 170
Dividends Receivable ......................... 104
Foreign Withholding Tax Reclaim
Receivable ................................. 27
Other ........................................ 19 4,906
------------
LIABILITIES (-0.3%)
Investment Advisory Fees Payable ............. (101)
Custodian Fees Payable ....................... (96)
Directors' Fees and Expenses Payable ......... (23)
Administrative Fees Payable .................. (16)
Foreign Taxes Payable ........................ (8)
Distribution Fees Payable .................... (2)
Other Liabilities ............................ (55) (301)
------------ ---------------
NET ASSETS (100%) ........................................... $ 106,341
---------------
---------------
NET ASSETS CONSIST OF:
Paid in Capital ............................................. $ 166,740
Accumulated Net Investment Income ........................... 91
Accumulated Net Realized Loss ............................... (86,011)
Unrealized Appreciation on Investments and Foreign Currency
Translations(Net of accrual for foreign taxes of $8 on
unrealized appreciation of investments) ................... 25,521
---------------
NET ASSETS .................................................. $ 106,341
---------------
---------------
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Asian Equity Portfolio
20
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
AMOUNT
(000)
- -----------------------------------------------------------------------------
<S> <C>
CLASS A:
NET ASSETS .................................................. $ 103,513
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 7,195,438 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .................... $ 14.39
---------------
---------------
CLASS B:
NET ASSETS $ 2,828
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 197,997 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ................... $ 14.28
---------------
---------------
- -----------------------------------------------------------------------------
(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
GDR -- Global Depositary Receipt
PCL -- Public Company Limited
<CAPTION>
- -----------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- -----------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT....................................$ 21,389 20.1%
CONSUMER GOODS....................................... 14,036 13.2
ENERGY............................................... 3,385 3.2
FINANCE.............................................. 24,934 23.4
MATERIALS............................................ 5,412 5.1
MULTI-INDUSTRY....................................... 8,967 8.4
SERVICES............................................. 23,452 22.1
-------- ----
$101,575 95.5%
-------- ----
-------- ----
- -----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Asian Equity Portfolio
21
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Australia (7.4%)
Hong Kong (52.3%)
Japan (16.4%)
Philippines (2.9%)
Singapore (15.6%)
Thailand (1.2%)
Other (4.2%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
GPR General Real
Asian Real Estate Asian Real Estate Estate Securities
Portfolio-Class A Portfolio-Class B Index - Far East(1)
----------------- ----------------- -------------------
<S> <C> <C> <C>
10/01/97* $500,000 $100,000 $500,000
12/31/97 ________ ________ ________
12/31/98 ________ ________ ________
12/31/99 $438,764 $ 87,011 $357,418
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different fees assessed to that class. The GPR General Real Estate
Securities Index - Far East value at December 31, 1999 assumes a minimum
investment of $500,000; if a minimum initial investment of $100,000 (the minimum
investment for Class B shares) is assumed, the value at December 31, 1999 would
be $71,483.
PERFORMANCE COMPARED TO THE
GPR GENERAL REAL ESTATE SECURITIES INDEX - FAR EAST(1)
- ------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION
------ -------------------
<S> <C> <C>
PORTFOLIO-- CLASS A ........... 24.27% -5.64%
PORTFOLIO-- CLASS B ........... 23.88 -6.00
INDEX ......................... 20.46 -13.86
</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.
For the year ended December 31, 1999, the Portfolio had a total return of 24.27%
for the Class A shares and 23.88% for the Class B shares compared to 20.46% for
the GPR General Real Estate Securities Index - Far East (the "Index"). For the
period from inception on October 1, 1997 through December 31, 1999, the
Portfolio had an average annual total return of -5.64% for the Class A shares
and -6.00% for the Class B shares compared to -13.86% for the Index.
For the three months ended December 31, 1999, the Portfolio had a total return
of 9.97% for the Class A shares and 9.81% for the Class B shares compared to
7.39% for the Index. Asian real estate securities staged a strong rebound in the
fourth quarter ending the year on a high note. The speed of recovery in gross
domestic product ("GDP") growth throughout Asia and the implied potential for
robust returns attracted international liquidity back into these markets in the
fourth quarter of 1999. The powerful rally was set-off by investors plowing into
telecommunication and technology stocks, following the global popularity of
these two sectors. Demand for stocks, which are proxies to the economy,
beneficiaries of the internet revolution and platforms for e-commerce businesses
were market drivers.
MACRO-ECONOMIC OVERVIEW
Asia continues to report an impressive economic rebound with growth rates at
above- market consensus driven largely by higher exports. The macro
underpinnings have been undervalued currencies, low interest rates, fiscal
stimulus and some amount of debt restructuring.
In Japan, the real economy shrank 1% quarter-on-quarter in the third quarter of
1999 as the government, corporations and consumers pared spending. This
contraction reflects how dependent Japan still is on government pump-priming
- --------------------------------------------------------------------------------
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED
AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS
NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF
CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
- --------------------------------------------------------------------------------
Asian Real Estate Portfolio
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INVESTMENT OVERVIEW
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ASIAN REAL ESTATE PORTFOLIO (CONT.)
measures. Nevertheless, the on going restructuring effort is for real. Profits
are rising as the result of cost-cutting, balance sheet cleansing and resource
reallocation. The consequences will be weak consumption and investments. We are
looking for fresh information technology spending; creation of high-paid jobs in
new industries and wealth effects from higher equity prices to provide the
offsetting effects.
Among the countries in non-Japan Asia, Korea's recovery has been most remarkable
with economic growth in the first nine months of 1999 averaging 9% year-on-year.
Korea has benefited massively from the combination of firmer growth in Japan and
a stronger yen, allowing its exporters to steadily gain market share. Its huge
output gap will help lower inflation risks and ensure that nominal interest
rates stay low. Taiwan grew 5% in the third quarter of 1999. The key impact of
the recent earthquake has been on consumer spending which rose only 6%
year-on-year, equivalent to only two-thirds of the rise seen in the second
quarter of 1999. Export growth remains buoyant and Taiwan's high tech export
industries look set for another good year ahead. In Singapore, the government
has done well in pushing for business cost reduction, maintaining exchange rate
competitiveness and curbing the over-reliance on he electronics sector. GDP
growth is 5.6% in 1999.
China is expected to achieve 7.1% GDP growth in 1999. Exports have risen 28.8%
in November and will stay robust. The good news is that China has secured NTR
agreement with U.S. and is expected to accede the World Trade Organization (WTO)
in mid-2000. WTO is essential to prevent China from backsliding on a reform
process that has already been long and painful and yet is barely half way
through. Domestic demand will continue to drag as a result. Hong Kong surprised
the market with 4.5% GDP growth in the third quarter of 1999. Effective
government spending on infrastructure projects and higher trade throughput were
key contributors to growth. Going forward, the SAR government stands to benefit
from multinational companies seeking to exploit China's newly opening markets.
We remain cautious on Indonesia as the new administration faces up to challenges
of reforms ahead; its corporate sector remains submerged in debt. The
Philippines strayed from the path of reform and de-regulations through policy
indecision and a lack of focus. Private sector demand remains sluggish. Based on
recent GDP release for the third quarter of 1999, consumption provided a
moderate contribution to growth and investment was no longer a drag on growth.
In Thailand, rising public debt remains a key challenge (which had risen to over
50% of GDP from around 27% in 1997) and it is essential that restructuring of
the financial sector proceed apace if debt is not to become a constraint on
growth.
We expect Asia to sustain good GDP performance in 2000. Cost competitiveness and
rising global demand for certain technology sub-sectors should lead to
trade-driven growth. The risk is political complacency leading to necessary
restructuring taking a back seat and a sharp pull back in the U.S. economy.
REAL ESTATE MARKETS
In Hong Kong, property transactions continue to decline, falling between 2-5%
per month as the market moves into the seasonal lull period. Monthly volume
hovers around 5,600 to 5,800 units in the fourth quarter of 1999. Banks are
reporting fewer new mortgage lending and refinancing loans representing over 40%
of new loans approved. However, market sentiment has improved significantly on
the back of a more positive economic outlook in both Hong Kong and China. This
could potentially lead to the release of pent-up buying of residential
properties post Chinese New Year. Transaction activities for high-end luxury
apartments have started to pick up in December with investors snapping up units
at rental yields of 5-6%. A higher-floor unit at The Mayfair in Mid-levels was
recently sold for Hong Kong $38.8m or about Hong Kong $13,300 per square foot
(psf). Major developers are actively accumulating land bank from public auctions
and have successfully negotiated favorable land premium deals with the SAR
government for agricultural land conversion in the fourth quarter of 1999. We
believe that the SAR government has lowered its price expectation for land
premium deals to raise revenue ahead of the fiscal budget in March 2000. On
office property, the vacancy situation of Grade A buildings in Central has
turned around in the fourth quarter of 1999. With International Finance Center
One and The Cheung Kong Center well-over 90% leased, there is limited new space
available in the city center. Secondary locations such as Causeway Bay, Quarry
Bay and Island East are beginning to register higher demand from new technology
set ups and internet companies. With the view that the office market has
bottomed-out in Hong Kong, SHK Properties and Henderson Land have agreed on a
Hong Kong $1,600psf land premium settlement for the second tower at Inter-
national Finance Center to be completed in 2004. The SAR government has also
concluded land premium for Great Eagle's Mongkok site at Hong Kong $190m, 30%
below market expectation.
In Singapore, new residential transactions fell to about 800 units in the fourth
quarter 1999, the lowest since the third quarter of 1998. This is partly due to
fewer projects being launched and the time lag required for buyers to come to
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INVESTMENT OVERVIEW
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ASIAN REAL ESTATE PORTFOLIO (CONT.)
terms with a 30% price increase for the year. We expect the residential market
to remain quiet until the second quarter of 1999 when several projects located
in popular residential districts will be launched. The trend for private home
rentals has turned around, rising 2.7% in the third quarter of 1999 led by
demand for high-rise apartments and stand-alone houses; residential rental
values are still 41% lower than the peak in the first quarter of 1996. We expect
this up-trend to persist with supply being taken out in prime locations due to
"enbloc" deals and the government's push toward attracting foreign professionals
to work in Singapore. Property developers are still in the land acquisition
mode, snapping up well-located freehold or 999-yr private land made available by
owners putting their buildings up for collective sale. The outlook for office
market has improved in the fourth quarter of 1999 with rental yields firming
marginally to around 4-5%. New office take-up of above 700,000 square feet in
the fourth quarter of 1999 far exceeded market expectation. Property consultants
are beginning to raise their year 2000 demand forecast to 2.5m/sf. Property
landlords are seeing rising demand from technology firms, government agencies
and new space required by existing tenants. Office occupancy in the downtown
area is 88%. Government-owned Pidemco Land's acquisition of Hitachi Tower and
80% of Caltex House at S$1,400psf and S$1,250psf, respectively, set new
benchmarks for capital values in Raffles Place.
In Japan, housing starts declined in the fourth quarter 1999 as the government
winds down its subsidized home-loan program. Japanese developers target to offer
fewer new condominiums for sale in Tokyo in 2000 (down 7.2% to 80,100 units) in
response to the government-owned Housing Loan Corporation's decision to raise
the home loan rate to 2.8% in November 1999. The government is still
deliberating on whether to extend tax breaks for homebuyers for a further six
months to June 2001. Office rents in Tokyo fell 4% in October 1999, though the
pace of decline has slowed. Capital value remains under pressure with the lack
of new demand for commercial real estate and corporate downsizing. Nevertheless,
change may be imminent for the Japanese real estate scene. The Tokyo Stock
Exchange is considering listing real estate investment funds, which invest in
office buildings and asset-back securities. The Diet will deliberate on issues
relating to J-Reits and the necessary regulatory changes when their sessions
begin in February 2000. For the first time in history, large corporations such
as Mitsubishi Materials Corp and NEC Corp. are beginning to sell or securitize
real estate assets as a means to pare down debt. The up-coming change in
accounting regulations requiring Japanese companies to mark asset values to
market will change the way corporations evaluate assets with sub-normal returns.
Sumitomo Realty & Development Co. recently announced that it would sell most of
its overseas assets to improve the company's financial health.
Elsewhere in non-Japan Asia, only incremental progress was made to real estate
markets from the previous quarter. The unsold stock of housing units in China
expanded 21% to 71.4m square metres, in the first three-quarters of 1999. It is
interesting to note that mortgage loans in China doubled in 1999, even if they
represent only 2% of total bank loans compared to 1% a year ago. We believe that
it is a preliminary sign that the real estate sector could eventually help fuel
China's economic growth in future years. The Philippines government had recently
opened its retail industry to foreign competition; part of a broad move to
dismantle protectionist barriers. SM Prime, the nation's largest shopping mall
operator, is the key beneficiary of this new law. Downward price adjustment in
prime commercial capital and rental values is still slow in downtown Makati and
the focus of the housing sector has shifted away from the production of
socialized/low-income units to building middle-to-high-end houses. In Thailand,
property companies are still engaged in their long-drawn debt restructuring and
recapitalization exercises. The Thai real estate market remains in deep demand
and supply dis- equilibrium with excerpts of demand returning for single- story
detached homes located near the Bangkok area. In Malaysia, the property market
is still mired with huge over- capacity. After the recent disappointing auction
(yielding only 14% of total indicative value on offer), it may be difficult for
Danaharta to off-load its MYR$13.3billion non- performing property portfolio
without a substantial haircut.
REAL ESTATE SECURITIES
Asian real estate share prices rose as much as 35%, propelled by the powerful
technology-led rally across global markets in the fourth quarter of 1999. Hong
Kong developers gained on announcement of the following: a) technology
investments which will help keep their portfolio up-to-date with technological
advances; b) internet/ telecommunication business strategies which could
leverage upon their existing pool of commercial tenants or condominium
residents; and c) space-for-equity swap-type investments which could potentially
generate huge returns on under-utilized or unoccupied industrial/office
properties. Japanese real estate shares exploded, rising as much as 20% in
November on the potential listing of J-Reits on the Tokyo Stock Exchange. This
rally fizzled out rather quickly as investors returned to technology stocks. In
Australia, the listed property trusts (LPTs) continue to under-perform hugely on
concerns over further central bank tightening and
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INVESTMENT OVERVIEW
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ASIAN REAL ESTATE PORTFOLIO (CONT.)
rising bond yields. With most institutional investors scaling back trading to
avoid potential Y2K related problems, share prices in Singapore and other
smaller markets were largely driven by frenzied retail share trading activities
and window-dressing ahead of book close.
We continue to hold on to quality companies, well positioned to potentially
benefit from the anticipated pick up in demand for real estate as Asia recovers
from the financial crisis. We have benefited from an increased over- weight
position in Hong Kong, with a preference for residential developers. We believe
that residential demand should rebound in 2000, as economic recovery becomes
more broad-based. Also, we have increased our exposure to Hong Kong property
investors in view of the improving prospect in the office and high-end retail
market. In Singapore, we have reduced our overweight position marginally because
the mis-match in price expectation between sellers and buyers, after a 30% rise
in residential prices in 1999, will set the market back somewhat. Furthermore,
the market is disappointed that several prominent "enbloc" private land deals
have failed to achieve their reserve asking prices. We have maintained an
underweight position in Japan. It is still unclear at this juncture how the
scenery for the real estate markets or the profile of traditional property
companies in Japan will change should the government decide to pursue estab-
lishment of J-Reits. Australia remains an under-weight given the upward trend
for bond yields.
Theodore R. Bigman
PORTFOLIO MANAGER
Angeline Ho
PORTFOLIO MANAGER
January 2000
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STATEMENT OF NET ASSETS
DECEMBER 31, 1999
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ASIAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (95.8%)
AUSTRALIA (7.4%)
(a)14,300 BT Office Trust ....................... $ 13
27,300 Centro Properties Group ............... 47
21,050 Westfield Holdings Ltd. ............... 131
64,400 Westfield Trust ....................... 126
------------
317
------------
HONG KONG (52.3%)
113,000 Amoy Properties Ltd. .................. 95
32,000 Cheung Kong Holdings Ltd. ............. 406
127,000 China Resources Beijing Land .......... 14
38,000 Hang Lung Development Co. ............. 43
23,000 Henderson Land Development Co., Ltd. .. 148
121,700 HKR International Ltd. ................ 85
58,000 Hong Kong Land Holdings Ltd. .......... 86
80,000 Kerry Properties Ltd. ................. 112
24,000 New Asia Realty & Trust Co., Class A .. 30
128,400 New World China Land Ltd. ............. 47
98,000 New World Development Co., Ltd. ....... 221
31,000 Shui On Construction .................. 46
294,700 Sino Land Co. ......................... 170
38,000 Sun Hung Kai Properties Ltd. .......... 396
21,000 Swire Pacific Ltd., Class A ........... 124
67,000 Wharf Holdings Ltd. ................... 156
57,000 Wheelock & Co., Ltd. .................. 60
------------
2,239
------------
JAPAN (16.4%)
5,000 Daibiru Corp. ......................... 31
40,000 Mitsubishi Estate Co., Ltd. ........... 390
34,000 Mitsui Fudosan Co., Ltd. .............. 230
15,000 Sumitomo Realty & Development Co.,
Ltd. ................................ 50
------------
701
------------
PHILIPPINES (2.9%)
170,400 Ayala Land, Inc., Class B ............. 44
(a)195,000 Filinvest Land, Inc. .................. 20
307,000 SM Prime Holdings, Inc. ............... 58
------------
122
------------
SINGAPORE (15.6%)
(a)117,000 Allgreen Properties Ltd. .............. 107
38,000 City Developments Ltd. ................ 222
67,500 DBS Land Ltd. ......................... 133
39,000 First Capital Corp., Ltd. ............. 52
39,000 Keppel Land Ltd. ...................... 64
93,000 Wing Tai Holdings Ltd. ................ 92
------------
670
------------
THAILAND (1.2%)
13,700 Golden Land Property Development PCL .. 7
33,900 MBK Properties and Development PCL .... 24
(d)4,700 Oriental Hotel (Thailand) PCL ......... 22
------------
53
------------
TOTAL COMMON STOCKS (Cost $3,273) ......................... 4,102
------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------
<S> <C> <C>
FOREIGN CURRENCY (0.0%)
HKD 13 Hong Kong Dollar ................................. $ 2
PHP 11 Philippines Peso ................................. --
------------
TOTAL FOREIGN CURRENCY (Cost $2) .......................... 2
------------
TOTAL INVESTMENTS (95.8%) (Cost $3,275) ................... 4,104
------------
OTHER ASSETS (5.0%)
Cash ...................................... $ 208
Dividends Receivable ...................... 4
Receivable from Investment Advisor ........ 3 215
---------------
LIABILITIES (0.8%)
Custodian Fees Payable .................... (6)
Administrative Fees Payable ............... (2)
Distribution Fees Payable ................. (1)
Other Liabilities ......................... (26) (35)
-------------- ------------
NET ASSETS (100%) ......................................... $ 4,284
------------
------------
NET ASSETS CONSIST OF:
Paid in Capital ........................................... $ 6,017
Distributions in Excess of Net Investment Income .......... (13)
Accumulated Net Realized Loss ............................. (2,549)
Unrealized Appreciation on Investments and Foreign Currency
Translations(Net of accrual for foreign taxes of $1 on
unrealized appreciation of investments) ................. 829
------------
NET ASSETS ................................................ $ 4,284
------------
------------
CLASS A:
NET ASSETS ................................................ $ 2,912
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 368,833 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .................. $ 7.90
------------
------------
CLASS B:
NET ASSETS ................................................ $ 1,372
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 172,935 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .................. $ 7.93
------------
------------
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(a) -- Non-income producing security
(d) -- Security valued at fair value See Note A-1 to financial statements.
PCL -- Public Company Limited
- -------------------------------------------------------------------------
<CAPTION>
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SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- -------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------
Construction and Housing .................. $ 46 1.1%
Finance ................................... 3,850 89.9
Lodging/Leisure ........................... 22 0.5
Multi-Industry ............................ 184 4.3
------ -----
$4,102 95.8%
------ -----
------ -----
</TABLE>
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Asian Real Estate Portfolio
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INVESTMENT OVERVIEW
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EMERGING MARKETS PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Argentina (0.8%)
Brazil (8.2%)
Chile (0.2%)
China (3.6%)
Czech Republic (0.4%)
Egypt (1.1%)
Greece (1.1%)
Hungary (0.8%)
India (9.3%)
Indonesia (1.3%)
Israel (6.6%)
Malaysia (1.1%)
Mexico (10.4%)
Pakistan (0.3%)
Poland (1.3%)
Russia (3.1%)
Singapore (0.5%)
South Africa (5.4%)
South Korea (19.9%)
Taiwan (12.3%)
Thailand (2.2%)
Turkey (8.0%)
Other (2.1%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
MSCI Emerging IFC Global
Emerging Markets Markets Total Return
Portfolio-Class A Free Index(1) Composite Index
----------------- ------------- ---------------
<S> <C> <C> <C>
9/25/92* $ 500,000 $ 500,000 $ 500,000
10/31/92 __________ __________ __________
12/31/92 __________ __________ __________
12/31/93 __________ __________ __________
12/31/94 __________ __________ __________
12/31/95 __________ __________ __________
12/31/96 __________ __________ __________
12/31/97 __________ __________ __________
12/31/98 __________ __________ __________
12/31/99 $1,251,308 $ 966,168 $ 913,413
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS
FREE INDEX AND IFC GLOBAL RETURN COMPOSITE INDEX(1)
- ---------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YEAR YEARS INCEPTION
------ ------- ---------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A ......... 101.78% 7.84% 13.45%
PORTFOLIO -- CLASS B ......... 101.26 N/A 13.17
IFC GLOBAL TOTAL
RETURN COMPOSITE
INDEX -- CLASS A ........... 62.69 0.75 8.71
MSCI EMERGING
MARKETS FREE INDEX
-- CLASS A ................. 66.41 2.00 9.49
IFC GLOBAL TOTAL
RETURN COMPOSITE
INDEX -- CLASS B ........... 62.69 N/A 3.61
MSCI EMERGING
MARKETS FREE INDEX
-- CLASS B ................. 66.41 N/A 3.71
</TABLE>
1. The IFC Global Total Return Composite Index is an unmanaged index of common
stocks and includes developing countries in Latin America, East and South
Asia, Europe, the Middle East, and Africa (includes dividends). The MSCI
Emerging Markets Free Index is a market capitalization weighted index
comprised of companies that are representative of the market structure of
developing countries in Latin America, Asia, Eastern Europe, the Middle East
and Africa (includes dividends).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE
AS MEASURED BY THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMERGING
MARKETS 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. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN
RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
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Emerging Markets Portfolio
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INVESTMENT OVERVIEW
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EMERGING MARKETS PORTFOLIO (CONT.)
The investment objective of the Emerging Markets Portfolio is to provide
long-term capital appreciation by investing in equity securities of emerging
country issuers.
For the year ended December 31, 1999, the Portfolio had a total return of
101.78% for the Class A shares and 101.26% for the Class B shares compared to
66.41% for the Morgan Stanley Capital International (MSCI) Emerging Markets Free
Index (the "MSCI Index") and 62.69% for the IFC Global Total Return Composite
Index. For the five-year period ended December 31, 1999, the average annual
total return for the Class A shares was 7.84% compared to 2.00% for the MSCI
Index and 0.75% for the IFC Global Total Return Composite Index. For the period
from inception on September 25, 1992 through December 31, 1999, the average
annual total return for the Class A shares was 13.45% compared to 9.49% for the
MSCI Index and 8.71% for the IFC Global Total Return Composite Index. For the
period from inception on January 2, 1996 through December 31, 1999, the average
annual total return for the Class B shares was 13.17% compared to 3.71% for the
MSCI Index and 3.61% for the IFC Global Total Return Composite Index.
Outperformance versus the Index was attributable to both strong stock selection
and country allocation. Stock selection in Mexico and South Korea contributed
markedly to performance. Other notable contributors were equity selections in
India, Israel, Taiwan and Thailand. Our overweight position in Indonesia
(+93.5%) and Turkey (+252.4%) coupled with our underweight stance in Argentina
(+34.3%), Chile (+39.0%) and Greece (+49.6%) contributed positively to
performance. Detracting from performance was poor stock selection in Greece,
Indonesia, South Africa and Russia and country allocation in Taiwan (+52.7%).
The emerging markets rallied in 1999, boosted by a supportive global environment
and dissipating concerns over Y2K and heartier investor risk appetites.
Continued strength in commodity prices and improving economic fundamentals,
coupled with positive election results (India, Mexico and Russia) and IMF
agreements (Russia and Turkey), further boosted the emerging markets. Although
emerging markets faced great adversities during the year, including heightened
political tensions (Indonesia), scandals (Indonesia and South Korea) and
earthquakes (Greece, Turkey, Taiwan and Mexico), many emerging markets proved
their buoyancy by year-end. During the fourth quarter, Taiwan and Turkey
evidenced their resilience in light of the earthquakes they suffered during the
third quarter and investors rewarded countries such as India and Turkey for
their commitment to reforms.
Latin American markets advanced 58.9% in 1999, led by the large liquid markets
of Brazil and Mexico. Driving the performance within the region were increased
global risk appetite, commodity price strength, improving liquidity conditions,
a turnaround in regional economic growth and benign political outcomes in
elections in Argentina, Chile and Mexico. However, Latin America remains the
most vulnerable to a significant change in U.S. interest rates as it has large
external financing needs. We will continue to be underweight the Latin American
region in the near-term, as we believe other regions within the emerging markets
currently offer more exciting investment opportunities.
Brazilian equities advanced 67.2% during the year, reflecting the economy's
resilience in light of the devaluation of the Brazilian currency in January.
Fiscal figures continued to surprise on the upside and the Brazilian real
strengthened during the fourth quarter, reflecting in part its undervaluation as
well as the government's new focus of targeting inflation. Both locals and
foreign institutions returned to the market towards year-end, further boosting
the market. Investors will focus their attention on the extraordinary session at
the beginning of the year in which votes regarding tax reform and fiscal reform
will take place. During the fourth quarter of 1999, we increased our exposure to
Brazilian banks based on attractive valuations and our expectations that
interest rates will continue to trend downward in the coming quarter.
Mexico is our favorite market within Latin America, and Mexican equities rose
80.1% during 1999 on the back of a strong U.S. market and solid domestic
fundamentals. GDP growth was better than expected, inflation was well behaved,
oil prices remained buoyant and the PRI presidential primary result in November
indicated a relatively calm political environment. Mexico signed a trade
agreement with the European Union improving its trade prospects and, over the
longer term, diversifying its reliance from the U.S. economy. We believe that
rating agencies will raise Mexico to investment grade after the presidential
elections in July 2000, thereby lowering financing costs to Mexican corporates
and lending overall support to the market. Although domestic fundamentals remain
strong, we are cautiously monitoring the risk of a slowdown in the U.S. economy
and are also wary of a sell off in the Mexican peso, which we presently believe
to be over-valued. During the fourth quarter we reduced some of our significant
overweight in beverage company Femsa and added to one of our larger overweights,
Cemex (cement), as
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INVESTMENT OVERVIEW
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EMERGING MARKETS PORTFOLIO (CONT.)
the company remains attractively valued given its solid operating
fundamentals and superior underlying profitability.
Asian equities gained 69.4% during the year. We continue to focus on Asia, a
region benefiting from trade surpluses, export growth and export market
competitiveness vis-a-vis yen strength versus the U.S. dollar. South Korea
(+92.4%) remains our largest overweight within Asia, based on the aforementioned
positive trends coupled with neutral interest rates, strong local retail
investor interest in equities and increasing clarity on the restructuring of
failed chaebol (large conglomerate) Daewoo. We have added to non- chaebol
related companies that possess technological expertise in specialized markets,
strong management qualities and sound business models as well as increasing our
exposure to the banking sector.
Taiwanese equities advanced 52.7% during 1999, boosted by robust exports, trends
in global outsourcing (notably in electronics and semiconductor-related arenas)
and investor optimism that the Sino-U.S. trade agreement would also hasten
Taiwan's membership into the World Trade Organization (WTO). We maintain our
overweight stance in Taiwan, and purchases during the fourth quarter included
Chartered Semiconductor, the third largest foundry globally, and various niche
technology-related and communications stocks.
During the year, Chinese equities gained 13.3% and, on November 16, China
announced a trade agreement with the U.S. that bodes well for China's entry
into the World Trade Organization. Although increased trade should bring
positive longer-term consequences, including increased FDI inflows and
reforms, the reform process will take time to implement and not all areas of
the economy will benefit equally. Additions to our holdings in China during
the year included telecommunications company China Telecom and TCL
International, China's third largest color TV manufacturer and the only home
electronics manufacturer providing Internet content via WebTV, cable modem
and cable set top boxes. Philippine equities (+3.3%) finished the year
relatively flat, and we sold our Philippine assets, as we find the valuations
relatively expensive and are unable to find a catalyst that will move this
market forward.
Indian equities gained 87.3% during the year, boosted by continued indications,
including industrial production trends, that cyclical recovery remains on track.
November's elections yielded a sizable majority for the BJP party, and this
bodes well for more cohesive policies and a willingness to focus on reforms to
help meet India's large fiscal problems. We maintain our overweight stance in
India and during the fourth quarter we added more cyclically related companies
such as Gujurat Ambuja (cement) and State Bank of India.
We are modestly underweight Emerging Europe and the Middle East, a region that
advanced 79.6% during 1999, although posting mixed returns. Russia and Turkey,
rising 247.1% and 252.4%, respectively, were the star performing markets of this
region. We maintain our underweight stance in Greek equities, which gained
49.6%, yet modestly reduced our significant underweight in Greek banks as we
believe they should benefit from future reductions in interest rates and reserve
requirements. Optimism over low inflation, the prospects for future rate cuts
and strong corporate earnings helped Israeli equities gain 59.7%. We added to
our overweight stance in Israel through purchases in niche-oriented
telecommunications and software-related stocks, including Gilat Satellite
Networks, Amdocs, Comverse and ECI Telecom.
The gains by Russian equities were fueled by robust oil prices, positive
economic fundamentals and greater political stability. In December, the Duma
(Russia's Lower House of Parliament) held elections. The election results
(Centrist- oriented majority) coupled with President Yeltsin's surprise
resignation on December 31 (with Putin appointed as acting president until
elections on March 26) have accentuated the uncertainty in Russia with regard to
Yeltsin's probable successor and his ability to push reform through the Duma.
The remarkable performance by Turkish equities during the year, in light of a
devastating earthquake in August, was supported by the passage of key reform
bills (social security and international arbitration), IMF and World Bank
agreements, and government measures, including banking legislation and efforts
to control inflation. Positive investor sentiment regarding the prospect of
significant inflation and interest rate reductions was further enhanced in
December when Turkey was named an official candidate for the European Monetary
Union. Turkey remains one of our most significant overweight positions and
within Turkey we are focusing on domestic themes, adding to those companies best
positioned to take advantage of a lower interest rate and inflation environment
and higher consumer spending.
South African equities rose 57.2% during the year, buoyed by commodity price
strength, foreign exchange inflows from the listing of South African companies
in London, falling inflation and fiscal discipline. During the year we increased
holdings in some commodity stocks, including Billiton and Amplats, which mine
aluminum and platinum,
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
29
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
respectively, in addition to stocks in South Africa's information technology
sector. We remain underweight South Africa based on its mild attractiveness
compared to other emerging markets.
Amidst the backdrop of global growth and sustainable commodity prices, we
believe those emerging markets benefiting from improving economic fundamentals
and structural reforms should fare well in 2000.
Robert L. Meyer
PORTFOLIO MANAGER
Andy B. Skov
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
30
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (96.7%)
ARGENTINA (0.8%)
(a)6 Acindar, Class B .................... $ --
249,418 Telecom Argentina ADR ............... 8,543
148,310 Telefonica de Argentina ADR ......... 4,579
---------------
13,122
---------------
BRAZIL (8.2%)
(a,d)295,998,880 Banco Nacional SA (Preferred) ........... 8
(a)48,153,469 Celular CRT (Preferred) ................. 8,397
112,106,166 CEMIG (Preferred) ....................... 2,513
155,540 CEMIG ADR (Preferred) ................... 3,500
(e)103,238 CEMIG ADR (Preferred) ................... 2,323
271,278 CIA Vale do Rio Doce, Class A
(Preferred) ........................... 7,508
12,714,900 Coteminas ............................... 809
(d,e)98,865 Coteminas GDR ........................... 276
32,379,893 CRT (Preferred) ......................... 10,037
293,889 CVRD ADR (Preferred) .................... 8,119
(a,d)119,019,000 Lojas Arapua SA (Preferred) ............. --
(a,e)120,830 Lojas Arapua GDR (Preferred) ............ --
51,204,887 Petrobras (Preferred) ................... 13,039
42,860 Petrobras ADR (Preferred) ............... 1,099
464,025,910 Tele Celular Sul (Preferred) ............ 1,541
59,085 Tele Celular Sul ADR .................... 1,876
336,151,110 Tele Centro Sul (Preferred) ............. 6,139
42,211 Tele Centro Sul ADR ..................... 3,831
253,287,610 Tele Nordeste Celular (Preferred) ....... 659
8,975 Tele Nordeste Celular ADR ............... 453
133,610,610 Tele Norte Leste (Preferred) ............ 3,587
185,983 Tele Norte Leste ADR .................... 4,743
433,744,250 Tele Sudeste Celular (Preferred) ........ 3,205
128,778 Tele Sudeste Celular ADR ................ 4,998
29,560 Telebras ADR (Preferred) ................ 3,798
627,935,816 Telemig Celular (Preferred) ............. 1,373
18,254 Telemig Celular ADR ..................... 843
20,876,000 Telerj Celular, Class B(Preferred) ...... 577
56,665,610 Telesp (Preferred) ...................... 1,374
13,155 Telesp ADR .............................. 321
185,158 Telesp Celular .......................... 7,846
267,870,410 Telesp Celular (Preferred) .............. 4,745
36,519,601 Telesp Celular, Class B (Preferred) ..... 2,891
554,323 Unibanco GDR (Preferred) ................ 16,699
---------------
129,127
---------------
CHILE (0.2%)
83,300 Endesa ADR .............................. 1,182
78,580 Enersis ADR ............................. 1,847
(a)44,223 Santa Isabel ADR ........................ 431
---------------
3,460
---------------
CHINA (3.6%)
3,237,000 China Telecom Ltd. ...................... 20,238
(a)93,500 China Telecom Ltd. ADR .................. 12,021
(a)6,694,300 Great Wall Technology Co. Ltd. .......... 6,502
1,215,000 Guangdong Kelon Electrical Holdings
Co., Ltd. ............................. 922
1,230,000 Legend Holdings Ltd. .................... 3,054
(a)10,370,000 TCL International Holdings Ltd. ......... 7,270
(a)1,566,000 Timeless Software Ltd. .................. 906
107,036 Yanzhou Coal Mining Co., Ltd. ADR ....... 1,512
(a)936,000 Yue Yuen Industrial Holdings ............ 2,240
4,421,300 Zhenhai Refining & Chemical
Co., Ltd., Class H .................... 785
---------------
55,450
---------------
CZECH REPUBLIC (0.4%)
77,270 SPT Telecom a.s. ........................ 1,240
(a)292,957 SPT Telecom a.s. GDR .................... 4,717
---------------
5,957
---------------
EGYPT (1.1%)
(a)115,738 Al-Ahram Beverages Co. GDR .............. 2,280
333 Commercial International Bank ........... 5
43,725 Eastern Tobacco ......................... 1,148
22,500 Egypt Gas Co. ........................... 1,379
271,050 Egyptian Co. for Mobil Services ......... 12,420
450 Egyptian Finance & Industrial ........... 4
25 Helwan Cement ........................... --
---------------
17,236
---------------
GREECE (1.1%)
34,080 Alpha Credit Bank ....................... 2,684
136,013 Hellenic Telecommunication
Organization (OTE) .................... 3,239
290,728 Hellenic Telecommunication
Organization (OTE) ADR ................ 3,470
37,920 National Bank of Greece ................. 2,803
(a)97,900 National Bank of Greece ADR ............. 1,377
155,380 Panafon Hellenic Telecom ................ 2,098
(a)116,380 Panafon Hellenic Telecom GDR ............ 1,561
---------------
17,232
---------------
HUNGARY (0.8%)
240,552 Matav Rt. ............................... 1,686
243,850 Matav Rt. ADR ........................... 8,778
19,183 OTP Bank Rt. ............................ 1,124
(a)14,230 OTP Bank Rt. GDR ........................ 829
---------------
12,417
---------------
INDIA (9.2%)
5,650 Apollo Tyres Ltd. ....................... 21
349,830 Associated Cement Cos., Ltd. ............ 1,996
206,250 Bank of Baroda .......................... 303
1,289,800 Bharat Heavy Electricals Ltd. ........... 6,227
913,800 Container Corp. of India Ltd. ........... 5,147
326,122 Corporation Bank ........................ 832
46,907 Dabur India Ltd. ........................ 1,272
200 Federal Bank Ltd. ....................... --
540,206 Gujarat Ambuja Cements Ltd. ............. 4,048
100,000 Gujarat Ambuja Cements Ltd. GDR ......... 785
(a,d)47,500 HCL Technologies Ltd. ................... 633
381,554 Hero Honda Motors Ltd. .................. 9,903
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
31
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[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
INDIA (CONT.)
(a)136,300 Hindustan Lever Ltd. .................... $ 7,050
(d)340,210 Housing Development Finance Corp., Ltd. . 2,416
477,500 Indo Gulf Corporation Ltd. .............. 691
123,290 Infosys Technology Ltd. ................. 41,143
1,900 ITC Ltd. ................................ 29
415,247 Larsen & Toubro Ltd. .................... 5,306
20,000 Larson & Toubro Ltd. GDR ................ 665
(a)132,000 Lupin Laboratories Ltd. ................. 1,745
5 Madras Cements Ltd. ..................... 1
(g)25,663,200 Morgan Stanley India Growth Fund ........ 8,997
331 MRF Ltd., Class B ....................... 17
59,250 NIIT Ltd. ............................... 4,516
535,081 Oriental Bank of Commerce ............... 566
758,000 Reliance Industries Ltd. ................ 4,072
40,000 Reliance Industries Ltd. GDR ............ 560
225,000 Saytam Computer Services Ltd. ........... 11,374
(a,d)45,000 Sri Venkatesa Mills Ltd. ................ 13
523,246 State Bank of India ..................... 2,703
40,000 State Bank of India GDR ................. 488
(a,d,e)23,000 Strides Arcolab Ltd. .................... 211
2,608 Sudarshan Chemical Industries Ltd. ...... 4
776,200 Tata Engineering & Locomotive
Co., Ltd. ............................. 3,587
(a)75,000 Tata Engineering & Locomotive Co.,
Ltd. GDR .............................. 394
164,900 Tata Tea Ltd. ........................... 1,990
41,500 Videsh Sanchar Nigam Ltd. ............... 1,726
27,500 Videsh Sanchar Nigam Ltd. GDR ........... 676
457,000 Zee Telefilms Ltd. ...................... 11,481
---------------
143,588
---------------
INDONESIA (1.3%)
2,710,141 Gudang Garam ............................ 7,292
5,127,555 Indah Kiat Pulp & Paper Corp.
(Foreign) ............................. 2,018
2,787,000 Indofood Sukses Makmur Tbk .............. 3,490
2,221,100 Semen Gresik ............................ 3,520
388,774 Telekomunikasi Indonesia ADR ............ 4,276
---------------
20,596
---------------
ISRAEL (6.6%)
(a)179,760 Amdocs Ltd. ............................. 6,202
(a)58,204 Batm Advanced Communications ............ 4,813
(a)51,360 Check Point Software Technologies ....... 10,208
(a)53,715 Comverse Technology, Inc. ............... 7,775
(a)58,820 DSP Group, Inc. ......................... 5,470
679,964 ECI Telecommunications Ltd. ............. 21,504
(a)75,776 Galileo Technology Ltd. ................. 1,828
(a)211,457 Gilat Satellite Networks Ltd. ........... 25,111
(a)20,190 Jacada Ltd. ............................. 563
(a)26,888 NICE-Systems Ltd. ....................... 1,309
(a)72,426 NICE-Systems Ltd. ADR ................... 3,563
(a)74,328 Orbotech Ltd. ........................... 5,760
(a)40,010 Orckit Communications Ltd. .............. 1,373
(a)25,010 RADWARE Ltd. ............................ 1,079
(a)83,250 Sapiens International Corp. ............. 1,368
(a)45,950 Tecnomatrix Technologies Ltd. ........... 1,321
(a)69,650 TTI Team Telecom International Ltd. ..... 1,262
(a)32,990 Zoran Corp. ............................. 1,839
---------------
102,348
---------------
MALAYSIA (1.1%)
344,000 British America Tobacco Bhd ............. 2,625
104,000 Commerce Asset Holdings Bhd ............. 267
1,004,000 Malayan Banking Bhd ..................... 3,567
531,000 Nestle (Malaysia) Bhd ................... 2,291
3,373,000 Public Bank Berhad ...................... 2,947
1,303,000 Sime Darby Bhd .......................... 1,653
1,126,000 Telekom Malaysia Bhd .................... 4,356
---------------
17,706
---------------
MEXICO (9.5%)
(a)510,359 Alfa, Class A ........................... 2,396
(a)1,470,442 Banacci, Class B ........................ 5,894
(a)966,103 Banacci, Class L ........................ 3,720
(a,e)277,930 Bancomer, Class B ....................... 2,328
4,621,053 Bancomer, Class C ADR ................... 1,930
(a)601,409 Carso, Series A1 ........................ 2,994
(a)1,520,009 Cemex CPO ............................... 8,498
585,232 Cemex CPO ADR ........................... 16,313
(a)984,711 Cifra, Class C .......................... 1,874
(a)37,357 Cifra, Class V .......................... 75
(a)85,222 Cifra, Class V ADR ...................... 1,708
212,668 Fomento Economico Mexicano ADR .......... 9,464
998,477 Kimberly-Clark, Class A ................. 3,897
(a)459,537 Televisa CPO GDR ........................ 31,363
494,442 Telmex, Class L ADR ..................... 55,625
---------------
148,079
---------------
PAKISTAN (0.3%)
31 Crescent Textile Mills Ltd. ............. --
892,198 Pakistan State Oil Co., Ltd. ............ 3,193
4,905,800 Pakistan Telecommunications
Corp., Class A ........................ 1,964
---------------
5,157
---------------
PERU (0.0%)
52 Cementos Lima ........................... --
---------------
POLAND (1.3%)
(a,d)33,400 Eastbridge N.V. ......................... 2,246
(a)245,871 Elektrim ................................ 2,438
(a)227,930 Polski Koncern Naftowy GDR .............. 2,849
54,422 Prokom Software GDR ..................... 849
1,670,933 Telekomunikacja Polska GDR .............. 10,861
141,063 Wielkopolski Bank Kredytowy ............. 955
---------------
20,198
---------------
RUSSIA (3.0%)
(a,d)592,359 Alliance Cellulose Ltd. ................. 1,635
231,561 Lukoil Holding ADR ...................... 11,694
100,000 Lukoil Holding Sponsored ADR ............ 1,180
(a,d)66,270,017 Mustcom ................................. 13,075
(d)317,851 Russian Telecom Development Corp. ....... 1,317
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
32
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
RUSSIA (CONT.)
(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)784,326 Surgutneftgaz ADR ....................... 13,628
---------------
46,595
---------------
SINGAPORE (0.5%)
(a)427,000 Chartered Semiconductor
Manufacturing Ltd. .................... 2,333
(a)2,300 Chartered Semiconductor
Manufacturing Ltd. ADR ................ 168
568,000 NatSteel Electronics Ltd. ............... 3,001
228,000 Venture Manufacturing
(Singapore) Ltd. ...................... 2,615
---------------
8,117
---------------
SOUTH AFRICA (5.4%)
807,545 ABSA Group Ltd. ......................... 3,624
132,830 Anglo American Corp. .................... 4,039
1,312,359 Bidvest Group Ltd. ...................... 12,825
73,800 Billiton plc ............................ 435
880,232 Billiton plc ............................ 5,060
7,643,577 BOE Ltd. ................................ 5,804
384,430 Comparex Holdings Ltd. .................. 2,694
449,390 De Beers Centenary AG ................... 13,080
60,940 De Beers Consolidated Mines ADR ......... 1,763
(a)813,447 Dimension Data Holdings Ltd. ............ 5,105
(a)521,750 Ellerine Holdings Ltd. .................. 2,757
3,685,130 FirstRand Ltd. .......................... 5,273
843,120 M-Cell Ltd. ............................. 3,263
182,647 Nedcor Ltd. ............................. 4,069
(a)3,341,470 New Africa Investments Ltd., Class N .... 1,858
561,980 Rembrandt Group Ltd. .................... 5,355
278,900 Sappi Ltd. .............................. 2,757
463,600 Sasol Ltd. .............................. 3,807
1,241,854 (The) Education Investment Corp., Ltd. .. 1,042
---------------
84,610
---------------
SOUTH KOREA (19.9%)
68,720 Cheil Jedang Corp. ...................... 7,928
(a)21,550 Dacom Corp. ............................. 11,102
187,399 Daewoo Securities Co. ................... 2,121
(a)108,559 Daou Technology, Inc. ................... 3,776
(a)7,610 Digital Chosun Co., Ltd. ................ 1,521
592,390 Good Morning Securities Co., Ltd. ....... 2,833
209,910 Hana Bank ............................... 1,636
80,710 Hankuk Glass Industry Co., Ltd. ......... 1,528
870,870 Hanvit Bank ............................. 2,945
(a,e)339,750 Hanvit Bank GDR ......................... 2,191
126,100 Housing & Commercial Bank ............... 3,998
(a)191,860 Humax Co., Ltd. ......................... 3,244
275,325 Hyundai Electronics Industries Co. ...... 5,844
93,780 Hyundai Securities Co. .................. 1,834
(a)68,660 Insung Information ...................... 2,346
393,060 Kookmin Bank ............................ 6,162
358,026 Korea Electric Power Corp. ADR .......... 5,997
(a)205,900 Korea Technology Banking ................ 1,995
331,290 Korea Telecom Corp. ADR ................. 24,764
99,440 L.G. Investment & Securities Co. Ltd. ... 1,690
94,000 L.G. Electronics ........................ 3,891
358,930 Mirae Co. ............................... 2,791
(a)186,840 Pantech Co., Ltd. ....................... 4,196
(d)47,823 Pohang Iron & Steel Co., Ltd. ........... 5,458
92,239 Samsung Electro-Mechanics Co. ........... 6,133
467,263 Samsung Electronics Co. ................. 109,460
64,940 Samsung Securities Co., Ltd. ............ 1,967
(a)8,000 SEROME Technology, Inc. ................. 1,705
15,824 SK Telecom Co., Ltd. .................... 56,718
326,237 SK Telecom Co., Ltd. ADR ................ 12,519
(a)191,990 Telson Electronics Co., Ltd. ............ 3,754
58,603 Trigem Computer, Inc. ................... 6,503
---------------
310,550
---------------
TAIWAN (12.3%)
(a)2,607,000 Accton Technology Corp. ................. 8,846
(a,d)121,440 Acer Peripherals GDR .................... 5,030
1,588,944 Acer Peripherals, Inc. .................. 6,582
(a)3,680,050 Acer, Inc. .............................. 11,081
(a)1,631,472 Advanced Semiconductor
Engineering, Inc. ..................... 5,822
186,000 Ambit Microsystems Corp ................. 1,381
(a)42,700 ASE Test Ltd. ........................... 1,041
1,314,345 Asustek Computer, Inc. .................. 13,862
5,697,900 China Steel Corp. ....................... 4,212
(a)1,169,200 Chinatrust Commercial Bank .............. 1,360
1,036,639 Compal Electronics, Inc. ................ 3,485
(a)962,000 Compeq Manufacturing Co., Ltd. .......... 5,241
1,120,000 D-Link Corp. ............................ 2,427
1,333,000 Delta Electronics, Inc. ................. 5,776
(a)4,342,000 Dialer and Business ..................... 7,747
3,714,010 Far East Textile Ltd. ................... 8,875
(a,e)70,500 Far East Textile Ltd. GDR ............... 1,692
(a)1,249,000 Hon Hai Precision Industry .............. 9,312
(a)122,600 Hon Hai Precision Industry GDR .......... 2,369
1,065,700 International Commercial Bank
of China .............................. 1,195
1,105,000 President Chain Store Corp. ............. 4,876
(a)163,000 Ritek, Inc. ............................. 987
(a)226,500 Ritek, Inc. GDR ......................... 2,622
(a)2,156,240 Siliconware Precision Industries Co. .... 5,496
(a)1,853,680 Taishin International Bank .............. 1,039
(a)7,752,220 Taiwan Semiconductor Manufacturing
Co. ADR ............................... 41,250
(a)7,182,000 United Micro Electronics Corp., Ltd. .... 25,630
(a)585,000 Universal Scientific Industrial
Co., Ltd. ............................. 1,845
716,000 WYSE Technology Taiwan Ltd. ............. 1,392
--------------
192,473
--------------
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
33
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
THAILAND (2.0%)
428,050 Advanced Information Services PCL
(Foreign) ............................. $ 7,183
(d)406,100 BEC World PCL (Foreign) ................. 2,868
447,477 Delta Electronics (Thailand) PCL
(Foreign) ............................. 5,322
464,800 Shinawatra Computer Co. PCL
(Foreign) ............................ 4,393
1,218,866 Siam Cement PCL (Foreign) ............... 6,537
2,218,300 Thai Farmers Bank PCL (Foreign) ......... 3,710
---------------
30,013
---------------
TURKEY (8.0%)
(a)766,440,000 Dogan Sirketler Grubu Holding ........... 22,609
391,217,000 Dogan Yayin Holdings .................... 5,770
92,843,300 Ege Biracilik ........................... 7,104
(a)15,522,932 Erciyas Biracilik ....................... 744
(a)76,010,000 Eregli Demir Celik ...................... 3,153
169,491,000 Haci Omer Sabanci Holding A.S. .......... 9,843
2,667,000 Migros (Registered) ..................... 1,721
27,059,000 Tupras-Turkiye Petrol
Rafinerileri A.S. ..................... 3,043
483,595,200 Turkiye Garanti Bankasi A.S. ............ 7,311
(a)269,270,200 Turkiye Is Bankasi, Class C ............. 12,908
(a)30,171,288 Vestel Elektronik Sanayi Ve
Ticaret A.S. .......................... 7,231
1,398,225,063 Yapi Ve Kredi Bankasi A.S. .............. 43,179
34,300 Yapi Ve Kredi Bankasi A.S. GDR .......... 1,012
---------------
125,628
---------------
OTHER (0.1%)
(g)100,130 MSDW Africa Investment Fund Inc. ........ 1,039
---------------
TOTAL COMMON STOCKS (Cost $1,081,908)........................ 1,510,698
---------------
PREFERRED STOCKS (0.0%)
COLOMBIA (0.0%)
103,207 Bancolombia (Cost $617) ................. 110
---------------
<CAPTION>
NO. OF
RIGHTS
- -------------------
<S> <C>
RIGHTS (0.0%)
BRAZIL (0.0%)
21,857,937 Tele Centro Oeste ....................... 46
---------------
INDIA (0.0%)
2,596 Serome Technology ....................... 375
---------------
TOTAL RIGHTS (Cost $22) ..................................... 421
---------------
<CAPTION>
NO. OF
WARRANTS
- -------------------
<S> <C>
WARRANTS (0.2%)
THAILAND (0.2%)
1,020,633 Siam Commercial Bank PCL ................ 420
(a)5,987,000 Siam Commercial Bank PCL (Foreign) ...... 2,782
---------------
TOTAL WARRANTS (Cost $--) ................................... 3,202
---------------
<CAPTION>
NO. OF VALUE
UNITS (000)
- -----------------------------------------------------------------------------
<S> <C>
UNITS (1.0%)
MEXICO (0.9%)
2,982,101 Fomento Economico Mexican S.A.
(Femsa) ............................... $ 13,306
---------------
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) ...... 239
(a,d)654 Storyfirst Communications, Inc.,
Tranche V, 29.00% ..................... 279
(a,d)550 Storyfirst Communications, Inc.,
Tranche VI, 30.00% .................... 234
---------------
1,670
---------------
TOTAL UNITS (Cost $10,690) ................................. 14,976
---------------
FACE
AMOUNT
(000)
- --------------
CONVERTIBLE DEBENTURES (0.0%)
INDIA (0.0%)
INR (c,d)336 DCM Shriram Industries Ltd.,
7.50%, 2/21/02 (Cost $473) ............ 177
---------------
NON-CONVERTIBLE DEBENTURES (0.1%)
INDIA (0.1%)
(c,d)341 DCM Shriram Industries Ltd.,
(Floating Rate), 9.90%, 2/21/02 ....... 239
(d)700,000 Saurashtra Cement & Chemicals Ltd.,
18.00%, 11/27/00 ...................... 1,405
---------------
TOTAL NON-CONVERTIBLE DEBENTURES (Cost $2,865) .............. 1,644
---------------
TOTAL FOREIGN SECURITIES (98.0%) (Cost $1,096,575) .......... 1,531,228
---------------
SHORT-TERM INVESTMENT (1.1%)
REPURCHASE AGREEMENT (1.1%)
$ 17,208 Chase Securities, Inc., 2.60%, dated
12/31/99, due 1/03/00, to be
repurchased at $17,212,
collateralized by U.S. Treasury
Notes, 6.125%, due 12/31/01,
valued at $17,564 (Cost $17,208) ...... 17,208
---------------
FOREIGN CURRENCY (0.7%)
BRL 29 Brazilian Real ................................. 16
GBP 71 British Pound .................................. 115
GRD 308,742 Greek Drachma .................................. 951
HUF 917 Hungarian Forint ............................... 4
INR 421 Indian Rupee ................................... 10
MYR 1,349 Malaysian Ringgit .............................. 355
MXP 42 Mexican Peso ................................... 4
PKR 19,822 Pakistani Rupee ................................ 366
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
34
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------
<S> <C> <C>
FOREIGN CURRENCY (CONT.)
PLZ 1,140 Polish Zloty ................................... $ 276
ZAR 33,557 South African Rand ............................. 5,478
KRW 702 South Korean Won ............................... 1
TWD 111,011 Taiwan Dollar .................................. 3,540
------------
TOTAL FOREIGN CURRENCY (Cost $11,072) ...................... 11,116
------------
TOTAL INVESTMENTS (99.8%) (Cost $1,124,855) ................ 1,559,552
------------
OTHER ASSETS (1.7%)
Cash ...................................... $15,212
Receivable for Investments Sold ........... 7,686
Receivable for Portfolio Shares Sold ...... 2,022
Dividends Receivable ...................... 1,655
Foreign Withholding Tax Reclaim Receivable 25
Other ..................................... 91 26,691
---------------
LIABILITIES (1.5%)
Foreign Taxes Payable ..................... (9,927)
Payable for Investments Purchased ......... (9,649)
Investment Advisory Fees Payable .......... (3,724)
Custodian Fees Payable .................... (387)
Administrative Fees Payable ............... (184)
Payable for Portfolio Shares Redeemed ..... (143)
Directors' Fees and Expenses Payable ...... (123)
Distribution Fees Payable ................. (8)
Net Unrealized Loss on Foreign Currency
Exchange Contracts ...................... (1)
Other Liabilities ......................... (205) (24,351)
--------------- -----------
NET ASSETS (100%) .......................................... $ 1,561,892
-----------
-----------
NET ASSETS CONSIST OF:
Paid in Capital ............................................ $ 1,384,924
Accumulated Net Investment Loss ............................ (4,854)
Accumulated Net Realized Loss .............................. (243,317)
Unrealized Appreciation on Investments, and Foreign
Currency Translations(Net of accrual for foreign taxes
$9,363 on unrealized appreciation
on investments) .......................................... 425,139
-----------
NET ASSETS ................................................. $ 1,561,892
-----------
-----------
<CAPTION>
Amount
(000)
- -------------------------------------------------------------------------
<S> <C>
CLASS A:
NET ASSETS ................................................. $ 1,544,893
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 80,185,387 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ................... $ 19.27
-----------
-----------
CLASS B:
NET ASSETS ................................................. $ 16,999
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 883,748 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ................... $ 19.24
-----------
-----------
- -------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at
December 31, 1999, the Portfolio is obligated to deliver foreign currency
in exchange for U.S. dollars as indicated below:
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
- -------------------------------------------------------------------------
GRD 309,016 $944 1/3/00 U.S.$ 943 $943 $(1)
---- ---- ----
---- ---- ----
- -------------------------------------------------------------------------
(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.
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 December 31, 1999.
- -------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- -------------------------------------------------------------------------
<S> <C> <C>
Capital Equipment ......................... $ 415,237 26.5%
Consumer Goods ............................ 245,087 15.7
Energy .................................... 66,254 4.3
Finance ................................... 189,313 12.1
Materials ................................. 115,254 7.4
Multi-Industry ............................ 30,319 1.9
Services .................................. 469,764 30.1
---------- ----
$1,531,228 98.0%
---------- ----
---------- ----
</TABLE>
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
35
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Denmark (0.6%)
Finland (2.9%)
France (14.2%)
Germany (10.6%)
Ireland (1.1%)
Italy (6.3%)
Netherlands (5.9%)
Portugal (2.7%)
Spain (4.2%)
Sweden (5.0%)
Switzerland (10.0%)
United Kingdom (30.7%)
Other (5.8%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
European Equity MSCI Europe
Portfolio-Class A Index(1)
----------------- -----------
<S> <C> <C>
4/02/93* $ 500,000 $ 500,000
12/31/93 __________ __________
12/31/94 __________ __________
12/31/95 __________ __________
12/31/96 __________ __________
12/31/97 __________ __________
12/31/98 __________ __________
12/31/99 $1,367,175 $1,685,511
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX(1)
- --------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YEAR YEARS INCEPTION
------ ------- ---------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A 9.60% 13.80% 16.08%
PORTFOLIO -- CLASS B 9.36 N/A 13.79
INDEX -- CLASS A 15.89 22.12 19.57
INDEX -- CLASS B 15.89 N/A 22.08
</TABLE>
1. The MSCI Europe Index is an unmanaged market value weighted index of common
stocks listed on the stock exchanges of countries in Europe (includes
dividends).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the European Equity Portfolio is to seek long-term
capital appreciation through investment in equity securities of European
issuers. Equity securities for this purpose include stocks and stock equivalents
such as securities convertible into common and preferred stocks and securities
having equity characteristics, such as rights and warrants to purchase common
stock.
The approach taken in selecting investments for the Portfolio is oriented to
individual stock selection and is value driven. The initial step in identifying
attractive undervalued securities is the screening of European databases. Stocks
are screened for undervaluation on two primary criteria, cash flow and book
value, and three secondary criteria, earnings, sales and yield. Once stocks have
been selected from this screening process, they are put through detailed
fundamental analysis. Important areas covered during this in-depth study include
the companies' balance sheets and cash flow, franchise, products, management and
the strategic value of the assets.
For the year ended December 31, 1999, the Portfolio had a total return of 9.60%
for the Class A shares and 9.36% for the Class B shares compared to 15.89% for
the Morgan Stanley Capital International (MSCI) Europe Index (the "Index"). For
the five-year period ended December 31, 1999, the average annual total return
for the Class A shares was 13.80% compared to 22.12% for the Index. For the
period from inception on April 2, 1993 through December 31, 1999, the average
annual total return for the Class A shares was 16.08% compared to 19.57% for the
Index. For the period from inception on January 2, 1996 through December 31,
1999, the average annual total return for the Class B shares was 13.79% compared
to 22.08% for the Index.
Following subdued performance in the third quarter, European markets rebounded
during the final three months of the year amid a virtual buying panic in
technology and telecommunication shares. Like in the United States, market
leadership was focused among a narrow group of large capitalization stocks,
especially telecommunication stocks that stand to benefit from wireless
transmission of
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE
MEASURED BY THE MSCI EUROPE INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY
AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE
PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
- --------------------------------------------------------------------------------
European Equity Portfolio
36
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO (CONT.)
data and internet access. Accelerated export growth, driven by a weak Euro,
reinforced the improved economic outlook for the EMU countries, while
restructuring and Merger & Acquisition (M&A) activity endured on an
unprecedented scale.
The Portfolio underperformed the Index for the fourth quarter. For the three
months ended December 31, 1999, the Portfolio had a total return of 8.62% for
the Class A shares and 8.58% for the Class B shares compared to 17.39% for the
Index. Lack of exposure to the feverish mega cap technology and
telecommunications stocks continued to be a leading detractor, as the proverbial
tech `bubble' refused to burst. Amazingly, excluding technology and
telecommunications from the Index in the fourth quarter reduced the Index
return, in Euro, from 24.7% to 12.2%. Likewise, for the full year, the Index
returns fell from 35.8% to 17.3%, highlighting the narrow leadership last year.
Small and mid cap returns also lagged the Index in the fourth quarter, which
hurt our returns due to our overweight in those cap segments. The absence in our
Portfolio of telecommunication giants Nokia and Ericcson, combined with
underweights in Deutsche Telekom and Mannesman detracted from relative
performance.
The Portfolio's returns were also negatively impacted by our ongoing overweight
to consumer staples, the worst performing sector in the fourth quarter and last
year. Reckitt Benckiser, (-25%) the world's largest maker of household cleaners,
dampened profits expectations, while Imperial Tobacco (-30%) felt the litigation
anxieties that are peppering the tobacco industry, despite having no exposure to
U.S. litigation. Food and spirits company, Diageo (-20%) posted disappointing
earnings, while difficulties in its catalogue business caused retailer Great
Universal Stores (-23%) to suffer.
Relative performance was also undermined by our stock selection within the
energy sector, which climbed during the year on the back of rising oil prices.
Specifically, we have not owned Index heavyweight BP Amoco whose valuation
remains excessive for a cyclical oil stock. We prefer the combination of
Total/Fina and Elf Aquitaine on valuation grounds and due to their low cost,
fast growing reserves.
Despite being a highly valued sector, we continue to hold several attractive
telecommunications that trade at a significant discount to their rivals and
pure-play cellular stocks. British Telecom (+62%) benefited from the perceived
strength of their international strategy and strong volume growth (relating to
internet access). Telecom Italia (+61) discarded controversial restructuring
initiatives, while Telefonica (+58%) enjoyed a fourfold increase in the
valuation of its recently listed internet service provider/ Spanish language
portal, Terra Networks.
Advertising and media stocks continued to gain momentum, driven by increased
demand from improving global economies and fast rising e-commerce advertising.
WPP (global advertising, +70%) and Mediaset (Italian broadcaster, +51%) were
both significant positive contributors.
INVESTMENT OUTLOOK
We believe that investor euphoria over technology and cellular telecommunication
companies has pushed valuations in those sectors far beyond reasonable levels.
Accordingly, we remain underweight the information technology group. However, we
have pursued indirect ways to play the growth story in the telecommunication and
internet industries. For example, we are roughly neutral the integrated or
fixed-line telecommunications businesses, where valuations are more realistic.
Also, we gained internet exposure through Telefonica, a Spanish
telecommunication that developed and floated a highly successful internet
service provider (ISP) business late in the year. Prudential (U.K.) has launched
an internet bank which has captured significant share of new deposits in the
U.K. Great Universal Stores, through its subsidiary Experion, rates consumer
credit, a service valuable for enabling e-commerce.
The Portfolio also owns several "old economy" companies that should benefit from
"new economy" business. These include media companies which are experiencing
robust profitability as a result of the fundamental need of e- commerce firms to
advertise. Examples include WPP, a global advertising business, Capital Radio,
which owns the dominant radio franchise in the London market, and Mediaset, the
dominant Italian television broadcaster.
We also are overweight selected cyclicals given our view that economic growth is
accelerating. Our cyclical exposure is focussed on the oligopolistic cement
franchises of Blue Circle in the U.K. and Holderbank in Switzerland, both
exposed to a global upturn in infrastructure spending.
The defensive nature of our Portfolio helped relative performance during the
third quarter -- a time in which markets generally trended lower -- but hurt
returns during the fourth quarter - tele-tech obsessed market. Still, our
conviction on consumer staples remains intact. Reckitt Benckiser, Nestle, and
Danone, for example, are generating free cash flow yields in excess of long bond
yields. Nokia, by contrast, appears not to be generating any free cash flow over
the next five years, despite the excitement surrounding its share price and
excellent quality of its products.
- --------------------------------------------------------------------------------
European Equity Portfolio
37
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO (CONT.)
We are optimistic about Europe's economy and its financial markets. Monetary
union has unleashed an improved business environment throughout the region.
Companies are restructuring in response to global competitive pressures, and
company management are becoming more attuned to shareholder value. Merger and
acquisition activity reached new record levels at 20% of the market's
capitalization in 1999 versus 4% in 1994. In addition, the new European Central
Bank has behaved in a prudent and independent fashion while governments are
becoming more business-friendly (note: Germany accelerated its tax reform plans,
cutting the tax on retained earnings from 40% to 25% by 2001 while scrapping the
capital gains tax for corporations). Also, a growing equity culture is
increasing demand for equities and driving equity issuance by sectors not
traditionally listed in Europe. These factors all suggest that the long-term
outlook for European stocks is favorable. Coupled with ongoing growth in
peripheral Europe, the region seems on the verge of stronger economic growth
accompanied by low core inflation. We caution, however, that valuation among
technology and telecommunication stocks are stretched, and that any correction
in those groups could trigger a broader decline. We are confident that our
bottom-up value-orientation has positioned the Portfolio to potentially benefit
from an acceleration of economic growth in Europe and the possible broadening of
market leadership in the coming months.
Margaret Naylor
PORTFOLIO MANAGER
Alastair Anderson
PORTFOLIO MANAGER
Amr Diab
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
European Equity Portfolio
38
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (91.1%)
BELGIUM (0.0%)
55 G.I.B. Holdings - VVPR .................. $ 2
---------------
DENMARK (0.6%)
5,000 Novo-Nordisk A/S, Class B ............... 664
---------------
FINLAND (2.9%)
9,845 KCI Konecranes International ............ 379
15,546 Kone Oyj, Class B ....................... 767
129,920 Merita plc, Class A ..................... 766
32,785 Sampo Insurance Co. ..................... 1,147
---------------
3,059
---------------
FRANCE (14.2%)
4,030 Alcatel Alsthom ......................... 926
6,490 Axa ..................................... 906
21,820 Aventis SA .............................. 1,269
8,220 Banque Nationale de Paris ............... 759
2,920 Cie de Saint Gobain ..................... 550
22,620 Cie Generale des Establissements Michelin,
Class B (Registered) .................. 890
47,750 CNP Assurances .......................... 1,760
9,250 France TelecomSA ........................ 1,225
4,640 Groupe Danone ........................... 1,095
19,030 Pernod Ricard ........................... 1,090
20,400 SchneiderSA ............................. 1,603
23,944 Tota Fina, Class B ...................... 3,199
---------------
15,272
---------------
GERMANY (7.6%)
9,810 Adidas AG ............................... 737
22,245 Aventis (Frankfurt) ..................... 1,283
21,445 BASF AG ................................. 1,122
9,360 Bayerische-Hypo Vereinsbank AG .......... 640
25,220 Deutsche Telekom AG ..................... 1,776
3,720 Mannesmann AG (Registered) .............. 902
8,465 Schering AG ............................. 1,024
12,840 Volkswagen AG ........................... 725
---------------
8,209
---------------
IRELAND (1.1%)
148,836 Bank of Ireland ......................... 1,186
---------------
ITALY (6.3%)
52,045 Banca Popolare Di Bergamo S.p.A. ........ 1,205
135,430 Credito Italiano S.p.A .................. 666
(a)69,800 Enel S.p.A. ............................. 293
74,200 Marzotto (Gaetano) & Figli S.p.A. ....... 531
123,200 Mediaset S.p.A. ......................... 1,918
91,930 Telecom Italia Mobile S.p.A. ............ 1,028
82,880 Telecom Italia S.p.A. (RNC) ............. 1,170
---------------
6,811
---------------
NETHERLANDS (5.9%)
30,490 Akzo Nobel N.V. ......................... 1,531
27,546 ING Groep N.V. .......................... 1,665
6,240 Koninklijke KPN N.V. .................... 609
48,470 Laurus N.V. ............................. 875
12,075 Philips Electronics N.V. ................ 1,644
---------------
6,324
---------------
PORTUGAL (2.7%)
115,000 Banco Commercial Portugues (Registered).. 639
76,590 Electricidade de Portugal ............... 1,338
51,500 Telecel-Commincacoes Pessoais ........... 899
---------------
2,876
---------------
SPAIN (4.2%)
9,805 Banco Popular Espanol ................... 641
61,600 Banco Santander ......................... 698
65,920 Endesa .................................. 1,310
(a)73,741 Telefonica .............................. 1,844
---------------
4,493
---------------
SWEDEN (5.0%)
36,840 Autoliv, AB ............................. 1,080
69,320 ForeningsSparbanken AB .................. 1,021
70,220 Nordbanken Holding AB ................... 413
20,170 Scandic Hotels AB ....................... 188
49,630 Svedala Intrustri AB .................... 912
11,900 Svenska Cellulosa AB (SCA), Class B ..... 353
109,740 Svenska Hadelsbanken, Class A ........... 1,383
---------------
5,350
---------------
SWITZERLAND (10.0%)
965 Cie Financiere Richemont AG, Class A .... 2,304
972 Holderbank Financiere Glaris AG,
Class B (Bearer) ...................... 1,331
2,265 Nestle (Registered) ..................... 4,152
955 Novartis AG (Registered) ................ 1,403
440 Schindler Holding AG (Registered) ....... 705
3,020 UBS AG (Registered) ..................... 816
---------------
10,711
---------------
UNITED KINGDOM (30.6%)
252,500 Allied Domecq plc ....................... 1,248
106,100 Allied Zurich plc ....................... 1,250
31,600 AstraZeneca Group plc ................... 1,311
67,800 BAA plc ................................. 476
99,349 Bank of Scotland ........................ 1,154
28,900 Barclays plc ............................ 832
(a)175,393 BG Group plc ............................ 1,133
138,500 Blue Circle Industries plc .............. 805
52,800 BOC Group plc ........................... 1,134
95,590 British Telecommunications plc .......... 2,336
43,205 Burmah Castrol plc ...................... 788
178,300 Cadbury Schweppes plc ................... 1,077
52,500 Capital Radio plc ....................... 1,272
183,200 Centrica plc ............................ 519
146,900 Diageo plc .............................. 1,182
20,600 Glaxo Wellcome plc ...................... 582
69,500 Granada Group plc ....................... 704
219,180 Great Universal Stores plc .............. 1,281
302,640 Halma plc ............................... 572
110,200 Imperial Tobacco Group plc .............. 908
51,510 Lloyds TSB Group plc .................... 644
29,500 National Westminster Bank plc ........... 634
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
European Equity Portfolio
39
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
UNITED KINGDOM (CONT.)
91,900 Prudential Corp. plc .................... $ 1,811
256,469 Reckitt & Colman plc .................... 2,405
133,000 Sainsbury (J) plc ....................... 750
150,100 Scottish and Southern Energy plc ........ 1,198
102,400 Seton Scholl Healthcare plc ............. 1,297
207,007 Shell Transport & Trading Co. ........... 1,720
29,648 Smith & Nephew plc ...................... 100
106,810 WPP Group plc ........................... 1,692
---------------
32,815
---------------
TOTAL COMMON STOCKS (Cost $85,252) .......................... 97,772
---------------
PREFERRED STOCKS (3.0%)
GERMANY (3.0%)
23,341 Henkel KGaA ............................. 1,554
8,840 Fresenius AG ............................ 1,676
---------------
TOTAL PREFERRED STOCKS (Cost $3,187) ........................ 3,230
---------------
FACE
AMOUNT
(000)
- --------------
FIXED INCOME SECURITIES (0.1%)
UNITED KINGDOM (0.1%)
$ 25 BG Transco Holdings plc, 7.06%, 12/14/19
(Floating Rate) ....................... 41
25 BG Transco Holdings plc, 4.19%, 12/14/22
(Floating Rate) ....................... 40
25 BG Transco Holdings plc, 7.00%, 12/16/24. 39
---------------
TOTAL FIXED INCOME SECURITIES (Cost $123) ................. 120
---------------
TOTAL FOREIGN SECURITIES (94.2%) (Cost $88,562) ........... 101,122
---------------
SHORT-TERM INVESTMENT (2.0%)
REPURCHASE AGREEMENT (2.0%)
2,129 Chase Securities, Inc., 2.60%, dated
12/31/99, due 1/03/00, to be repurchased
at $2,129, collateralized by U.S. Treasury
Bonds, 6.125%, due 12/31/01, valued at
$2,176 (Cost $2,129) .................. 2,129
---------------
FOREIGN CURRENCY (0.5%)
GBP 295 British Pound ................................. 477
SEK 357 Swedish Krona ................................. 42
---------------
TOTAL FOREIGN CURRENCY (Cost $496) .......................... 519
---------------
TOTAL INVESTMENTS (96.7%) (Cost $91,187) .................... 103,770
---------------
OTHER ASSETS (3.6%)
Cash ......................................... $3,333
Dividends Receivable ......................... 334
Foreign Withholding Tax Reclaim
Receivable ................................. 83
Other Assets ................................. 4 3,754
------------
LIABILITIES (0.3%)
Investment Advisory Fees Payable ............... (183)
Custodian Fees Payable ......................... (48)
Directors' Fees and Expenses Payable ........... (19)
Administrative Fees Payable .................... (17)
Distribution Fees Payable ...................... (1)
Other Liabilities .............................. (30) (298)
------------ ---------------
NET ASSETS (100%) ......................................... $ 107,226
---------------
---------------
NET ASSETS CONSIST OF:
Paid in Capital ........................................... $ 91,804
Distributions in Excess of Net Investment Income .......... (174)
Accumulated Net Realized Gain ............................. 3,059
Unrealized Appreciation on Investments and Foreign
Currency Translations ................................... 12,537
---------------
NET ASSETS ................................................ $ 107,226
---------------
---------------
CLASS A:
NET ASSETS ................................................ $ 105,030
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 6,958,997 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .................. $ 15.09
---------------
---------------
CLASS B:
NET ASSETS ................................................ $ 2,196
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 145,343 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .................. $ 15.11
---------------
---------------
- -----------------------------------------------------------------------------
(a) -- Non-income producing security
RNC -- Non-convertible savings shares
Floating Rate -- Interest rate changes on these instruments are based on
changes in a designated base rate. The rates shown are those in
effect on December 31, 1999.
<CAPTION>
- -----------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- -----------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT ...................................$ 6,132 5.7%
CONSUMER GOODS ...................................... 30,272 28.2
ENERGY .............................................. 11,207 10.5
FINANCE ............................................. 22,635 21.1
MATERIALS ........................................... 9,783 9.1
MULTI-INDUSTRY ...................................... 120 0.1
SERVICES ............................................ 20,973 19.5
-------- ----
$101,122 94.2%
-------- ----
-------- ----
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
European Equity Portfolio
40
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Finland (1.4%)
France (22.0%)
Ireland (3.0%)
Netherlands (2.0%)
Portugal (1.2%)
Spain (6.5%)
Sweden (13.1%)
United Kingdom (45.9%)
Other (4.9%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
GPR General
European Real European Real Real Estate
Estate Estate Securities
Portfolio-Class A Portfolio-Class B Index-Europe(1)
------------------ ------------------ --------------
<S> <C> <C> <C>
10/01/97 $500,000 $100,000 $500,000
12/31/97 ________ ________ ________
12/31/98 ________ ________ ________
12/31/99 $487,252 $97,021 $515,601
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested. The performance of Class B
shares will vary based upon the different fees assessed to that class. The
GPR General Real Estate Securities Index - Europe value at December 31, 1999
assumes a minimum investment of $500,000; if a minimum initial investment of
$100,000 (the minimum investment for Class B shares) is assumed, the value at
December 31, 1999 would be $103,120.
PERFORMANCE COMPARED TO THE GPR GENERAL REAL
ESTATE SECURITIES INDEX - EUROPE(1)
- --------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION
------- ----------------
<S> <C> <C>
PORTFOLIO -- CLASS A.............. -2.36% -1.14%
PORTFOLIO -- CLASS B.............. -2.61 -1.34
INDEX............................. 3.40 1.33
</TABLE>
1. The GPR General Real Estate Securities Index - Europe is a European market
capitalization weighted index of listed property/real estate securities
measuring total return.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the European Real Estate Portfolio is to provide
current income and long-term capital appreciation by investing primarily in
equity securities of companies in the European real estate industry.
For the year ended December 31, 1999, the Portfolio had a total return of -2.36%
for the Class A shares and -2.61% for the Class B shares compared to 3.40% for
the GPR General Real Estate Securities Index - Europe (the "Index"). For the
period from inception on October 1, 1997 through December 31, 1999, the
Portfolio had an average annual total return of -1.14% for the Class A shares
and -1.34% for the Class B shares compared to 1.33% for the Index.
Even though Y2K failed to cause global destruction, the fourth quarter of 1999
is not a time European real estate investors will remember with a sense of
relief. The GPR European Real Estate Securities Index trailed the MSCI Europe
Index by 24.1% over the past three months, offering a minuscule 0.7% Euro return
compared to the MSCI figure of 24.8%. This fourth quarter destroyed the
outperformance built-up during the first nine months of the year, causing real
estate to trail the broader equities by 16.4% for the full year. The three main
culprits behind this devastating quarter were the larger markets of the U.K.,
France and Spain returning 0.6%, 0.2% and -22.7%, respectively, due to investors
focusing on growth and technology stocks at the expense of cyclicals and value.
Sweden tried to offset these figures with a 19.7% return, but could not overcome
the impact of these three markets.
Despite a disappointing second half of 1999, European property stocks provided a
total return of 19.8% for the year, and we are optimistic about the prospects
for 2000. The European real estate markets are still in the recovery stage of
the cycle. Strong prime occupancy levels are placing further pressure on current
rents and absorption in peripheral out-of-town space. At the same time, tight
zoning restrictions are supplying a structural barrier to entry for new space.
This environment should offer strong capital value growth notwithstanding the
potential for yield shifts over the near term. Furthermore, currently available
discounts to net asset value within the public securities markets provide an
additional incentive for investment.
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN
THIS OVERVIEW ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED
AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN
IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL
INVESTING.
- --------------------------------------------------------------------------------
European Real Estate Portfolio
41
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
Based on relative price movements, we are increasing our exposure to the larger
cap U.K. names and Spain, decreasing our overweight French commercial bet, and
restructuring our Swedish holdings.
The U.K. economy is continuing to push forward at a healthy pace, and looks set
for smooth sailing throughout 2000. Strong consumer retail figures, and a
continued rebound in the manufacturing sector have persuaded the Morgan Stanley
Dean Witter strategists to raise their gross domestic product expectations for
2000 by 20 basis points to 3.4%, above both the European and EMU averages of
3.3% growth. These optimistic expectations are also placing additional pressure
on the Central Bank to raise short-term interest rates. Experts expect at least
a 25 basis point shift in rates during the first half of the new year. However,
while the economy is steaming, the real estate stocks are fizzling. During the
fourth quarter, the U.K. shares underperformed the European average for the
second quarter in a row. Notwithstanding this less than glorious second half,
the U.K.'s 30.6% 1999 Euro return enabled it to finish the year as the third
best European real estate securities market. Looking forward into the new year,
we are expecting to see another strong performance in the U.K. based primarily
on current public securities pricing, and supplemented with good, albeit not the
best, capital value growth in the European property markets. The U.K. Majors,
the 8 largest public U.K. real estate companies, closed the year trading at over
a 25% discount to their underlying net asset values. This valuation is even more
compelling when the third largest company, Canary Wharf Group, trading at a 10%
premium, is removed from the list leaving an average 33% discount for the
remaining seven names. Based on the current stage of the real estate cycle, we
believe these extreme discounts are unjustified, and feel it is reasonable to
expect the Majors to at least return to their long-term 15% discount level. On
top of the potential for a market revaluation, we are conservatively looking for
an average 5% growth in capital values across the market. We also believe
dominant out-of-town shopping centers, West End offices and Southeast industrial
exposure will produce an above average performance of 7% or more. At the same
time, we believe the London City Office and Canary Wharf office returns may be
on the lower end of the scale due to upcoming new supply limiting the landlord's
ability to raise prices. The projected upcoming interest rate hike may limit
yield movements across all the sectors and regions. We are adjusting our model
portfolio, increasing our overall exposure to the Majors and focusing on these
higher growth areas.
The French real estate securities market was disappointing this quarter. The
0.2% return only slightly underperformed the European Index return of 0.7% over
the past three months, but underperformed the Index's 19.8% return by 4.4% for
the year. This negative relative performance has taken place in a market in the
heart of its recovery. Potential 3.5% estimated gross domestic product growth
for 2000 is above the European average, while the CPI estimate of 1.1% is well
below the 1.7% European number. In other words, the market is expanding with no
signs of overheating within the next 12 months. At the same time, the direct
property market is protected by a lack of space, with a 1.0% vacancy rate in La
Defense, and below 4.0% in Paris CBD. The lack of lettings also limits the
existing evidence of the current market rental rates. We believe the rate of
FF4,000/ square meters for top space is not out of the question over the next
12-18 months, offering a 25% increase over the prelets at Cite du Retiro and Rue
de Courcelles achieved earlier this year. The market is anxiously awaiting the
preletting to begin at Unibail's Couer Defense development this year to gain a
better understanding of true market rents. Unibail now controls over 80% of the
Couer Defense project, the last major development in central La Defense, after
their acquisition of the Crossroads Property Investors fund this quarter. We
believe the reason for the underperformance in France is twofold. First, the
strong price appreciation in the second quarter of 1999 drove stock valuations
to a premium to net asset value (NAV) in the commercial sector, the most
attractive sector of the French market. Second, the tenant favorable leasing
structure creates issues concerning what extent of the direct market recovery
will actually be realized by the property companies, and how long this
realization will take. It is feasible capital values could rise and fall back
again before the downward only rent revues enable the landlord to recognize the
full appreciation. As a result of these two issues, we slightly reduced our
heavily overweight French commercial position last quarter, and continue to do
so.
After months of preaching, the Swedish public real estate market finally appears
ready to fulfill our prophecy. The consistently underperforming Nordic market
returned an exceptional 19.7% Euro return in the fourth quarter, topping off a
36.1% annual performance. Overall, the Swedish market outperformed the GPR Index
by 16.3% in 1999, and was one of only two European property markets to perform
in line or better than the MSCI Europe Index. We believe the strong stock
performance may increase foreign interest in the market. The favorable
macroeconomic and direct real estate fundamentals we discussed in this piece
last quarter remain as strong as they were in September. However, with the
recent price run-up, valuations in Sweden have moved to
- --------------------------------------------------------------------------------
European Real Estate Portfolio
42
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
an attractive average 16% discount to NAV but a far cry from the over 25%
discounts we saw last quarter.
Looking ahead, we believe investors must act more selectively in their
decisions. We are focusing on the larger capitalized names with a proactive
management that have not shared in the market appreciation proportionately. In
particular, we sold our position in Drott as the stock rose, and reinvested in
the lagging Castellum and Diligentia. We believe these companies should offer
the brightest upside from further foreign investment or domestic consolidation
over the next 6-12 months.
The smaller Nordic markets were not as fortunate as Sweden during the fourth
quarter but were mixed for the year. The publicly listed real estate stocks in
Denmark and Norway each jumped slightly this quarter, rising 1.9% and 0.8%,
respectively, in Euros, topping off contradicting years of -18.2%, and 22.5%,
respectively. The story in Finland remains negative; the market fell an
additional -11.1% this quarter and -22.1% for the year. Norway was driven by
Avantor's disposal of approximately 75% of their real estate portfolio to
publicly listed Industrifinans Naeringseiendom for approximately NOK 2.9
billion. The transaction was motivated by Avantor's stock price trading at a 40%
discount to NAV. These same assets were sold at roughly parity with the
Company's NAV. We believe that such transactions strengthen the argument for
owning these smaller companies trading at exceptional discounts, as long as we
believe management is willing to recognize the value for their shareholders. We
will remain overweight in Finland through a position in Sponda, which is trading
at a 45% discount to underlying NAV. We believe this hefty discount is grossly
unjustified considering the current Finish real estate recovery. We do not plan
to invest in either Denmark or Norway in the near future.
As we suggested last quarter, the autumn sell-off of the Dutch stocks was
clearly overdone, as confirmed by the fourth quarter's outperforming 3.9% Euro
return. This was the only quarter the Dutch property stocks outperformed the
broader European Index. Rodamco Continental Europe's 9.0% return was one of the
lead factors behind the outperformance. The Company rebounded from the miserable
reception investors gave to the recent spin-off. However, we believe the recent
price appreciation has brought the stock closer to its fair value and have taken
some short-term profits. As for the rest of the Dutch market, we will continue
to remain underweight. While we see the direct Dutch real estate market as a
solid performer in 2000 (limited new office supply should maintain solid rental
growth), we feel current share pricing is ahead of underlying valuation.
The continued decline in Belgium property stocks, down -1.6% for the fourth
quarter, totaling -5.9% for the year, reduced the share valuations closer to
parity levels. If this continues, Belgium could offer one or two attractive
valuation plays during the first half of 2000. While we will be monitoring
the companies, we are not comfortable buying in at this time. The direct real
estate market is stable, but unexciting, thus only truly cheap companies
could turn our heads.
The Spanish property companies in 1999 performed worse than Sweden in 1998.
Notwithstanding a strong macroeconomy and healthy property fundamentals, the
Spanish real estate securities market fell a shattering -32.5% during the year
and -22.7% in the fourth quarter alone. While the one legitimate concern facing
the market was a slowdown in the homebuilding business, we clearly do not feel
this was sufficient to bring down the shares by 52.3% relative to the GPR
Index's 19.8% return over the year. The homebuilding business is limited to 34%
of Vallehermosa's net assets, 18% of Colonial's, 14% of Metrovacesa's and 0% of
Prima Immobiliaria's. The current rental environment in Spanish offices remains
in excellent shape. Madrid boasts the third strongest rental growth in 1999
amongst the major office markets. At the same time, prime Barcelona central
business district vacancy is a mere 2.6% which has driven down the vacancy rates
on the city-fringe and out-of-town secondary office locations from 50% to 11%
since January 1999. Furthermore, neither market is experiencing a surge in
supply sufficient to meet the already existing level of take-up. Thus, based on
the underlying property fundamentals and recent price deterioration, we are
increasing our exposure to the Spanish market with an increased holding in
Colonial.
Each of the remaining Southern European markets had an uneventful fourth quarter
as the Merger & Acquisition (M&A) activity in both Italy and Portugal slowed.
Italy slightly outperformed the Index, gaining 1.0% for the fourth quarter, but
offered the strongest overall return for the year at 41.4%. Portugal on the
other hand, underperformed on a quarterly, -0.8%, and an annual basis, 10.8%.
Italy's strong appreciation this year was founded on the acquisition of the two
largest property companies, Unione Immobiliare by Milano Centrale and
Immobiliare Metanopoli which is agreed to but still pending. The result of these
transactions is a market depleted of investable companies. The only remaining
sizeable property play is the recently listed EUR 550 million market capitalized
Beni Stabili, created in November when San Paolo IMI spun off their real estate
holdings. Although we would like to invest in Italy directly, the lack of
investable vehicles limits us to achieving
- --------------------------------------------------------------------------------
European Real Estate Portfolio
43
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
exposure through the French company Klepierre's joint venture developments in
Italy. In Portugal, the market is left with the shopping center Company Sonae
Imobiliaria. We remain overweight Sonae but are displeased with the overseas
joint ventures.
The closed end property companies in Germany, Switzerland and Austria were down
against the European Index for the fourth quarter and for 1999 as a whole.
Germany -0.9% in the fourth quarter and -8.6% for the year, while Switzerland
and Austria each offered -2.5% and -10.7% for the fourth quarter and 4.9% and
- -11.7% for the year, respectively. We intend to continue holding no weighting in
these markets until we see a restructuring of the corporate structures and
further improvement in the underlying real estate fundamentals. In particular,
we are looking for an attractive public vehicle in Munich, Frankfurt, Hamburg,
Zurich or Geneva.
Theodore R. Bigman
PORTFOLIO MANAGER
Jan Willem de Geus
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
European Real Estate Portfolio
44
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<S> <C>
COMMON STOCKS (95.1%)
FINLAND (1.4%)
43,540 Sponda Oyj ....................... $ 171
------------
FRANCE (22.0%)
1,488 Group Pour L'Finance D'Const ..... 168
5,558 Klepierre ........................ 538
1,810 Silic ............................ 290
3,700 Simco (RFD) ...................... 300
3,910 Societe Fonciere Lyonnaise ....... 512
4,611 Sophia ........................... 186
4,592 Unibail .......................... 580
------------
2,574
------------
IRELAND (3.0%)
(a)864,750 Dunloe Ewart plc ................. 349
------------
NETHERLANDS (2.0%)
(a)3,595 Rodamco Continental Europe N.V. 146
(a)7,000 Uni-Invest N.V. .................. 90
------------
236
------------
PORTUGAL (1.2%)
10,280 Sonae Imobiliaria S.A. ........... 136
------------
SPAIN (6.5%)
(a)15,200 Inmobiliaria Colonial S.A. ....... 165
16,900 Inmobiliaria Metropolitana Vasco
Central ........................ 293
43,630 Vallehermoso ..................... 307
------------
765
------------
SWEDEN (13.1%)
54,605 Castellum AB ..................... 534
51,460 Diligentia AB .................... 424
13,460 Fastighets AB Tornet ............. 187
55,410 Piren AB ......................... 388
------------
1,533
------------
UNITED KINGDOM (45.9%)
167,815 British Land Co. plc ............. 1,111
124,800 Buford Holdings plc .............. 207
49,000 Capital & Regional Properties plc. 181
83,840 Capital Shopping Centers plc ..... 463
27,830 Chelsfield plc ................... 141
(a)36,442 Chorion plc ...................... 21
59,600 Grantchester Holdings plc ........ 146
103,830 Great Portland Estates plc ....... 322
24,300 Hammerson plc .................... 168
94,055 Land Securities plc .............. 1,054
78,650 MEPC plc ......................... 591
77,529 NHP plc .......................... 180
(a)78,795 Pillar Property plc .............. 412
39,890 Slough Estates plc ............... 227
104,750 Wates City of London Properties
plc ............................ 154
------------
5,378
------------
TOTAL COMMON STOCKS (Cost $12,325) 11,142
------------
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- --------------------------------------------------------------------
<S> <C> <C>
WARRANTS (0.0%)
FRANCE (0.0%)
(a)6,800 Societe Fonciere Lyonnaise,
expiring 7/30/02 (Cost $0) ..... $ 2
------------
TOTAL FOREIGN SECURITIES (95.1%) (Cost $12,325) ...... 11,144
------------
FACE
AMOUNT
(000)
- --------------
SHORT-TERM INVESTMENT (4.2%)
REPURCHASE AGREEMENT (4.2%)
$ 487 Chase Securities, Inc., 2.60%,
dated 12/31/99, due 1/03/00,
to be repurchased at $487,
collateralized by U.S. Treasury
Bonds, 6.125% due 12/31/01,
valued at $499 (Cost $487) .... 487
------------
FOREIGN CURRENCY (0.1%)
EUR 11 Euro (Cost $13) ................. 11
------------
TOTAL INVESTMENTS (99.4%) (Cost $12,825) ............ 11,642
------------
OTHER ASSETS (1.2%)
Dividends Receivable ....................... $141 141
-----
LIABILITIES (0.6%)
Investment Advisory Fees Payable ........... (25)
Custodian Fees Payable ..................... (9)
Directors' Fees and Expenses Payable ....... (2)
Administrative Fees Payable ................ (3)
Distribution Fees Payable .................. (1)
Other Liabilities .......................... (26) (66)
----- ------------
NET ASSETS (100%) .................................... $ 11,717
------------
------------
NET ASSETS CONSIST OF:
Paid in Capital ...................................... $ 19,237
Distributions in Excess of Net Investment Income ..... (41)
Accumulated Net Realized Loss ........................ (6,285)
Unrealized Depreciation on Investments and Foreign ... (1,194)
Currency Translations
------------
NET ASSETS ........................................... $ 11,717
------------
------------
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
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
AMOUNT
(000)
- --------------------------------------------------------------------
<S> <C>
CLASS A:
NET ASSETS ........................................... $ 9,931
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,083,967 outstanding $0.001 par
value shares (authorized 500,000,000 shares) ....... $ 9.16
------------
------------
CLASS B:
NET ASSETS ........................................... $ 1,786
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 194,274 outstanding $0.001 par
value shares (authorized 500,000,000 shares) ....... $ 9.19
------------
------------
- --------------------------------------------------------------------
(a) -- Non-income producing
PLC -- Public Limited Company
RFD -- Ranked for Dividend
<CAPTION>
- --------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- --------------------------------------------------------------------
<S> <C> <C>
Apartments ....................................$ 941 8.0%
Finance ....................................... 5,895 50.3
Office Buildings .............................. 1,714 14.6
Office and Industrial ......................... 1,426 12.2
Shopping Centers .............................. 1,168 10.0
-------- ----
$ 11,144 95.1%
-------- ----
-------- ----
</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 DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Australia (1.8%)
Belgium (0.8%)
Canada (2.1%)
Denmark (0.5%)
France (9.0%)
Germany (5.1%)
Hong Kong (1.0%)
Ireland (2.7%)
Italy (3.8%)
Japan (10.6%)
Netherlands (3.4%)
Portugal (0.6%)
Spain (3.9%)
Sweden (1.0%)
Switzerland (8.1%)
United Kingdom (11.5%)
United States (30.2%)
Other (3.9%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Global Equity
Portfolio- MSCI World
Class A Index(1)
------------- ----------
<S> <C> <C>
7/15/92* $ 500,000 $ 500,000
10/31/92 _________ _________
12/31/92 _________ _________
12/31/93 _________ _________
12/31/94 _________ _________
12/31/95 _________ _________
12/31/96 _________ _________
12/31/97 _________ _________
12/31/98 _________ _________
12/31/99 $1,616,709 $1,565,491
* Commencement of Operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) WORLD INDEX(1)
- -------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YEAR YEARS INCEPTION
------ ------- ---------
<S> <C> <C> <C>
PORTFOLIO-- CLASS A 4.01% 16.54% 17.02%
PORTFOLIO-- CLASS B 3.75 N/A 15.57
INDEX -- CLASS A 24.94 19.76 16.52
INDEX -- CLASS B 24.94 N/A 19.42
</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 (includes
dividends).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Global Equity Portfolio is managed with the objective of obtaining long-term
capital appreciation by investing in equity securities of issuers throughout the
world, including U.S. issuers. Investments may also be made with discretion in
emerging markets.
For the year ended December 31, 1999, the Portfolio had a total return of 4.01%
for the Class A shares and 3.75% for the Class B shares compared to 24.94% for
the Morgan Stanley Capital International (MSCI) World Index (the "Index"). For
the five-year period ended December 31, 1999, the average annual total return
for the Class A shares was 16.54% compared to 19.76% for the Index. For the
period from inception on July 15, 1992 through December 31, 1999, the average
annual total return for the Class A shares was 17.02% compared to 16.52% for the
Index. For the period from inception on January 2, 1996 through December 31,
1999, the average annual total return for the Class B shares was 15.57% compared
to 19.42% for the Index.
For the three months ended December 31, 1999, the Portfolio had a total return
of 3.70% for the Class A shares and 3.65% for the Class B shares compared to
16.87% for the Index. The year ended on a dramatic note as investors dispensed
with Y2K fears and embarked on a "new economy" (technology, telecommunications
and internet) feeding frenzy. The fourth quarter was the best quarter for
momentum strategies on record. As a result, the Portfolio underperformed the
Index in the fourth quarter, yielding a very disappointing annual return.
Performance was again constrained by our lack of exposure to the phenomenal
performance of certain mega cap technology firms. For example, Nokia, Ericsson
and Nortel Networks all doubled in the fourth quarter having already generated
huge returns in the first nine months of the year. U.S. communications/internet
infrastructure play Qualcomm rose a stunning 2800% in the year costing the
Portfolio 62 basis points of relative performance in 1999 despite the stock only
joining the Index in the summer and ending the year with a tiny weight of 0.2%
in the Index.
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS
OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES
MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW
ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE
OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE
OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK
CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
- --------------------------------------------------------------------------------
Global Equity Portfolio
47
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
The strong performance of the Index masked divergent sectoral performance. For
example, the best performing sector of the Index, information technology, rose
228% last year while the worst, the defensive consumer staples group
(food/tobacco/household products), in which we were substantially overweight,
actually fell 7%.
Only half the stocks in the U.S. managed a positive return in 1999 while the
median return was a meager 0.4%. Technology has grown to account for 30% of
the market cap of the U.S. Index and 18% of the Index. Excluding technology
from the Index would have reduced Index returns from 17% to 11% in the fourth
quarter and from 25% to 15% for the full year of 1999. The top 20 performing
Index stocks explained 68% of the U.S. Index return and 42% of the Index
return in 1998. Leadership was even more concentrated in 1999 than 1998, with
the top 20 Index performers explaining 95% of the overall return of the U.S.
Index and 52% of the Index.
Combining our severe underweight to information technology (1.4% versus Index
weight of 18%) and our significant overweight to consumer staples (25% versus
Index weight of 6.5%) explained roughly 70% of our underperformance in the
fourth quarter and for the year. Absence from other Mega cap index stocks such
as General Electric and Sony also hurt relative performance. Wal-Mart and Home
Depot performed strongly but are not owned due to valuation constraints.
<TABLE>
<CAPTION>
PORTFOLIO ATTRIBUTION FOR THE FOURTH QUARTER
TOP FIVE CONTRIBUTORS TOP FIVE DETRACTORS
- ------------------------------ -----------------------------
<S> <C>
NTT Philip Morris
Telefonica Albertsons
Mediaset Reckitt Benckiser
WPP Elf Aquitaine
Richemont Imperial Tobacco
</TABLE>
The consumer staples stocks we own were a negative, as this was the worst
performing global sector in 1999. Philip Morris (-31%) continued to be dogged by
ongoing litigation, causing it to be the worst performing stock in the
Portfolio. We believe concerns of bankruptcy filings are unwarranted, and that
strong free cash flows and attractive dividend yields provide convincing grounds
to continue holding onto this stock. Reckitt Benckiser, (-25%) the world's
largest maker of household cleaners, warned of disappointing profit
expectations. Post-merger concerns are expected to dissipate, as Benckiser
management run the new company and fundamentals improve in emerging markets.
Albertsons (food/drug retailing, -18%) was a detractor in the quarter, as it
continued to adjust from its merger with American Stores.
On the positive side, our overweight to attractively valued NTT (+39%) was a
strong positive, benefiting from the expansion of its high-value-added cellular
and internet services. Spain's largest telephone company, Telefonica (+59%)
gained momentum following the flotation of Terra Networks its internet service
provider (ISP) subsidiary, while Mediaset (+51%) and WPP (+70%) benefited from
the increased demand for advertising among the dot-coms. Improving global growth
translated into increased spending for luxury goods, making Richemont (+18%) a
significant contributor this quarter.
INVESTMENT OUTLOOK
We see the "technology" bubble as the biggest risk in the global equity market
following December's huge run. The Portfolio's value discipline has precluded us
from participating in this bubble. The technology sector trades at 91 times
cash flow while the Index trades at 18 times cash flow. Our Portfolio trades at
9.5 times cash flow. In the table below we illustrate the valuation of seven
stocks in the Index (which we did not own) which detracted most from our
relative performance. These have been dubbed the "New Economy Seven". In
contrast, we aggregated the valuation characteristics of our seven worst
performing stocks under the banner "Old Economy Seven". It is noteworthy that
the "New Economy Seven" generates 1.8 times the free cash flow of the "Old
Economy Seven" yet their market valuation is 12.5 times larger. The results in
the table speak for themselves. Mobile phone handset and infrastructure
manufacturer, Nokia, trades at 83 times cash flow. Based on a dividend discount
model, in order to justify the current share price, Nokia needs to grow its
revenues by 60% per annum over the next five years and 8% thereafter while
expanding Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) margins to 25%. In the last five years Nokia has grown revenues at 30%
and achieved EBITDA margins of 17%. Sure, volumes of handsets are expected to
grow at 45% a year but prices are declining rapidly. Surprisingly, sell-side
analysts expect a range of 20-30% for sales growth and declining margins going
forward. Contrast that with our holding in French biscuit, dairy and beverages
company, Groupe Danone. Danone need only grow its revenues at 5% per annum
(compared to a historic average of 8%) and keep margins at current levels of 16%
to justify its current share price.
<TABLE>
<CAPTION>
NEW ECONOMY(1) OLD ECONOMY(2)
GROWTH AT ANY PRICE SEVEN SEVEN
<S> <C> <C>
Price/Earnings (times) 157.0 18.9
Price/Cash Flow (times) 85.0 13.0
Price/Free Cash Flow (times) 137.0 18.5
Market Capitalization (U.S. $billion) 1,874.0 150.5
Sales (U.S. $billion) 103.6 150.5
EBIT (U.S. $billion) 30.2 20.8
Free Cash Flow (U.S. $billion)(3) 21.5 11.7
MSCI EAFE Weighting 7.7% 0.8%
</TABLE>
(1) New Economy = Microsoft, Cisco, Nokia, Oracle, Nortel, Qualcomm, Intel
(2) Old Economy = Philip Morris, Albertsons, Reckitt Benkiser, Iberdrola,
Nestle, Danone, Potash Corp.
(3) Free Cash Flow = Net Operating Cash Flow - Capital Expenditure
SOURCE: FACTSET, WORLDSCOPE
- --------------------------------------------------------------------------------
Global Equity Portfolio
48
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
The Portfolio owns little in the way of technology or other mega-cap companies
that have dominated equity market returns in the last two years. The P/E premium
of the largest 50 U.S. stocks relative to the rest of the market are at its
widest point ever. These are dangerous times for Index investors. Instead, we
have concentrated on undervalued companies in the "old economy" such as
financials, food, beverages, tobacco and utilities. While these sectors have
underperformed in 1999, they are now extremely cheap relative to the excesses
within the technology area, where investor behavior remains exceptionally
fickle, witness Lucent, at the time of this writing, down 34% over the past two
weeks.
The extreme polarization of the markets continues to create opportunities to buy
good businesses at great prices (such as Cadbury Schweppes in the U.K.). The
disparity between new Japan and old Japan has now grown so large that we are
also finding suitable risk reward tradeoffs among the third tier restructuring
stories and we have added positions in Toshiba, Tokyo Gas, Mitsubishi Electric,
and Mitsui over the last quarter.
Despite the difficulties that have faced value investors over the past two years
(and most of the past decade in the United States), we expect the Portfolio to
perform defensively relative to the Index in a weak overall market should
interest rates continue to rise. Likewise, we expect our overweighting to Europe
and underweighting to the U.S. to bear fruit this year given Europe's improving
fundamentals and more attractive relative valuation. Implicit in today's "new
economy" valuations is massive expectations for growth. As the market is paying
a lot for the promise of future cash flows, these "new economy" stocks should
also be more vulnerable to higher interest rates (just like long duration bonds)
although, somewhat surprisingly, the market has chosen to ignore this
relationship for now.
Frances Campion
PORTFOLIO MANAGER
Richard Boon
PORTFOLIO MANAGER
Paul Boyne
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
Global Equity Portfolio
49
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
- -----------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.5%)
AUSTRALIA (1.8%)
302,270 CSR Ltd. .......................... $ 734
259,830 Westpac Banking Corp. ............. 1,791
---------------
2,525
---------------
BELGIUM (0.8%)
14,390 Delhaize-Le Lion .................. 1,085
---------------
CANADA (2.1%)
57,474 BCT.Telus Communications, Inc. .... 1,398
15,196 BCT.Telus Communications, Inc. (A
Shares) .......................... 367
25,470 Potash Corp. of Saskatchewan, Inc. 1,216
---------------
2,981
---------------
DENMARK (0.5%)
18,980 Danisco A.S. ...................... 741
---------------
FRANCE (9.0%)
49,200 Aventis S.A. ...................... 2,862
16,700 Cie Generale des Establissements
Michelin, Class B (Registered) ... 657
12,340 Groupe Danone ..................... 2,912
33,030 Pernod Ricard ..................... 1,892
36,350 Scor .............................. 1,605
22,489 Total Fina S.A., Class B .......... 3,005
---------------
12,933
---------------
GERMANY (4.5%)
49,900 BASF AG ........................... 2,611
29,010 Bayer AG .......................... 1,381
7,510 Schering AG ....................... 909
28,830 VEBA AG ........................... 1,410
3,730 Volkswagen AG ..................... 210
---------------
6,521
---------------
HONG KONG (1.0%)
480,880 Hong Kong Electric Holdings Ltd. .. 1,503
---------------
IRELAND (2.7%)
345,415 Bank of Ireland plc ............... 2,752
196,621 Green Property plc ................ 1,120
---------------
3,872
---------------
ITALY (3.8%)
144,970 Mediaset S.P.A. ................... 2,257
518,553 Telecom Italia S.P.A. (RNC) ....... 3,163
---------------
5,420
---------------
JAPAN (10.6%)
1,000 Canon, Inc. ....................... 40
108,000 Daiichi Pharmaceutical Co., Ltd. .. 1,404
65,000 Fuji Photo Film Ltd. .............. 2,372
123,000 Hitachi Ltd. ...................... 1,973
25,000 Kao Corp. ......................... 713
47,000 Mitsubishi Electric Corp. ......... 303
27,000 Mitsui & Co., Ltd. ................ 189
47,000 Nichido Fire & Marine Insurance
Co., Ltd. ....................... 270
265 Nippon Telegraph & Telephone Corp.
(NTT) ........................... 4,536
59,000 Pioneer Electric Corp. ............ 1,558
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
94,000 Sumitomo Marine & Fire Insurance
Co., Ltd. ....................... $ 579
36,000 Tokyo Gas Co., Ltd. ............... 88
63,000 Toppan Printing Co., Ltd. ......... 629
70,000 Toshiba Corp. ..................... 534
---------------
15,188
---------------
NETHERLANDS (3.4%)
50,562 ABN Amro Holding N.V. ............. 1,264
34,772 ING Groep N.V. .................... 2,102
11,194 Philips Electronics N.V. .......... 1,524
---------------
4,890
---------------
PORTUGAL (0.6%)
50,152 Cimentos de Portugal .............. 834
---------------
SPAIN (3.9%)
150,590 Iberdrola ......................... 2,089
(a)143,749 Telefonica ........................ 3,595
---------------
5,684
---------------
SWEDEN (1.0%)
238,510 Nordbanken Holding AB ............. 1,405
---------------
SWITZERLAND (8.1%)
1,966 Cie Financiere Richemont AG,
Class A ......................... 4,694
1,690 Forbo Holding AG (Registered) ..... 797
873 Holderbank Financiere Glarus AG,
Class B (Bearer) ................ 1,196
2,185 Nestle (Registered) ............... 4,005
2,210 Swisscom AG (Registered) .......... 894
---------------
11,586
---------------
UNITED KINGDOM (11.5%)
361,310 Allied Domecq plc ................. 1,786
27,410 AstraZeneca Group plc ............. 1,137
184,814 Blue Circle Industries plc ........ 1,074
64,461 Burmah Castrol plc ................ 1,176
122,000 Cadbury Schweppes plc ............. 737
151,240 Great Universal Stores plc ........ 884
132,270 Imperial Tobacco Group plc ........ 1,090
20 INVENSYS .......................... --
211,470 Matthews (Bernard) plc ............ 400
40,330 National Westminster Bank plc ..... 866
(a,d)653,333 Pentos plc ........................ --
228,276 Reckitt Benckiser plc ............. 2,140
241,407 Royal & Sun Alliance Insurance
Group plc ....................... 1,838
290,439 Sainsbury (J) plc ................. 1,638
112,380 WPP Group plc ..................... 1,781
---------------
16,547
---------------
UNITED STATES (30.2%)
96,902 Albertson's, Inc. ................. 3,125
24,570 Alcoa, Inc. ....................... 2,039
(a)34,120 BJ's Wholesale Club, Inc. ......... 1,245
28,790 Boise Cascade Corp. ............... 1,166
36,890 Borg-Warner Automotive, Inc. ...... 1,494
(a)56,660 Cadiz, Inc. ....................... 538
(a,d)56,660 Cadiz Land, Inc.- Restricted
Shares .......................... 209
24,070 Chase Manhattan Bank .............. 1,870
</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
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
UNITED STATES (CONT.)
65,007 COMSAT Corp. ...................... $ 1,292
80,200 Enhance Financial Services Group,
Inc. ............................ 1,303
35,790 Finova Group, Inc. ................ 1,271
35,470 Fort James Corp. .................. 971
20,490 General Dynamics Corp. ............ 1,081
(a)56,350 GenRad, Inc. ...................... 909
18,450 Georgia Pacific Group ............. 936
42,010 Goodrich (BF) Co. ................. 1,155
30,000 GTE Corp. ......................... 2,117
68,572 Houghton Mifflin Co. .............. 2,893
(a)128 Leland Stanford Jr. University .... --
50,750 MBIA, Inc. ........................ 2,680
69,680 Mellon Bank Corp. ................. 2,374
14,150 NCR Corp. ......................... 536
(a)28,140 Noble Drilling Corp. .............. 922
18,800 Pharmacia & Upjohn, Inc. .......... 846
145,290 Philip Morris Cos., Inc. .......... 3,369
38,020 Rite Aid Corp. .................... 425
40,290 Sears Roebuck & Co. ............... 1,226
28,820 Terra Nova (Bermuda) Holdings
Ltd., Class A ................... 865
49,730 Tupperware Corp. .................. 842
40,890 U.S. Bancorp ...................... 974
83,480 Unicom Corp. ...................... 2,797
---------------
43,470
---------------
TOTAL COMMON STOCKS (Cost $133,335) ....................... 137,185
---------------
PREFERRED STOCKS (0.6%)
GERMANY (0.6%)
26,630 Volkswagen AG (Cost $865) ......... 859
---------------
TOTAL FOREIGN & U.S. SECURITIES (96.1%) (Cost $134,200) ... 138,044
---------------
<CAPTION>
FACE
AMOUNT
(000)
- ----------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (4.1%)
REPURCHASE AGREEMENT (4.1%)
$ 5,880 Chase Securities, Inc., 2.60%,
dated 12/31/99, due 1/03/00, to
be repurchased at $5,881,
collateralized by U.S. Treasury
Notes, 6.125%, due 12/31/01,
valued at $6,003 (Cost $5,880) .. 5,880
---------------
<CAPTION>
VALUE
(000)
- ----------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (100.2%) (Cost $140,080) ................ $ 143,924
---------------
OTHER ASSETS (1.1%)
Net Unrealized Gain on Foreign
Currency Exchange Contracts ................. $ 1,025
Dividends Receivable ........................... 334
Foreign Withholding Tax Reclaim
Receivable ................................... 261
Receivable for Portfolio Shares Sold ........... 10
Other Assets ................................... 10 1,640
-------
LIABILITIES (-1.3%)
Payable for Portolio Shares Redeemed ........... (1,342)
Investment Advisory Fees Payable ............... (312)
Bank Overdraft Payable ......................... (54)
Custodian Fees Payable ......................... (40)
Distribution Fees Payable ...................... (17)
Administrative Fees Payable .................... (16)
Directors' Fees and Expenses Payable ........... (12)
Other Liabilities .............................. (36) (1,829)
------- ---------------
NET ASSETS (100%) ......................................... $ 143,735
===============
NET ASSETS CONSIST OF:
Paid in Capital ........................................... $ 134,972
Distributions in Excess of Net Investment Income .......... (365)
Accumulated Net Realized Gain ............................. 4,260
Unrealized Appreciation on Investments and Foreign Currency
Translations ............................................ 4,868
---------------
Net Assets ................................................ $ 143,735
===============
CLASS A:
- --------
NET ASSETS ................................................ $ 115,646
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 6,313,527 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .................. $ 18.32
===============
CLASS B:
- --------
NET ASSETS ................................................ $ 28,089
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 1,543,082 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .................. $ 18.20
===============
</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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open
at December 31, 1999, the Portfolio is obligated to
deliver foreign currency in exchange for U.S. dollars as
indicated below:
<TABLE>
<CAPTION>
CURRENCY
TO IN EXCHANGE NET
DELIVER VALUE SETTLEMENT FOR VALUE UNREALIZED
(000) (000) DATE (000) (000) GAIN (000)
- ---------- ----- ---------- ------------- ------- -----------
<S> <C> <C> <C> <C> <C>
EUR 14,000 $14,224 4/12/00 U.S.$ 15,249 $15,249 $1,025
======= ======= ======
</TABLE>
- --------------------------------------------------------------------------------
(a) -- Non-income producing
(d) -- Investments (totaling $209,000 or 0.1% of net assets at December 31,
1999) were valued at fair value -- see Note A-1 to financial statements.
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>
Capital Equipment ................ $ 7,453 5.2%
Consumer Goods ................... 43,368 30.2
Energy ........................... 12,068 8.4
Finance .......................... 27,467 19.1
Materials ........................ 13,984 9.7
Services ......................... 33,704 23.5
-------- -----
$138,044 96.1%
======== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Global Equity Portfolio
52
<PAGE>
[GRAPHIC]MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- ------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- ------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Other (6.2%)
United Kingdom (22.0%)
Switzerland (7.3%)
Sweden (2.6%)
Spain (3.4%)
Singapore (1.8%)
Portugal (0.4%)
New Zealand (0.4%)
Netherlands (5.5%)
Japan (18.0%)
Italy (2.8%)
Hong Kong (1.6%)
Germany (6.1%)
France (13.1%)
Finland (0.4%)
Denmark (1.9%)
Canada (2.7%)
Belgium (0.3%)
Australia (3.5%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- ------------------------------------------------
[GRAPH]
<TABLE>
INTERNATIONAL
PORTFOLIO- MSCI EAFE
CLASS A INDEX1
------------- -----------
<S> <C> <C>
8/4/89* $ 500,000 $ 500,000
10/31/90 __________ __________
10/31/92 __________ __________
12/31/93 __________ __________
12/31/97 __________ __________
12/31/99 $1,820,493 $1,027,965
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested. The performance of Class B
shares will vary based upon the different inception dates and fees assessed
to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
- ------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE AVERAGE AVERAGE
ANNUAL ANNUAL ANNUAL
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
------ -------- --------- ----------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A.... 16.91% 16.07% 13.21% 13.21%
PORTFOLIO -- CLASS B.... 16.68 N/A N/A 16.74
INDEX -- CLASS A........ 26.96 12.83 7.01 7.35
INDEX -- CLASS B........ 26.96 N/A N/A 13.24
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe,
Australasia and the Far East (includes dividends net of withholding taxes).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the International Equity Portfolio is long-term
capital appreciation through investment primarily in equity securities of
non-U.S. issuers. Equity securities for this purpose include common stocks
and equivalents, such as securities convertible into common stocks, and
securities having common stock characteristics, such as rights and warrants
to purchase common stocks.
For the year ended December 31, 1999, the Portfolio had a total return of
16.91% for the Class A shares and 16.68% for the Class B shares compared to
26.96% for the Morgan Stanley Capital International (MSCI) EAFE Index (the
"Index"). For the five-year period ended December 31, 1999, the average
annual total return for the Class A shares was 16.07% compared to 12.83% for
the Index. For the ten-year period ended December 31, 1999, the average
annual total return for the Class A shares was 13.21% compared to 7.01% for
the Index. For the period from inception on August 4, 1989 through December
31, 1999, the average annual total return for the Class A shares was 13.21%
compared to 7.35% for the Index. For the period from inception on January 2,
1996 through December 31, 1999, the average annual total return of Class B
shares was 16.74% compared to 13.24% for the Index.
A great deal has been written about the narrowness of the market in the U.S.
and the outperformance of the "new economy" sectors (technology,
telecommunications and internet) to the exclusion of the "old economy"
sectors (virtually everything else). This polarization was no less true for
European markets and was even more exaggerated in the Japanese market where
over half of the 55% rise in the broad Tokyo Price Index ("TOPIX") was
attributable to just 12 stocks. To pour salt onto the wounds of value
investors, an end of year frenzy saw many Japanese technology stocks
skyrocket in the final five trading days of 1999. For example Sony was up 48%
- - a move which prompted the President of Sony to publicly state that he
thought his company's shares were significantly overvalued.
We did an exercise comparing the seven best performing "new economy" stocks
(which we don't own) with our worst seven performing "old economy" value
stocks which
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICATIVE
OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE
SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN
RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
- --------------------------------------------------------------------------------
International Equity Portfolio
53
<PAGE>
[GRAPHIC]MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- ------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- ------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
vividly illustrates the yawning gap in valuations and hence in expectations
built into the two tiers of the market. In addition, these 14 stocks alone
explain virtually 100% of the difference between our performance and that of
the Index in the past year.
Not owning the "magnificent seven" new economy stocks (Nokia, Ericsson,
Softbank, Sony, Mannesman, Kyocera and Murata) cost 464 basis points of
performance in the fourth quarter and 662 basis points for the year. The
"magnificent seven" now account for over 7% of the Index and have an average
price-earnings (P/E) ratio of 144 times and a price to cash flow ratio of
63.6 times.
On the other hand, our 7 worst performing stocks (Reckitt Benkiser, GUS,
Iberdrola, RWE, Volkswagen, Danone and Toppan Printing) cost 339 basis points
of performance for the year. These "old economy" stocks account for less than
1% of the Index and have an average P/E ratio of 19.4 times and a price to
cash flow of 13 times.
However, our "old economy" down and outs actually generated more EBIT
(earnings before interest and tax) and more free cash flow than the
"magnificent seven" new economy stocks. This goes to illustrate the massive
expectations that the market is placing on the growth rates of the "new
economy" stocks and hence their vulnerability to any earnings disappointment.
As the market is paying a lot for the promise of future cash flows, these new
economy stocks should also be more vulnerable to higher interest rates (just
like long duration bonds) although, somewhat surprisingly, the market has
chosen to ignore this relationship for now.
Below are 12 Largest Contributors to TOPIX return in 1999:
<TABLE>
<CAPTION>
1999RETURN PRICE-EARNINGS RATIO
COMPANY (%) (TIMES)
<S> <C> <C>
Hikari Tshushin 2,949 538.4
Softbank 1,184 241.8
Matsushita Comminications 506 111.4
NTT Data 418 349.0
NTT DoCoMo 422 147.1
Murata 366 119.2
Seven Eleven Japan 356 218.3
Sony 256 63.5
Fujitsu 195 n/a
Fuji Bank 147 n/a
NTT 102 44.4
Toyota 71 44.1
</TABLE>
In contrast, our old economy stocks are pricing in virtually no growth as
they are at 18.6 times free cash flow giving a free cash flow yield of 5.3%
(almost in line with the yield on European long bonds).
While we don't deny that the internet will have an impact on every sector of
the economy even in the new paradigm, economy people will still drink
Danone's bottled water, use Reckitt Benkiser's Lysol to clean their homes and
use RWE's and Iberdrola's electricity (won't they?).
<TABLE>
<CAPTION>
NEW ECONOMY(1) OLD ECONOMY(2)
GROWTH AT ANY PRICE SEVEN SEVEN
<S> <C> <C>
Price/Earnings (times) 144.1 19.4
Price/Cash Flow (times) 63.6 13.0
Price/Free Cash Flow (times) 147.0 18.6
Market Capitalization (U.S. $billion) 706.3 92.9
Sales (U.S. $billion) 130.6 158.2
EBIT (U.S. $billion) 12.7 13.9
Free Cash Flow (U.S. $billion)(3) 4.8 5.0
MSCI EAFE Weighting 7.4% 0.9%
</TABLE>
(1) New Economy = Nokia, Ericsson, Softbank, Mannesman, Sony, Murata, Kyocera
(2) Old Economy = RWE, Iberdrola, GUS, Danone, Volkswagen, Toppan Printing,
Reckitt Benkiser
(3) Free Cash Flow = Net Operating Cash Flow - Capital Expenditure
SOURCE: FACTSET, WORLDSCOPE
Every cloud has a silver lining and the extreme polarization of the markets
has created more opportunities to buy good businesses at great prices (such
as Cadbury Schweppes in the U.K.). The disparity between new Japan and old
Japan has now grown so large that we are also finding suitable risk reward
tradeoffs among the tier 3 restructuring stories and we have added positions
in Toshiba, Tokyo Gas, Mitsubishi Electric, Mitsui and MEI over the fourth
quarter.
The flip side is that a few of our new economy stocks (yes, we do own a few)
that were value a few years ago when we bought them have now been rerated
beyond our wildest expectations and we are taking profits. Mediaset,
Richemont and WPP are the most notable examples.
The inevitable consequence, however, is that the Portfolio is moving further
away from the benchmark and hence risk against the Index is increasing.
However, hopefully as the above table illustrates, the absolute valuation
risk of the Portfolio (and the risk of a nosebleed) is decreasing.
Dominic Caldecott
PORTFOLIO MANAGER
Peter Wright
PORTFOLIO MANAGER
William Lock
PORTFOLIO MANAGER
Kate Cornish-Bowden
PORTFOLIO MANAGER
Walter Riddell
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
International Equity Portfolio
54
<PAGE>
[GRAPHIC]MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- ------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (92.8%)
AUSTRALIA (3.5%)
1,641,260 Brambles Industries Ltd.................... $ 45,352
7,505,400 Fosters Brewing Group Ltd.................. 21,516
(c)10,323,920 Westpac Banking Corp....................... 71,159
6,702,530 Woolworths Ltd............................. 23,039
-----------------
161,066
-----------------
BELGIUM (0.3%)
296,046 G.I.B. Holdings Ltd........................ 12,687
-----------------
CANADA (2.7%)
(a)1,281,239 BCT.Telus Communications, Inc.............. 31,171
563,309 BCT.Telus Communications, Inc. (A Shares).. 13,588
(a)1,760,500 Manulife Financial Corp.................... 22,481
650,160 Potash Corp. of Saskatchewan, Inc.......... 31,050
(a)2,973,600 Renaissance Energy Ltd..................... 29,843
-----------------
128,133
-----------------
DENMARK (1.9%)
529,262 Danisco A/S................................ 20,650
214,200 Den Danske Bank............................ 23,505
179,000 Novo-Nordisk A/S, Class B.................. 23,765
307,008 Unidanmark A/S, plc, Class A (Registered).. 21,627
-----------------
89,547
-----------------
FINLAND (0.4%)
370,200 Huhtamaki Oyj, Series 1.................... 12,543
1,318,967 Merita Ltd., plc, Class A.................. 7,780
-----------------
20,323
-----------------
FRANCE (13.1%)
303,010 Alcatel.................................... 69,663
(c)861,070 Assurances Generales de France (Bearer).... 46,712
(c)1,962,170 Aventis S.A................................ 114,163
531,000 Banque Nationale de Paris.................. 49,046
(c)238,932 Cie de Saint-Gobain........................ 44,981
(c)371,824 France Telecom............................. 49,228
357,281 Groupe Danone.............................. 84,302
(c)1,149,753 Total Fina, Class B........................ 153,614
-----------------
611,709
-----------------
GERMANY (5.2%)
460,300 BASF AG.................................... 24,089
(c)1,023,060 Bayer AG................................... 48,692
(c)1,649,168 RWE AG..................................... 65,686
506,740 Schering AG................................ 61,316
2,324,400 Viag AG.................................... 43,431
-----------------
243,214
-----------------
HONG KONG (1.6%)
9,979,920 Hong Kong Electric Holdings Ltd............ 31,197
14,865,155 Hong Kong Land Holdings Ltd................ 22,001
2,946,100 Swire Pacific Ltd., Class A................ 17,396
6,002,500 Swire Pacific Ltd., Class B................ 5,289
-----------------
75,883
-----------------
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
ITALY (2.8%)
(c)2,572,130 Mediaset S.p.A............................. $ 40,045
14,826,547 Telecom Italia S.p.A. (RNC)................ 90,450
-----------------
130,495
-----------------
JAPAN (18.0%)
(c)3,524,000 Aisin Seiki Co., Ltd....................... 48,398
1,579,000 Asahi Chemical Industry Co., Ltd........... 8,109
1,033,000 Canon, Inc................................. 41,025
325,000 Chudenko Corp.............................. 4,937
1,844,000 Daibiru Corp............................... 11,364
1,772,000 Daiichi Pharmaceutical Co., Ltd............ 23,036
379,000 Eisai Co., Ltd............................. 7,285
(c)1,685,000 Fuji Photo Film Ltd........................ 61,480
4,106,000 Hitachi Ltd................................ 65,870
3,343 Japan Tobacco, Inc......................... 25,572
751,000 Kao Corp................................... 21,414
899,000 Matsushita Electric Industrial Co., Ltd.... 24,887
2,290,000 Mitsubishi Electric Corp................... 14,784
1,270,000 Mitsui & Co., Ltd.......................... 8,882
(c)3,859,000 Nichido Fire & Marine Insurance Co.,Ltd.... 22,196
8,432 Nippon Telegraph & Telephone Corp. (NTT)... 144,341
763,000 Ono Pharmaceutical Co., Ltd................ 20,450
1,205,000 Pioneer Electric Corp...................... 31,825
126,000 Sankyo Co., Ltd............................ 2,588
4,750,000 Shionogi & Co., Ltd........................ 57,662
(c)6,812,000 Sumitomo Marine & Fire Insurance Co., Ltd.. 41,979
392,500 Takefuji Corp.............................. 49,106
1,740,000 Tokyo Gas Co., Ltd......................... 4,238
(c)6,006,000 Toppan Printing Co., Ltd................... 59,925
2,415,000 Toshiba Corp............................... 18,426
599,000 Yamanouchi Pharmaceutical Co., Ltd......... 20,918
-----------------
840,697
-----------------
NETHERLANDS (5.5%)
1,074,100 Akzo Nobel N.V............................. 53,937
221,258 Buhrmann N.V............................... 3,335
812,600 CSM N.V.................................... 17,371
826,060 Hollandsche Beton Groep N.V................ 7,913
880,500 ING Groep N.V.............................. 53,218
540,078 Philips Electronics N.V.................... 73,519
486,000 Royal KPN N.V.............................. 47,487
-----------------
256,780
-----------------
NEW ZEALAND (0.4%)
7,869,900 Lion Nathan Ltd............................ 18,299
-----------------
PORTUGAL (0.4%)
1,182,216 Cimpor SGPS................................ 19,669
-----------------
SINGAPORE (1.8%)
17,707,337 Jardine Strategic Holdings, Inc............ 35,238
5,267,328 United Overseas Bank Ltd. (Foreign)........ 46,490
-----------------
81,728
-----------------
SPAIN (3.4%)
6,100,210 Iberdrola.................................. 84,640
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
DECEMBER 31, 1999
- ------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
SPAIN (CONT.)
(a,c)2,936,792 Telefonica................................. $ 73,440
-----------------
158,080
-----------------
SWEDEN (2.6%)
2,583,550 ForeningsSparbanken AB..................... 38,034
(c)5,853,590 Nordbanken Holding AB...................... 34,469
(c)1,716,866 Svenska Cellulosa AB, Class B.............. 50,954
-----------------
123,457
-----------------
SWITZERLAND (7.3%)
22,221 Cie Financiere Richemont AG, Class A....... 53,057
25,820 Forbo Holding AG (Registered).............. 12,168
37,461 Holderbank Financiere Glarus AG,
Class B (Bearer).......................... 51,313
49,225 Nestle (Registered)........................ 90,223
13,744 Schindler Holding AG (Participating
Certificates)............................. 22,021
22,355 Sulzer AG (Registered)..................... 14,538
112,470 Swisscom AG (Registered)................... 45,511
194,955 UBS AG (Registered)........................ 52,674
-----------------
341,505
-----------------
UNITED KINGDOM (21.9%)
8,546,770 Allied Domecq plc.......................... 42,240
2,028,300 Allied Zurich plc.......................... 23,898
1,086,200 AstraZeneca Group plc...................... 45,051
4,342,500 BAA plc.................................... 30,509
328,683 Bass plc................................... 4,090
(a)7,473,709 BG Group plc............................... 48,283
8,987,519 Blue Circle Industries plc................. 52,220
2,759,800 British Telecommunications plc............. 67,439
2,642,307 BTR plc.................................... 14,382
8,018,100 Bunzl plc.................................. 44,030
1,882,105 Burmah Castrol plc......................... 34,349
7,708,700 Cadbury Schweppes plc...................... 46,564
121,100 Carlton Communications plc................. 1,179
2,933,600 CGU plc.................................... 47,262
7,000,960 Great Universal Stores plc................. 40,932
4,166,901 Imperial Tobacco Group plc................. 34,323
5,026,451 John Mowlem & Co. plc...................... 9,579
3,987,520 National Westminster Bank plc.............. 85,655
2,589,200 Premier Farnell plc........................ 19,278
6,151,666 Reckitt Benckiser plc...................... 57,675
2,670,600 RMC Group plc.............................. 36,663
3,167,803 Royal & Sun Alliance Insurance Group plc... 24,123
8,801,770 Sainsbury (J) plc.......................... 49,648
5,440,000 Scottish Hydro-Electric plc................ 43,425
2,989,960 Tate & Lyle plc............................ 19,220
3,314,150 Wolseley plc............................... 25,412
4,816,396 WPP Group plc.............................. 76,311
-----------------
1,023,740
-----------------
TOTAL COMMON STOCKS (Cost $3,438,811) 4,337,012
-----------------
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS (0.9%)
GERMANY (0.9%)
1,235,130 Volkswagen AG(Cost $29,614)................ $ 39,854
-----------------
FACE
AMOUNT
(000)
- ------------------------
FIXED INCOME SECURITIES (0.1%)
UNITED KINGDOM (0.1%)
$ 1,052 BG Transco Holdings plc, 7.06%,
12/14/09, (Floating Rate)................. 1,651
1,052 BG Transco Holdings plc, 4.19%.
12/14/22, (Floating Rate)................. 1,709
1,052 BG Transco Holdings plc, 7.00%, 12/16/24... 1,695
-----------------
TOTAL FIXED INCOME SECURITIES (Cost $5,141)................. 5,055
-----------------
TOTAL FOREIGN SECURITIES (93.8%)(Cost $3,473,566)........... 4,381,921
-----------------
SHORT-TERM INVESTMENTS (8.9%)
SHORT-TERM INVESTMENTS HELD FOR COLLATERAL ON LOANED SECURITIES (4.4%)
8,150 Australia New Zealand Bank, N.Y.,
Yankee CD, 6.67%, 1/27/00................. 8,150
2,750 Baltimore Gas and Electric, MTN,
6.56%, 1/14/00............................ 2,750
6,000 Banco Pop Di Milano, N.Y., Yankee CD,
6.37%, 1/31/00............................ 6,000
8,250 Bank of Montreal Chicago, Yankee CD,
4.95%, 1/26/00............................ 8,250
6,100 Bank of Nova Scotia, Toronto, Time
Deposit, 4.50%, 1/3/00.................... 6,100
6,100 Barclays Nassau,5.00%, 1/3/00.............. 6,100
5,994 Bayerische Landesbank, N.Y., Yankee CD,
6.49%, 1/13/00............................ 5,994
40,000 Bear Stearns Repo, 4.53%, dated 12/31/99,
due 1/03/00 to be repurchased at $40,015,
collaterlaized by U.S. Agency Mortgages
having various maturities and interest
rates valued at $40,800................... 40,000
5,000 Bear Stearns, CP, 4.90%, 1/23/00........... 5,000
7,457 British Aerospace North America, CP,
6.69%, 1/20/00............................ 7,457
6,100 Credit Suisse, G.C., TD, 5.00%, 1/3/00..... 6,100
39,655 CS First Boston Repo, 3.75%, dated
12/31/99, due 1/03/00 to be repurchased
at $39,667, collaterlaized by U.S. Agency
Mortgages having various maturities and
interest rates valued at $40,448.......... 39,655
6,744 Deutsche Bank N.Y., 6.49%, 1/13/00......... 6,744
6,100 Fifth Third Bank, G.C., TD, 5.00%, 1/3/00.. 6,100
5,946 General Electric Credit, CP, 6.24%,
2/18/00................................... 5,947
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Equity Portfolio
56
<PAGE>
[GRAPHIC]MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF NET ASSETS
DECEMBER 31, 1999
- ------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS HELD FOR COLLATERAL ON LOANED
SECURITIES (CONT.)
$ 6,100 Natwest Bank, N.A., Nassau, TD,
4.50%, 1/3/00............................. $ 6,100
7,500 Societe Generale, N.Y., Yankee CD, 4.75%... 7,500
6,100 Sun Trust Bank, Atlanta, TD, 4.50%,
1/3/00.................................... 6,100
8,150 Svenska Handelsbank, N.Y., Yankee CD,
6.67%, 1/27/00............................ 8,150
5,995 Toyota Motor Credit Corp., MTN,
6.11%, 4/10/00............................ 5,995
6,097 UBS Finance (Delaware), Inc., CP,
5.00%, 1/3/00............................. 6,098
6,100 Westdeutsche Landesbank G.C., TD,
9.50%, 12/15/03........................... 6,100
-------------------
TOTAL SECURITIES HELD FOR COLLATERAL ON LOANED
SECURITIES................................................ 206,390
-------------------
REPURCHASE AGREEMENT (1.4%)
65,751 Chase Securities, Inc., 2.60%, dated
12/31/99, due 1/03/00, to be repurchased
at $65,765, collateralized by U.S. Treasury
Notes, 6.125%, due 12/31/01, valued at
$67,098................................... 65,751
-------------------
TIME DEPOSIT (3.1%)
136,598 Euro Time Deposit,1/04/00.................. 144,523
-------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $416,664)................ 416,664
-------------------
FOREIGN CURRENCY (1.4%)
GBP 655 British Pound.............................. 1,058
EUR 62,133 European Monetary Unit..................... 62,652
JPY 66 Japanese Yen............................... 1
-------------------
TOTAL FOREIGN CURRENCY (Cost $63,620)....................... 63,711
-------------------
TOTAL INVESTMENTS (104.1%) (Cost $3,953,850)................ 4,862,296
-------------------
OTHER ASSETS (1.3%)
Cash.................................. $ 41,986
Receivable for Portfolio Shares Sold.. 8,504
Dividends Receivable.................. 6,660
Foreign Withholding Tax
Reclaim Receivable................... 4,466
Interest Receivable................... 1,265
Other................................. 225 63,106
-------------------
LIABILITIES (-5.4%)
Collateral on Loaned Securities....... (206,390)
Net Unrealized Loss on Foreign
Currency Exchange Contracts.......... (25,526)
Payable for Portfolio Shares Redeemed. (11,568)
Investment Advisory Fees Payable...... (8,757)
Administrative Fees Payable........... (591)
Custodian Fees Payable................ (519)
Directors' Fees and Expenses Payable.. (243)
Distribution Fees Payable............. (23)
Other Liabilities..................... (376) (253,993)
------------------ -----------------
NET ASSETS (100%)........................................... $ 4,671,409
=================
<CAPTION>
VALUE
(000)
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................. $ 3,706,992
Distributions in Excess of Net Investment Income............ (1,460)
Accumulated Net Realized Gain............................... 83,095
Unrealized Appreciation on Investments and Foreign
Currency Translations...................................... 882,782
-------------------
NET ASSETS.................................................. $ 4,671,409
===================
CLASS A:
NET ASSETS.................................................. $ 4,630,035
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 235,967,713 outstanding $0.001 par value
shares (authorized 500,000,000 shares).................... $ 19.62
===================
CLASS B:
NET ASSETS.................................................. $ 41,374
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 2,113,580 outstanding $0.001 par value
shares (authorized 500,000,000 shares).................... $19.58
===================
</TABLE>
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at December 31,
1999, the Portfolio is obligated to deliver or is to receive foreign currency
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> <C> <C>
JPY 8,850,000 $ 86,885 1/21/00 EUR 68,702 $ 69,386 $(17,499)
GBP 85,000 137,242 5/30/00 EUR 133,260 135,854 (1,388)
JPY 11,000,000 112,653 9/27/00 EUR 103,158 106,014 (6,639)
--------- -------- ---------
$336,780 $311,254 $(25,526)
========= ======== =========
</TABLE>
- --------------------------------------------------------------------------------
(a) -- Non-income producing
(c) -- All or a portion of security on loan at December 31, 1999 See Note A-10
to financial statements.
CD -- Certificate of Deposit
CP -- Commercial Paper
MTN -- Medium Term Note
RNC -- Non-Convertible Savings Shares
TD -- Time Deposit
Floating Rate --Interest rate changes on these instruments are based on changes
in a designated base rate. The rates shown are those in effect on
December 31, 1999.
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C>
Capital Equipment..................... $ 218,372 4.7%
Consumer Goods........................ 1,235,896 26.4
Energy................................ 500,331 10.7
Finance............................... 794,769 17.0
Materials............................. 503,286 10.8
Multi-Industry........................ 75,208 1.6
Services.............................. 1,054,059 22.6
---------- -----
$4,381,921 93.8%
========== =====
</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 DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Other (5.6%)
United Kingdom (19.1%)
Switzerland (6.4%)
Sweden (3.1%)
Spain (2.5%)
Singapore (2.2%)
Portugal (1.7%)
New Zealand (0.1%)
Netherlands (3.9%)
Australia (2.7%)
Denmark (0.4%)
Finland (1.5%)
France (9.7%)
Germany (6.1%)
Hong Kong (1.6%)
Ireland (0.7%)
Italy (4.0%)
Japan (28.7%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL
MAGNUM PORTFOLIO- MAGNUM PORTFOLIO- MSCI EAFE
CLASS A CLASS B INDEX(1)
<S> <C> <C> <C>
3/15/96* $500,000 $500,000 $100,000
12/31/96 __________ __________ ___________
12/31/97 __________ __________ ___________
12/31/99 $773,130 $153,121 $816,101
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested. The performance of Class B
shares will vary based upon the different fees assessed to that class. The
MSCI EAFE Index value at December 31, 1999 assumes a minimum investment of
$500,000; if a minimum initial investment of $100,000 (the minimum investment
for Class B shares) is assumed, the value at December 31, 1999 would be
$163,221.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
- -------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------
AVERAGE
ANNUAL
ONE SINCE
YEAR INCEPTION
------ ---------
<S> <C> <C>
PORTFOLIO -- CLASS A.. 24.87% 12.16%
PORTFOLIO -- CLASS B.. 24.58 11.87
INDEX................. 26.96 14.09
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe,
Australasia and the Far East (includes dividends net of withholding taxes).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The International Magnum Portfolio seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with the EAFE country weightings determined by the Adviser. The EAFE
countries in which the Portfolio will invest are those comprising the Morgan
Stanley Capital International (MSCI) EAFE Index (the `Index"), which includes
Australia, Japan, New Zealand, most nations located in Western Europe, and
certain developed countries in Asia.
For the year ended December 31, 1999, the Portfolio had a total return of
24.87% for the Class A shares and 24.58% for the Class B shares compared to
26.96% for the Index. For the period from inception on March 15, 1996 through
December 31, 1999, the average annual total return for the Class A shares was
12.16% and 11.87% for the Class B shares compared to 14.09% for the Index.
The theme for 1999 was global recovery, with the fourth quarter being the
main driver of performance for EAFE markets as two thirds of the Index's
26.96% appreciation gained during that period. However, the strong returns of
the fourth quarter came from a narrow market with "new economy" companies in
the technology and tele-communications sectors enjoying superior returns,
while traditional cyclical and defensive names languished. The commencement
of global economic healing after a turbulent 1998, as well as numerous
interest rate cuts helped to boost most international developed markets in
the first half of the year. Although central banks reversed policy taking
back these decreases in response to faster than expected growth during the
second half, this did not have an appreciable effect on the markets.
International markets surpassed the results of the U.S. market for the first
time since 1994 as strong global growth propelled these markets which are
earlier in their economic cycles relative to the U.S.
Japan enjoyed spectacular performance during the year thanks to continued
economic recovery, corporate restructuring and supportive fiscal policies.
The market saw record buying by foreign as well as domestic retail investors,
particularly during the fourth quarter. The release of second quarter GDP (up
0.9%) in September after an impressive first quarter rise of 8% was an
important
- -------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S
FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK
CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
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INVESTMENT OVERVIEW
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INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
catalyst for many international investors to deploy assets into the region as
underweight Japan global accounts scrambled to increase their positions given
the increasing momentum in the economy. Much of 1999 was the year of the
exporter with companies such as Sony, Nintendo and Hitachi enjoying record
appreciation. The exporters were seemingly invulnerable, rising in the face
of the yen's 14% appreciation relative to the U.S. dollar during the year.
The fourth quarter saw the market's narrow focus on technology/
telecommunications/internet in lockstep with the global phenomenon. Seldom
have so many mega-cap stocks produced such outsized gains as they did during
most of 1999.
For European markets, the year proved to be one of extremes with the first
and fourth quarters dominated by the strength of large cap growth names,
while the middle of the year saw value's reemergence. Europe's newly
introduced single currency, the euro, weakened 15%, reaching a level below
parity before finishing the year at 1.01 to the U.S. dollar. All of the gains
seen in Europe during 1999 took place during the fourth quarter as the surge
of telecommunications and technology gave way to a narrow market driven by
companies such as Nokia, Ericsson, Vodafone and Mannesmann. Despite a strong
fourth quarter, Europe lagged all other developed market regions for the year
as the core economies in that region struggled with sluggish growth,
unemployment and weakening currencies relative to the U.S. dollar. The
less-than-dramatic European recovery witnessed during the first half of the
year gave way to stronger results during the second half as supportive fiscal
policies, continued global healing and accelerated export growth driven by a
falling Euro, helped Europe enjoy stronger earnings growth. The continuation
of mergers and acquisition activity in 1999 added fuel to markets as deals
reached an unprecedented level, surpassing the $1 trillion mark.
The markets of non-Japan Asia enjoyed solid returns for the year fuelled by
economic revival, plentiful liquidity, positive current account balances and
low interest rates. Hong Kong and Singapore benefited from an increase in
exports due to competitive currencies vis-a-vis the Japanese yen, while the
rise of oil prices benefited Australia and New Zealand. The MSCI Pacific
ex-Japan Index appreciated 42.6% in U.S. dollar terms (+38.7% in local
currency terms) during 1999.
Against this backdrop the Portfolio enjoyed strong absolute returns during
1999, but failed to beat its Index due to the difficult environment for value
investors during the last quarter of the year. For the three months ended
December 31, 1999, the Portfolio had a total return of 11.69% for the Class A
shares and 11.65% for the Class B shares compared to 16.99% for the Index.
INVESTMENT STRATEGY & ATTRIBUTION
The Portfolio began the year underweight compared to the Index in all regions
(Europe 70% compared to 73%, Japan 18% compared to 21%, Asia 3% compared to
6%). Early in the year we steadily increased our allocation to Japan from
underweight to neutral and then to overweight, while decreasing exposure to
Europe. We also increased exposure to Asia ex-Japan beginning in the second
quarter to put the Portfolio in a neutral stance, and again in the fourth
quarter to be overweight relative to the Index. At year end, we maintained
the following positions: Europe 59.1% compared to 66.6%, Japan 28.7% compared
to 27.4%, Asia 3.8% compared to 6.0%. These strategies proved to be
successful as Japan and Asia were the relative outperformers, gaining 61.5%
and 42.6%, respectively, while Europe underperformed, appreciating 15.9% as
compared to the Index rise of 27.0%.
During the first three quarters, European stock selection was strong. Our
overweight to the consumer goods and capital equipment industries, both of
which surged on signs of economic recovery, contributed to Portfolio results.
However, this strategy negatively impacted the Portfolio during the fourth
quarter when growth stocks rose at the expense of value. Portfolio
underperformance is attributable primarily to results seen during the fourth
quarter which was characterized by a narrow market favoring the technology
and telecommunication sectors, especially within Europe. Our attention to
valuation caused us to be underweight in these sectors. Not owning "New
Economy" companies such as telecommunication giants Nokia, Ericsson and
Siemens which had extraordinary appreciation, significantly impacted results.
Simultaneously, the Portfolio's overweight to beverages & tobacco as well as
food & household products also detracted from returns. Specific consumer
staples which detracted from results included Great Universal Stores which
suffered due to the trend toward internet shopping as well as difficulty in
competing with discount stores, and Nestle and Diageo which suffered from
disappointing earnings.
Additionally, our avoidance of Japanese bank stocks impacted overall results
as this sector surged in response to several merger announcements in October.
Since the Portfolio's inception, we have not held Japanese banks given their
high level of nonperforming loans. We have, however, seen signs of recovery
in this sector and will begin selectively adding Japanese banks to the
Portfolio.
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INVESTMENT OVERVIEW
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INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
Factors contributing to performance during the year included the Portfolio's
overweight to global franchise blue chip Japanese exporters such as Sony,
Kyocera and Fujitsu which benefited first from the yen's weakness, and later
from the rise of technology oriented companies. Additionally, U.K. media
oriented companies (WPP, Capital Radio) benefited from the continued growth
of the internet, adding to performance, while our telecommunication names
(British Telecom, Deutsche Telekom, Telefonica) rode the wave of the
telecommunication mania.
OUTLOOK
We believe that international equities are likely to continue the trend seen
in the fourth quarter, and should outperform the U.S. during the next six
months. Economies within the EAFE universe should continue to strengthen and
earnings growth is expected to accelerate as these markets are behind the
U.S. in their economic cycle. In the long-term we look to Japan to lead
international markets, as the cyclical recovery seen during 1999 seems to be
turning into a secular recovery for 2000. Europe looks poised to benefit from
the continuation of supportive fiscal policies, the M&A trend as well as a
broadening of the market. Asia ex-Japan should see a transition from the
liquidity driven rally seen over the past year, into an earnings-driven phase
as corporate restructuring and government reform continue and the consumer
begins to play an increasingly active role thanks to hefty stock market gains
from the past year, falling unemployment and low inflation and interest rates.
In 2000, Europe looks poised to post the sixth consecutive year of double
digit returns, with growth surpassing the U.S. which is later in the economic
cycle. Interest rates in Europe, though expected to rise, should remain
supportive. Drivers of European GDP growth include deregulation, declining
tax rates, and increased capital investment. The European macro backdrop is
favorable to value-style investing as core economies are firmly in a
recovery, and restructuring continues due to global competition. Managements'
desire to steer companies in a global direction should drive the Merger &
Acquisition (M&A) trend. This should be further aided by the entrenchment of
a single European market with barriers such as governments' defense of local
companies from outside predators decreasing. As these obstacles disappear,
cross border deals will likely increase aided by the move toward a pan-
European stock exchange. Additionally, as the European equity culture
evolves, corporate leaders are forced to respond to shareholder demands of
higher returns by aggressively pursuing mergers, downsizing and restructuring
in an attempt to gain profitability through core competencies.
We expect to see a broadening of market leadership beyond the technology and
telecommunication sectors in 2000. Valuations have become extended to an
unprecedented level, and the companies in these sectors would have to deliver
exceptional revenue growth to justify their current valuations. We recognize
that technological innovations and their impact on economies are not passing
trends, and plan to capitalize on their growth. We are exploring
opportunities in reasonably valued companies which should benefit from the
continued prominence of technology industries. These include media companies
engaged in internet advertising, infrastructure companies, internet service
providers and e-commerce enablers.
We expect Japan to outperform other EAFE regions in the coming year. During
the last six months evidence of a secular recovery in the Japanese economy
has begun to mount, with low inventory levels and improvement in retail
sales. An additional supplementary budget amounting to 3% of GDP was
announced in November and will take effect in April, further boosting the
economy. Continued recovery in Asia should benefit Japan as over 40% of its
exports go to Asia. We are finding remarkable value in leading Japanese
companies which have been restructured, have highly focused management and
where real earnings momentum are beginning to show significant promise on a
sustainable basis. While most of 1999's recovery was based on a cyclical
upturn, we believe our assumptions of a secular recovery will likely reward
domestic and economic sensitive stocks which are at highly attractive
valuations relative to the "New Economy" companies.
The Japanese market should benefit from over $400 billion in bonds maturing
over the next 12-15 months which will be available for reinvestment. The
consumer will play an increasingly important economic role in 2000 as
stabilizing unemployment, improving consumer spending (which accounts for 60%
of GDP) and a high savings rate help drive domestic investors into the
market. Foreign buyers should also continue to enter Japan thanks to cheap
valuations relative to other developed markets. Japan is poised to benefit
from the digital revolution with companies like Sony and Nintendo enjoying
market leadership in the DVD and digital internet connectivity industries.
We remain optimistic about developed Asian markets as we begin the new
millennium. The liquidity driven rally seen in 1999 should transition into an
earnings-driven phase of the bull market. Asia's earnings revision and
industrial activity growth seem to be mapping to a "V" shaped recovery, with
top line growth increasing while restructuring activity continues. Moreover,
positive current account balances are providing some measure of defense
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INVESTMENT OVERVIEW
- ------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
against rising U.S. rates, and in turn, rising local rates. The baton of
growth should now pass to consumers who have been fattened by hefty stock
market gains, a high savings rate, falling unemployment, and low inflation
and interest rates. In fact, there have already been signs that locals have
begun to drive the market with the MSCI Singapore Index returning 99%
compared to the Singapore Free Index (securities open to foreign investors)
rising 60% for the year. Export sectors should also benefit from global
healing as well as from more competitive currencies vis-a-vis the yen,
increased intra-Asian trade and the rise of global electronics demand.
Francine J. Bovich
PORTFOLIO MANAGER
January 2000
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STATEMENTS OF NET ASSETS
DECEMBER 31, 1999
- ------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (92.2%)
AUSTRALIA (2.7%)
14,700 AMP Ltd....................................... $ 162
7,250 Brambles Industries Ltd....................... 200
39,500 Broken Hill Proprietary Co., Ltd.............. 518
49,800 Coca-Cola Amatil Ltd.......................... 136
31,100 Commonwealth Bank of Australia................ 535
142,100 Fosters Brewing Group Ltd..................... 407
17,910 Lend Lease Corp., Ltd......................... 251
(a)162,000 Macquarie Corporate Telecommunications
Holdings Ltd................................. 264
43,030 National Australia Bank Ltd................... 658
65,650 News Corp., Ltd............................... 637
324,200 Normandy Mining Ltd........................... 230
75,500 Qantas Airways Ltd............................ 188
29,900 Rio Tinto Ltd................................. 642
121,400 Telstra Corp., Ltd............................ 659
60,500 Westpac Banking Corp.......................... 417
------------------
5,904
------------------
DENMARK (0.4%)
5,850 Novo-Nordisk A/S, Class B..................... 777
------------------
FINLAND (1.5%)
10,423 KCI Konecranes International.................. 401
17,040 Kone Oyj, Class B............................. 840
181,470 Merita Ltd., Class A.......................... 1,071
28,680 Sampo Insurance Co., plc, Class A............ 1,004
------------------
3,316
------------------
FRANCE (9.7%)
4,750 Alcatel Alsthom............................... 1,092
58,657 Aventis S.A................................... 3,413
8,600 Axa........................................... 1,200
9,350 Banque Nationale de Paris..................... 864
3,901 Cie de Saint Gobain........................... 734
28,672 Cie Generale des Establissements Michelin,
Class B...................................... 1,128
60,310 CNP Assurances................................ 2,223
13,650 France Telecom................................ 1,807
5,050 Groupe Danone................................. 1,192
23,010 Pernod Ricard................................. 1,318
25,910 Schneider..................................... 2,036
31,957 Total Fina, Class B........................... 4,270
------------------
21,277
------------------
GERMANY (4.0%)
12,440 Adidas-Salomon AG............................. 935
27,520 BASF AG....................................... 1,440
10,890 Bayerische Hypo Uno Vereinsbank AG............ 744
(a)1 Celanese AG................................... --
33,600 Deutsche Telekom AG........................... 2,367
4,710 Mannesmann AG................................. 1,142
10,805 Schering AG................................... 1,307
14,930 Volkswagen AG................................. 843
------------------
8,778
------------------
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
HONG KONG (1.6%)
60,700 Asia Satellite Telecommunications
Holdings Ltd................................. $ 192
124,000 Cable & Wireless HKT Ltd...................... 358
95,000 Cathay Pacific Airways Ltd.................... 169
41,400 Cheung Kong Holdings Ltd...................... 526
69,200 China Telecom Ltd............................. 433
135,000 Hong Kong & China Gas Co., Ltd................ 185
55,100 Hutchison Whampoa Ltd......................... 801
74,600 Li & Fung Ltd................................. 187
24,600 SmarTone Telecommunications Holdings Ltd...... 119
35,000 Sun Hung Kai Properties Ltd................... 365
17,200 Swire Pacific Ltd., Class A................... 101
25,000 Television Broadcasts Ltd..................... 170
------------------
3,606
------------------
IRELAND (0.7%)
192,680 Bank of Ireland 1,535
------------------
ITALY (4.0%)
75,865 Banca Popolare Di Bergamo S.p.A. 1,756
(a)81,400 Enel S.p.A. 342
99,900 Marzotto (Gaetano) & Figli S.p.A. 715
154,390 Mediaset S.p.A. 2,404
106,920 Telecom Italia Mobile S.p.A. 1,196
113,300 Telecom Italia S.p.A. (RNC) 1,599
158,960 UniCredito Italiano S.p.A. 782
------------------
8,794
------------------
JAPAN (28.7%)
25,500 Aiwa Co., Ltd................................. 529
83,000 Amada Co., Ltd................................ 454
19,000 Bank of Tokyo-Mitsubushi Ltd.................. 265
50,000 Canon, Inc.................................... 1,986
86,000 Casio Computer Co., Ltd....................... 715
51,000 Dai Nippon Printing Co., Ltd.................. 813
161,000 Daicel Chemical Industries Ltd................ 449
94,000 Daifuku Co., Ltd.............................. 543
82,000 Daikin Industries Ltd......................... 1,115
16,900 FamilyMart Co., Ltd........................... 1,124
25,000 Fuji Machine Manufacturing Co................. 2,015
40,000 Fuji Photo Film Ltd........................... 1,459
54,000 Fujitec Co., Ltd.............................. 541
67,000 Fujitsu Ltd................................... 3,054
77,000 Furukawa Electric Co.......................... 1,167
50,000 Hitachi Credit Corp........................... 1,015
131,000 Hitachi Ltd................................... 2,102
10,000 House Foods Corp.............................. 152
108,000 Kaneka Corp................................... 1,381
36,000 Kurita Water Industries Ltd................... 572
12,700 Kyocera Corp.................................. 3,292
33,000 Kyudenko Corp., Ltd........................... 116
39,000 Lintec Corp................................... 423
68,000 Matsushita Electric Industrial Co., Ltd....... 1,882
73,000 Minebea Co., Ltd.............................. 1,252
95,000 Mitsubishi Chemical Industries................ 335
57,000 Mitsubishi Estate Co., Ltd.................... 556
The accompanying notes are an integral part of the financial statements.
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International Magnum Portfolio
62
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INSTITUTIONAL FUND, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF NET ASSETS
DECEMBER 31, 1999
- ------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (CONT.)
236,000 Mitsubishi Heavy Industries Ltd............... $ 787
10,000 Mitsubishi Logistics Corp..................... 64
44,000 Mitsumi Electric Co., Ltd..................... 1,377
109,000 NEC Corp...................................... 2,596
43,000 Nifco, Inc.................................... 513
13,600 Nintendo Corp., Ltd........................... 2,259
12,000 Nippon Meat Packers, Inc...................... 156
136 Nippon Telegraph & Telephone Corp. (NTT)...... 2,328
178,000 Nissan Motor Co., Ltd......................... 700
18,000 Nissei Sangyo................................. 248
43,000 Nissha Printing Co., Ltd...................... 257
32,000 Ono Pharmaceutical Co., Ltd................... 858
94,000 Ricoh Co., Ltd................................ 1,771
26,700 Rinnai Corp................................... 496
5,000 Rohm Co....................................... 2,054
22,000 Ryosan Co..................................... 547
16,000 Sangetsu Co., Ltd............................. 336
52,000 Sankyo Co., Ltd............................... 1,068
123,000 Sanwa Shutter Corp............................ 457
105,000 Sekisui Chemical Co........................... 465
84,000 Sekisui House Co., Ltd........................ 744
93,000 Shin-Etsu Polymer Co., Ltd.................... 546
14,200 Sony Corp..................................... 4,209
59,000 Suzuki Motor Co., Ltd......................... 860
15,000 TDK Corp...................................... 2,070
20,000 Tokyo Electric Power Co., Inc................. 536
233,000 Toshiba Corp.................................. 1,778
31,000 Toyota Motor Corp............................. 1,501
108,000 Tsubakimoto Chain Co.......................... 396
64,000 Yamaha Corp................................... 416
34,000 Yamanouchi Pharmaceutical Co., Ltd............ 1,187
------------------
62,887
------------------
NETHERLANDS (3.9%)
44,935 Akzo Nobel N.V................................ 2,256
36,670 ING Groep N.V................................. 2,216
14,013 Koninklijke (Royal) Philips Electronics N.V... 1,908
8,795 Koninklijke KPN N.V........................... 859
74,050 Laurus N.V.................................... 1,337
------------------
8,576
------------------
NEW ZEALAND (0.1%)
55,500 Telecom Corp. of New Zealand Ltd.............. 261
------------------
PORTUGAL (1.7%)
150,550 Banco Commercial Portugues (Registered)....... 837
100,740 Electricidade de Portugal S.A................. 1,760
70,120 Telecel Comunicacoes Pessoais S.A............. 1,224
------------------
3,821
------------------
SINGAPORE (2.2%)
(a)15,000 Chartered Semiconductor Manufacturing Ltd..... 82
(a)600 Chartered Semiconductor Manufacturing
Ltd. ADR..................................... 44
54,000 City Developments Ltd......................... 316
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
52,965 DBS Group Holdings Ltd........................ $ 868
81,000 Natsteel Electronics Ltd...................... 428
135,000 Neptune Orient Lines Ltd. (Foreign)........... 181
37,800 Oversea-Chinese Banking Corp. (Foreign)....... 347
54,816 Overseas Union Bank Ltd. (Foreign)............ 321
36,000 Sembcorp Logistics Ltd........................ 146
33,000 Singapore Airlines Ltd........................ 375
20,000 Singapore Press Holdings Ltd.................. 434
173,000 Singapore Telecommunications Ltd.............. 357
33,792 United Overseas Bank Ltd. (Foreign)........... 298
45,000 Venture Manufacturing Ltd..................... 516
------------------
4,713
------------------
SPAIN (2.5%)
11,435 Banco Popular Espanol S.A..................... 747
74,500 Banco Santander Central Hispano S.A........... 844
76,690 Endesa S.A.................................... 1,524
(a)97,841 Telefonica S.A................................ 2,447
------------------
5,562
------------------
SWEDEN (3.1%)
40,490 Autoliv, Inc. SDR............................. 1,187
95,390 ForeningsSparbanken AB........................ 1,404
81,510 Nordbanken Holding AB......................... 480
29,470 Scandic Hotels AB............................. 274
61,080 Svedala Intrustri AB.......................... 1,122
22,260 Svenska Cellulosa AB, Class B................. 661
127,660 Svenska Handelsbanken, Class A............... 1,609
------------------
6,737
------------------
SWITZERLAND (6.4%)
1,303 Cie Financiere Richemont AG, Class A.......... 3,111
1,242 Holderbank Financiere Glarus AG,
Class B (Bearer)............................. 1,701
2,850 Nestle (Registered)........................... 5,224
1,390 Novartis AG (Registered)...................... 2,042
495 Schindler Holding AG (Registered)............. 793
4,130 UBS AG (Registered)........................... 1,116
------------------
13,987
------------------
UNITED KINGDOM (19.0%)
293,050 Allied Domecq plc............................. 1,448
124,050 Allied Zurich plc............................. 1,461
36,670 AstraZeneca Group plc......................... 1,521
75,000 BAA plc....................................... 527
129,092 Bank of Scotland.............................. 1,499
35,540 Barclays plc.................................. 1,023
203,560 BG plc........................................ 1,315
174,100 Blue Circle Industries plc.................... 1,012
72,540 BOC Group plc................................. 1,558
119,450 British Telecommunications plc................ 2,919
47,600 Burmah Castrol plc............................ 869
208,400 Cadbury Schweppes plc......................... 1,259
70,190 Capital Radio plc............................. 1,700
213,200 Centrica plc.................................. 604
170,910 Diageo plc.................................... 1,375
23,160 Glaxo Wellcome plc............................ 655
110,600 Granada Group plc............................. 1,121
The accompanying notes are an integral part of the financial statements.
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International Magnum Portfolio
63
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- ------------------------------------------------------------------------------
STATEMENTS OF NET ASSETS
DECEMBER 31, 1999
- ------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (CONT.)
254,920 Great Universal Stores plc.................... $ 1,490
358,410 Halma plc..................................... 677
13,300 HSBC Holdings plc............................. 186
132,060 Imperial Tobacco Group plc.................... 1,088
87,200 Lloyds TSB Group plc.......................... 1,091
35,600 National Westminster Bank plc................. 765
114,140 Prudential Corp. plc.......................... 2,249
337,676 Reckitt Benckiser plc......................... 3,166
155,440 Sainsbury (J) plc............................. 877
198,940 Scottish & Southern Energy plc................ 1,588
284,950 Shell Transport & Trading Co. plc............. 2,368
119,650 Smith & Nephew plc............................ 402
119,300 SSL International plc......................... 1,511
149,290 WPP Group plc................................. 2,365
------------------
41,689
------------------
TOTAL COMMON STOCKS (Cost $162,252)......................... 202,220
------------------
PREFERRED STOCKS (2.1%)
GERMANY (2.1%)
13,510 Fresenius AG.................................. 2,561
30,000 Henkel KGaA-Vorzug............................ 1,997
------------------
TOTAL PREFERRED STOCKS (Cost $4,570)........................ 4,558
------------------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<S> <C> <C>
FIXED INCOME SECURITIES (0.1%)
UNITED KINGDOM (0.1%)
$ 29 BG Transco Holdings plc,
7.06%, 12/14/09 (Floating Rate).............. 45
29 BG Transco Holdings plc, 4.19%,
12/14/22 (Floating Rate)..................... 47
29 BG Transco Holdings plc, 7.00%, 12/16/24...... 47
------------------
TOTAL FIXED INCOME SECURITIES (Cost $143)................... 139
------------------
TOTAL FOREIGN SECURITIES (94.4%) (Cost $166,965)............ 206,917
------------------
SHORT-TERM INVESTMENT (3.8%)
REPURCHASE AGREEMENT (3.8%)
8,348 Chase Securities, Inc. 2.60%, dated 12/31/99,
due 1/03/00, to be repuchased at $8,350,
collateralized by U.S. Treasury Notes,
6.125%, due 12/31/01, valued at $8,523
(Cost $8,348)............................... 8,348
------------------
FOREIGN CURRENCY (0.0%)
GBP 12 British Pound................................. 19
EUR 94 European Monetary Unit........................ 94
HKD 48 Hong Kong Dollar.............................. 6
------------------
TOTAL FOREIGN CURRENCY (Cost $121).......................... 119
------------------
<CAPTION>
VALUE
(000)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL INVESTMENTS (98.2%) (Cost $175,434)................... $ 215,384
------------------
OTHER ASSETS (2.0%)
Cash.................................... $ 2,243
Due from Broker......................... 1,090
Receivable for Variation on Futures
Contracts.............................. 329
Foreign Withholding Tax Reclaim
Receivable............................. 321
Receivable for Portfolio Shares Sold.... 292
Dividends Receivable.................... 205
Interest Receivable..................... 13
Net Unrealized Gain on Foreign Currency
Exchange Contracts..................... 10
Other................................... 7 4,510
------------------ ------------------
LIABILITIES (-0.2%)
Investment Advisory Fees Payable........ (377)
Custodian Fees Payable.................. (42)
Administrative Fees Payable............. (28)
Professional Fees Payable............... (27)
Distribution Fees Payable............... (17)
Directors' Fees and Expenses
Payable................................ (14)
Payable for Portfolio Shares
Redeemed............................... (14)
Other Liabilities....................... (19) (538)
------------------ ------------------
NET ASSETS (100%)........................................... $ 219,356
==================
NET ASSETS CONSIST OF:
Paid in Capital............................................. $ 177,383
Undistributed Net Investment Income......................... 60
Accumulated Net Realized Gain............................... 2,318
Unrealized Appreciation on Investments, Foreign
Currency Translations and Futures Contracts................ 39,595
------------------
NET ASSETS.................................................. $ 219,356
==================
CLASS A:
NET ASSETS.................................................. $ 188,586
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 13,847,451 outstanding $0.001 par value
shares (authorized 500,000,000 shares).................... $ 13.62
==================
CLASS B:
NET ASSETS.................................................. $ 30,770
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,266,615 outstanding $0.001 par value
shares (authorized 500,000,000 shares).................... $ 13.58
==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ------------------------------------------------------------------------------
International Magnum Portfolio
64
<PAGE>
[GRAPHIC]MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF NET ASSETS
DECEMBER 31, 1999
- ------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
- ------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at December 31,
1999, the Portfolio is obligated to deliver or is to receive foreign currency
in exchange for U.S. dollars as indicated below:
<TABLE>
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 270 $ 436 2/16/00 U.S.$ 436 $ 436 $ --
EUR 575 582 2/16/00 U.S.$ 580 580 (2)
JPY 48,435 474 2/16/00 U.S.$ 472 472 (2)
U.S.$ 811 811 2/16/00 GBP 502 811
U.S.$ 1,012 1,012 2/16/00 EUR 975 987 (25)
U.S.$ 2,533 2,533 2/16/00 JPY 262,960 2,572 39
------ ------ -------
$5,848 $5,858 $ 10
====== ====== =======
</TABLE>
- -------------------------------------------------------------------------------
(a) -- Non-income producing
ADR -- American Depositary Receipt
JPY -- Japanese Yen
Floating Rate -- Interest rate changes on these instruments are based on changes
in a designated base rate. The rates shown are those in effect on
December 31, 1999.
Due from Broker as stated in Other Assets is comprised of cash held at
broker for collateral against open futures positions.
- -------------------------------------------------------------------------------
FUTURES CONTRACTS:
At December 31, 1999 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) 4 U.S.$ 241 March-00 $ 18
DAX Index
(Germany) 2 U.S.$ 351 March-00 46
FT-SE Index
(United Kingdom) 4 U.S.$ 279 March-00 14
Hang Seng Index
(Hong Kong) 17 U.S.$ 14,425 March-00 65
Topix Index
(Japan) 14 U.S.$239,680 January-00 154
----
$297
====
</TABLE>
- -------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
SECTOR (000) ASSETS
- -------------------------------------------
<S> <C> <C>
Capital Equipment.... $ 40,211 18.4%
Consumer Goods....... 57,385 26.3
Energy............... 15,677 7.1
Finance.............. 35,607 16.2
Gold Mines........... 230 0.1
Materials............ 18,713 8.5
Multi-Industry....... 1,326 0.6
Services............. 37,768 17.2
-------- -------
$206,917 94.4%
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ------------------------------------------------------------------------------
International Magnum Portfolio
65
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- ------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- ------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Australia (7.2%)
Denmark (1.0%)
Finland (8.4%)
France (5.9%)
Germany (6.1%)
Hong Kong (3.8%)
Ireland (2.3%)
Italy (5.0%)
Japan (16.4%)
Netherlands (5.1%)
New Zealand (3.7%)
Norway (1.7%)
Spain (2.9%)
Sweden (3.9%)
Switzerland (6.5%)
United Kingdom (15.8%)
Other (4.3%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- ------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
International MSCI EAFE
Small Cap Small Cap
Portfolio Index(1)
------------- ----------
<S> <C> <C>
12/15/92* $ 500,000 $ 500,000
12/31/92 _____________ __________
12/31/93 _____________ __________
12/31/94 _____________ __________
12/31/95 _____________ __________
12/31/96 _____________ __________
12/31/97 _____________ __________
12/31/98 _____________ __________
12/31/99 $1,309,605 $ 679,676
</TABLE>
* Commencement of operations
** Minimum Investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested.
PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL
INTERNATIONAL (MSCI) EAFE SMALL CAP INDEX(1)
- --------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YEAR YEARS INCEPTION
------ ------- ---------
<S> <C> <C> <C>
PORTFOLIO ............ 39.34% 11.60% 14.97%
INDEX ................ 17.67 -1.76 4.46
</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 (excluding
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 International Small Cap Portfolio seeks long-term capital appreciation by
investing primarily in the equity securities of non-U.S. issuers. The
Portfolio applies a disciplined bottom-up value approach to identify and
invest in small capitalization companies which are both attractive businesses
and available at cheap prices. A market capitalization cut-off of U.S. $1
billion is used as our definition of "small."
For the year ended December 31, 1999, the Portfolio had a total return of
39.34% compared to 17.67% for the Morgan Stanley Capital International (MSCI)
EAFE Small Cap Index (the "Index"). For the five-year period ended December
31, 1999, the average annual total return for the Portfolio was 11.60%
compared to -1.76% for the Index. For the period from inception on December
15, 1992 through December 31, 1999, the average annual total return for the
Portfolio was 14.97% compared to 4.46% for the Index.
Despite outperforming large caps in the first nine months of 1999,
international small caps marked time in the fourth quarter while investors
embarked on a mega-cap technology and telecommunication feeding frenzy.
Thanks to consistently strong relative performance through the year and
particularly in the difficult fourth quarter (for small caps), the Portfolio
outperformed both the international small cap and large cap indexes by a wide
mark in 1999.
The same factors explained our outperformance for the fourth quarter and full
year. The majority of outperformance (i.e.75%) came from stock selection in
the Pacific Basin. Stock selection was very strong in Japan, Australia and
Hong Kong. Our underweight to Japan was particularly useful in the fourth
quarter when Japanese small caps were the worst performing market, falling
8%. At the stock level in Japan, advertising agency Asatsu (+107%) was fueled
by anticipated increased advertising volume as a result of a strengthening
economy and from dot.com companies building brand awareness on the internet.
Indicative of Japan's new economy, discount travel company H.I.S. (+94%)
gained share against old-line
- -------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE
AS MEASURED BY THE MSCI EAFE SMALL CAP INDEX AND ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S
FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK
CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
- --------------------------------------------------------------------------------
International Small Cap Portfolio
66
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
travel companies and benefited from greater foreign travel by Japanese.
Semiconductor dicing firm Disco (+87%) benefited from strong order flow and
the technology euphoria that swept markets in December. In Australia,
Solution 6 (accounting software, +204%, 1435% for the year) and ERG
(ticketing/smart card technology +36%, 800% for the year) contributed
significantly during both the fourth quarter, and year after winning a number
of new contracts. Hong Kong's Smartone Telecom (cellular provider, +60%),
rose in line with the telecom rally.
European stock selection explained about 25% of the Portfolio's
outperformance for the fourth quarter and year. Through the year merger and
acquisition activity continued to provide a catalyst to realize value in our
holdings. Last quarter we mentioned Dauphin (France, outdoor advertising) and
Tag Huer (Switzerland, watches) which had been acquired at significant
premiums. In the fourth quarter Italy's Buffetti (Office supplies, +111%) was
taken over by Seat Pagine Gialle, the company responsible for the Italian
Yellow Pages. The U.K's Money Controls (+96%) coin and note-handling
equipment maker, rose on news of an anticipated take-over of the company.
In the "new economy" part of the Portfolio, Finland's Perlos (molded plastic
parts for mobile phones, +160%) had robust performance, as production demands
in the telecommunications sector continue to increase. Hong Kong's Asia
Satellite Tel (satellite communications, +29%) rose on improved fundamentals.
London's dominant radio franchise Capital Radio (+67%) was a strong positive,
influenced by the disposal of its poor returning theme restaurant business
and rising ad volumes relating to internet brand building.
Several recent purchases in Asia and Europe highlight the opportunity that
small caps offer to gain value exposure to the "new economy". Hong Kong's
E-New Media is an attractively priced e-commerce "enabler". Growth potential
looks interesting for its encryption and internet billing technologies. We
like the fact that E-New Media is priced on its traditional telemarketing
business - no price is attached to its internet activities which, uniquely
for the sector, actually generates free cash flow.
1999 was a truly outstanding year for selected small cap stocks. Twenty
stocks (or 25% of the Portfolio by average weight) in the Portfolio rose more
than 100% in 1999. Four stocks, ERG, Disco, Solution 6 and Buffetti rose more
than 400%. Solution 6, the Australian accounting software company rose a
staggering 1435%. These stunning moves are not uncommon in the small cap
world (although they are hard to find!) and help explain why we tend to only
top slice our winners, selling only when they become fairly valued. In the
small cap world a new contract or winning software can have the effect of
transforming the future prospects of a company and elevating it to a new
secular growth path, thus justifying significant share price appreciation to
meet the revised fair value target. This characteristic of our process is
also evidenced by our larger than Index weighting in companies above
$1Billion market cap (see below) brought about by price appreciation of our
existing holdings.
Last quarter we made mention of our growing conviction regarding the evolving
restructuring opportunity in Japan. At December 31, our weight to Japan stood
at 16.4% compared to 38.1% for the Index (recall that MSCI's Index
composition change in the third quarter of 1999 increased the weighting to
Japan). Our weighting to Japan would be higher had we not top-sliced some of
our stellar performing Japanese names in the fourth quarter. We see four
factors driving the investment opportunity in Japan: 1) restructuring, 2)
economic recovery, with or without top line growth, given better cash flow
management, 3) changes to Japanese accounting making latent value more
transparent (i.e. mark to market of land and securities) and 4) government
acting as agent of change. With the Japanese Index generating the best small
cap returns globally in 1999 it may seem counterintuitive to be considering
increased weightings to that market. However, small cap performance in Japan
has been dominated by a handful of "new economy" stocks (see table below)
with young management, a high ratio of exports to sales or recognized brands.
These 33 companies explained 104% of the Japanese small cap Index return for
the year. We have enjoyed the performance of some of these high fliers. The
challenge we are pursuing in 2000 is to trawl through the 79% of the Index
that returned on average only 5% last year, where change is taking place and
hidden value lurks. Of course, Europe also presents great opportunity for the
Portfolio. We remain overweight to both the Euro-zone and the rest of Europe.
European small caps lagged other regions last year. As the European economies
improve, the operating leverage of cyclical small caps should be significant.
We expect merger and acquisition activity will continue to highlight the
attractive relative value of European small caps.
- --------------------------------------------------------------------------------
International Small Cap Portfolio
67
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- -------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
<TABLE>
<CAPTION>
JAPANESE SMALL CAPS - NARROW LEADERSHIP IN 1999
CONTRIBUTION
NO. OF WEIGHT 1999 AVERAGE TO INDEX
COMPANIES IN INDEX RETURN RETURN
<S> <C> <C> <C> <C>
Winners 33 21% 216% 104%
All the Rest 370 79% 5% -4%
--- --
TOTAL (SMALL CAP 403 100% 36%
INDEX)
</TABLE>
Note: Analysis based on Japan component of MSCI EAFE Small Cap Index.
Source: Wilshire, Factset, MSDWIM
Margaret Naylor
PORTFOLIO MANAGER
Willem Vinke
PORTFOLIO MANAGER
Nathalie Degans
PORTFOLIO MANAGER
January 2000
- -------------------------------------------------------------------------------
International Small Cap Portfolio
68
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (92.7%)
AUSTRALIA (7.2%)
2,234,030 Ausdoc Group Ltd. ...................... $3,972
1,153,402 Australian Hospital Care Ltd. .......... 515
370,372 BRL Hardy Ltd. ......................... 1,786
1,362,525 E.R.G. Ltd. ............................ 7,642
(a)872,300 Neverfail Springwater Ltd. ............. 1,728
479,700 Pacific Dunlop Ltd. .................... 678
7,490,464 Parbury Ltd. ........................... 1,916
1,406,600 Ramsay Health Care Ltd. ................ 923
1,573,111 Skilled Engineering Ltd. ............... 3,952
250,560 Solution 6 Holdings Ltd. ............... 2,728
--------------
25,840
--------------
DENMARK (1.0%)
88,315 Sydbank A/S ............................ 3,649
--------------
FINLAND (8.4%)
110,618 KCI Konecranes International ........... 4,259
(a)151,739 Kone Oyj, Class B ...................... 7,482
269,505 Metsa Tissue Oyj ....................... 3,478
(a)187,110 Perlos Oyj ............................. 6,604
773,708 Rapala Normark Corp. ................... 3,745
(a)202,470 Teleste Oyj ............................ 3,307
78,492 Valmet Rauma Oyj ....................... 1,021
--------------
29,896
--------------
FRANCE (5.9%)
41,879 Algeco ................................. 3,378
24,900 Chargeurs .............................. 1,404
24,583 De Dietrich et Compagnie ............... 1,472
143,699 Europeene d'Extincteurs ................ 5,042
103,330 Legris Industries ...................... 4,163
94,630 Neopost S.A. ........................... 3,984
(a)31,770 Thomson Multimedia ..................... 1,714
--------------
21,157
--------------
GERMANY (3.1%)
149,802 Beru AG ................................ 4,426
28,527 Kamps AG ............................... 1,985
147,041 Marseille-Kliniken AG .................. 1,571
113,849 Winkler & Duennebier AG ................ 1,814
(a)34,670 Zapf Creation AG ....................... 1,154
--------------
10,950
--------------
HONG KONG (3.8%)
801,500 Asia Satellite Telecommunications
Holdings Ltd. ........................ 2,531
(a)5,588,000 e-New Media Company Ltd. ............... 2,732
(a)1,334,000 Li & Fung Ltd .......................... 3,346
520,000 SmarTone Telecommunications
Holding Ltd. ......................... 2,509
9,347,000 Vitasoy International Holdings Ltd. .... 2,435
--------------
13,553
--------------
IRELAND (2.3%)
1,777,527 Anglo Irish Bank Corp. plc
(British Pound Shares) ............... 4,122
711,836 Green Property plc ..................... 4,056
--------------
8,178
--------------
<CAPTION> Value
Shares (000)
- ---------------------------------------------------------------------------
ITALY (5.0%)
170,610 Banca Popolare Di Bergamo S.p.A. ....... $3,950
(a)730,250 Buffetti S.p.A ......................... 12,518
667,940 Sogefi S.p.A. .......................... 1,576
--------------
18,044
--------------
JAPAN (16.4%)
23,050 Aiful Corp. ............................ 2,818
133,400 Asatsu-DK, Inc. ........................ 9,004
323,000 Asia Securities Printing Co., Ltd. ..... 4,044
8,200 Disco Corp. ............................ 1,901
254,000 Foster Electric Co., Ltd. .............. 2,095
45,700 Fujimi, Inc. ........................... 1,788
47,400 H.I.S. Co., Ltd. ....................... 3,380
854,000 Hankyu Realty Co., Ltd. ................ 2,631
355,000 Hanshin Department Stores Ltd. ......... 1,490
717,000 Japan Oil Transportation Co., Ltd. ..... 1,417
80,000 Kirin Beverage Corp. ................... 1,158
243,400 Maezawa Kasei Industries ............... 3,881
189,600 Nichiha Corp. .......................... 1,641
75,000 Nifco, Inc. ............................ 895
38,000 Nippon Broadcasting System, Inc. ....... 3,308
1,033,000 Nissan Fire & Marine Insurance Co. ..... 3,193
262,000 Nissei Industries ...................... 2,255
270,500 Osaka Steel Co., Ltd. .................. 1,066
(a)2,718,000 Pacific Metals Co., Ltd. ............... 3,297
25,600 Rock Field Co., Ltd. ................... 989
136,000 Sotoh Co., Ltd. ........................ 635
391,000 Tasaki Shinju Co., Ltd. ................ 1,626
650,000 Toc Co. ................................ 4,330
--------------
58,842
--------------
NETHERLANDS (5.1%)
106,806 Ahrend Groep N.V. ...................... 1,502
159,525 Apothekers Cooperatie OPG .............. 3,491
22,473 Atag Holding N.V. ...................... 281
115,320 Buhrmann N.V. .......................... 1,738
83,530 GTI Holding N.V. ....................... 1,853
119,799 Hollandsche Beton Groep N.V. ........... 1,148
95,190 International Muller N.V. .............. 1,996
112,956 Nutreco Holding N.V. ................... 3,491
208,248 Samas Groep N.V. ....................... 2,604
--------------
18,104
--------------
NEW ZEALAND (3.7%)
1,111,100 Auckland International Airport Ltd. .... 1,684
1,257,878 Fisher & Paykel Industries Ltd. ........ 4,798
3,335,200 Fletcher Challenge Building ............ 4,914
475,200 Sky City Ltd. .......................... 1,837
--------------
13,233
--------------
NORWAY (1.7%)
91,770 Kverneland ASA ......................... 1,859
(a,d)228,020 Oceanor ................................ --
181,468 Sparebanken ............................ 4,219
--------------
6,078
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
International Small Cap Portfolio
69
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
SPAIN (2.9%)
(a)263,000 Amadeus Global Travel Distribution
S.A., Class A ........................ $4,177
(a)64,240 Mapfre Vida ............................ 1,483
199,354 Miquel y Costas & Miquel ............... 4,861
--------------
10,521
--------------
SWEDEN (3.9%)
156,020 Haldex AB .............................. 1,819
228,090 Nobel Biocare AB ....................... 3,224
(a)344,910 Scandic Hotels AB ...................... 3,209
49,710 Svedala Intrustri AB ................... 913
1,384,810 Swedish Match AB ....................... 4,844
--------------
14,009
--------------
SWITZERLAND (6.5%)
1,402 Bobst AG (Bearer) ...................... 1,691
10,567 Edipresse (Bearer) ..................... 5,843
(a)6,235 Logitech International S.A.
(Registered) ......................... 1,763
3,730 PubliGroupe ............................ 3,691
17,505 Sulzer Medica AG (Registered) .......... 3,355
13,714 Valora Holding AG(Registered) .......... 3,671
5,980 Zehnder Holding AG, Class B ............ 3,307
--------------
23,321
--------------
UNITED KINGDOM (15.8%)
240,170 Capitol Radio plc ...................... 5,818
(a,d)2,540,850 Donelon Tyson plc ...................... --
719,133 Informa Group plc ...................... 7,068
1,024,665 John Mowlem & Co. plc .................. 1,953
(a,d)33,795,100 Kendell plc ............................ --
284,965 Le Riches Stores plc ................... 2,085
676,800 Litho Supplies plc ..................... 1,213
3,305,300 Matthews (Bernard) plc ................. 6,246
577,200 Money Controls plc ..................... 979
1,083,160 NHP plc ................................ 2,519
635,400 Northern Leisure plc ................... 1,940
(a,d)2,659,393 Pentos plc ............................. --
544,700 Reckitt & Colman plc ................... 5,107
113,200 Scottish Media Group plc ............... 1,901
387,300 SGB Group plc .......................... 1,648
1,149,800 SIG plc ................................ 5,515
655,060 SSL International plc .................. 8,297
1,902,600 The 600 Group plc ...................... 2,274
1,100,400 Time Products plc ...................... 1,831
--------------
56,394
--------------
TOTAL COMMON STOCKS (Cost $283,629) ....................... 331,769
--------------
PREFERRED STOCKS (3.0%)
GERMANY (3.0%)
(a)112,710 Dyckerhoff AG .......................... 3,501
130,312 Moebel Walther AG ...................... 1,025
542,698 Sartorius AG-Vorzug .................... 3,803
175,791 Wuerttembergische Metallwarenfabrik AG . 2,269
--------------
TOTAL PREFERRED STOCKS (Cost $14,665) ..................... 10,598
--------------
TOTAL FOREIGN SECURITIES (95.7%) (Cost $298,294) .......... 342,367
--------------
<CAPTION>
Face
Amount Value
(000) (000)
- ------------------------------------------------------------------------------------------------------
<S> <C>
Short-Term Investment (0.3%)
Repurchase Agreement (0.3%)
$1,015 Chase Securities, Inc., 2.60%, dated 12/31/99, due
1/03/00, to be repurchased at $1,015, collateralized by U.S. Treasury Note,
6.125%, due 12/31/01, valued at $1,069 (Cost $1,015) $1,015
-------------------
Foreign Currency (0.2%)
AUD 31 Australian Dollar .......................................... 21
GBP 388 British Pound .............................................. 627
HKD 345 Hong Kong Dollar ........................................... 44
JPY 276 Japanese Yen ............................................... 3
-------------------
TOTAL FOREIGN CURRENCY (Cost $696) ............................................... 695
-------------------
TOTAL INVESTMENTS (96.2%) (Cost $300,005) ...................................... 344,077
-------------------
<CAPTION>
OTHER ASSETS (4.3%)
<S> <C> <C>
Cash $14,747
Dividends Receivable ................................ 584
Receivable for Portfolio Shares Sold ................ 26
Other ............................................... 18 15,375
-------------------------
LIABILITIES (-0.5%)
Payable for Portfolio Shares Redeemed ............... (812)
Investment Advisory Fees Payable .................... (751)
Custodian Fees Payable .............................. (52)
Administrative Fees Payable ......................... (47)
Directors' Fees and Expenses Payable ................ (23)
Other Liabilities ................................... (59) (1,744)
------------------------- -------------------
NET ASSETS (100%) ............................................................... $357,708
===================
NET ASSETS CONSIST OF:
Paid in Capital ................................................................. $306,068
Distributions in Excess of Net Investment Income ................................ (419)
Accumulated Net Realized Gain ................................................... 8,026
Unrealized Appreciation on Investments and Foreign Currency Translations ........ 44,033
-------------------
NET ASSETS ...................................................................... $357,708
===================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 18,187,181 outstanding $0.001 par value shares (authorized
1,000,000,000 shares) ........................................................... $19.67
===================
- ------------------------------------------------------------------------------------------------------
(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
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Capital Equipment.............................................. $ 60,262 16.8%
Consumer Goods................................................. 84,748 23.7
Finance........................................................ 45,760 12.8
Materials...................................................... 36,570 10.2
Multi-Industry................................................. 678 0.2
Services....................................................... 114,349 32.0
--------- -------
$342,367 95.7%
--------- -------
--------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
International Small Cap Portfolio
70
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------------------------
INVESTMENT OVERVIEW
- -----------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Appliances & Household Durables (10.4%)
Automobiles (5.7%)
Banking (0.5%)
Broadcasting & Publishing (0.4%)
Building Materials & Components (2.7%)
Business & Public Services (1.6%)
Chemical (4.2%)
Construction & Housing (1.1%)
Data Processing & Reproduction (10.3%)
Electrical & Electronics (14.3%)
Electric Components & Instruments (10.7%)
Energy Equipment & Services (1.0%)
Financial Services (1.6%)
Food & Household Products (2.6%)
Health & Personal Care (4.8%)
Industrial Components (1.3%)
Machinery & Engineering (8.0%)
Merchandising (1.5%)
Multi-Industry (0.8%)
Real Estate (0.8%)
Recreation, Other Consumer Goods (5.6%)
Telecommunications (3.5%)
Utilities (0.8%)
Wholesale & International Trade (0.5%)
Other (5.3%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -----------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Japanese Equity
MSCI Japan Index (1) Portfolio-Class A
------------------ -------------------
<S> <C> <C>
4/25/94* $500,000 $500,000
12/31/94 ________ ________
12/31/95 ________ ________
12/31/96 ________ ________
12/31/97 ________ ________
12/31/98 ________ ________
12/31/99 $564,232 $755,318
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested. The performance of Class B
shares will vary based upon the different inception dates and fees assessed
to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) JAPAN INDEX(1)
- -------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------
ONE AVERAGE ANNUAL AVERAGE ANNUAL
YEAR FIVE YEARS SINCE INCEPTION
---- -------------- ---------------
<S> <C> <C> <C>
PORTFOLIO--CLASS A..... 63.75% 8.97% 7.52%
PORTFOLIO--CLASS B..... 63.46 N/A 12.01
INDEX--CLASS A......... 61.53 1.96 2.07
INDEX--CLASS B......... 61.53 N/A 2.48
</TABLE>
1. The MSCI Japan Index is an unmanaged index of common stocks (includes
dividends).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the Japanese Equity Portfolio is to seek
long-term capital appreciation by investing primarily in equity securities of
Japanese issuers. Equity securities are defined as common and preferred
stocks, convertible securities and rights and warrants to purchase common
stocks.
For the year ended December 31, 1999, the Portfolio had a total return of
63.75% for the Class A shares and 63.46% for the Class B shares compared to
61.53% for the Morgan Stanley Capital International (MSCI) Japan Index (the
"Index"). For the five-year period ended December 31, 1999, the average
annual total return for the Class A shares was 8.97% compared to 1.96% for
the Index. For the period from inception on April 25, 1994 through December
31, 1999, the average annual total return for the Class A shares was 7.52%
compared to 2.07% for the Index. For the period from inception on January 2,
1996 through December 31, 1999, the average annual total return for the Class
B shares was 12.01% compared to 2.48% for the Index.
The Japanese equity market rose during 1999 to levels last seen in 1992. This
rally was largely a result of the Bank of Japan's "0" interest rate policy,
$74 billion of public funds to support non-performing loans held by Japanese
banks and the $200 billion loan facility for medium and small companies in
Japan. In addition, the consecutive rise in the first and second quarter GDP
added fuel to the growing optimism for Japan's economic recovery and foreign
investors purchased a record $100 billion of Japanese equities during the
year. As with most global markets there was myopic focus on "New Japan"
companies including spectacular rises in telecommunications, internet and
other technology related industries. "Old Japan" companies, including Sony,
NEC, Fujitsu and Kyocera also rose to all-time highs during 1999.
Restructuring was one of the important themes in 1999 and local mergers and
acquisitions (M&A) activity rose sharply as companies began divesting
businesses not part of their core competency. Major banks, such as IBJ, DKB
and Fuji announced mergers while Hitachi and NEC - once fierce competitors -
announced tie-ups in D-ram production.
- ------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS
OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES
MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE
PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
- ------------------------------------------------------------------------------
Japanese Equity Portfolio
71
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- ------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- ------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO (CONT.)
Unprecedented deregulation during the year in brokerage, insurance, airlines
and banking also transformed Japan from an insular country to one more "free,
fair & global." All this was a powerful recipe for a hibernating stock market
and local individual investors returned to the market after a ten-year
absence driving the over-the-counter Index up over 300% during the year.
Together with the huge net buying by foreigners for Japanese equities, demand
greatly exceeded the $40 billion of "cross-holdings" sales by domestic
institutions during the year.
In the second half of 1999, the yen rose sharply on expectations of a
stronger Japan, temporarily slowing the market's rise. Despite a strong yen,
however, international blue chips such as Sony, Fujitsu, NEC and Rohm rose to
all time highs. Such companies have significantly increased overseas
production since 1995 and appear to be less subject to currency volatility.
While these stocks contributed to the Portfolio's performance seldom have we
seen a narrow concentrated market in approximately a dozen companies produce
such outsized gains in such a short period.
OUTLOOK
The cyclical recovery, which began in 1999, will likely continue in
2000 supported by the $180 billion supplementary budget announced in November
effective this April. In addition, with both a general election and a Summit
Meeting scheduled later this year, Japanese authorities seem determined to
stimulate a sustainable secular recovery led by domestic growth. With a
relatively strong yen, Japan's export to Asian countries should also improve.
Asian exports are approximately 40% of total exports from Japan and a
stronger Asian economy in turn will be positive for Japan. While the yen's
strength dampened sentiment during the second half of 1999 most leading
companies have increased overseas manufacturing capacity and improved hedging
techniques significantly during the last 5 years and therefore a stronger yen
should become less of a negative factor in the coming months.
Importantly, we believe the "digital" revolution in home servers, games and
DVD will greatly support the Japanese economy for the foreseeable future.
Much as televisions and VCRs created a robust economy during the 1970's and
80's, Japan is a leading manufacturer for much of the hardware in digital
consumer products. Corporate profits, return on equity (ROE) and margins are
also showing remarkable promise based on large scale labor cuts together with
restructuring and focused management. Although the bond yields may rise in
2000, we believe any rises will be modest due to the Bank of Japan's "0"
interest rate policy which they have suggested will be maintained for the
foreseeable future.
Supply and demand for equities should also be favorable. The Postal Savings
Research Institute estimates that approximately $490 billion of high yielding
10-year deposits will mature over the next 24 months. Domestic retail
investors, together with foreign investors, should more than offset the
unwinding of cross-holding which we expect to increase in 2000 as Japanese
companies begin developing relationships based on merit and sell securities
once held to cement mutual business.
STRATEGY
The polarization within sectors for winners and losers in a greatly
deregulated environment will be pronounced in 2000, in our view. In addition,
one of our key assumptions for Japan in the year 2000 is that evidence will
mount for a sustainable secular recovery. If our forecast is correct, the
market will reward shares in economic sensitive sectors, deeply oversold,
relative to the handful of the "new" Japanese companies we have seen for most
of 1999. The core of our Portfolio holdings will therefore continue to be
leading Japanese manufacturers of digital technology which are world class
and command leading global market share in production and quality.
John R. Alkire
PORTFOLIO MANAGER
Kunihiko Sugio
PORTFOLIO MANAGER
January 2000
- -----------------------------------------------------------------------------
Japanese Equity Portfolio
72
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -----------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (94.7%)
APPLIANCES & HOUSEHOLD DURABLES (10.4%)
85,000 Casio Computer Co., Ltd. ............... $707
81,000 Matsushita Electric Industrial
Co., Ltd. ............................ 2,242
17,200 Sony Corp. ............................. 5,098
--------------
8,047
--------------
AUTOMOBILES (5.7%)
62,000 Nifco, Inc. ............................ 740
220,000 Nissan Motor Co., Ltd. ................. 865
68,000 Suzuki Motor Co., Ltd. ................. 992
37,000 Toyota Motor Corp. ..................... 1,791
--------------
4,388
--------------
BANKING (0.5%)
25,000 Bank of Tokyo-Mitsubishi, Ltd. ......... 348
--------------
BROADCASTING & PUBLISHING (0.4%)
50,000 Nissha Printing Co., Ltd. .............. 298
--------------
BUILDING MATERIALS & COMPONENTS (2.7%)
56,000 Fujitec Co., Ltd. ...................... 561
27,000 Rinnai Corp. ........................... 502
136,000 Sanwa Shutter Corp. .................... 506
116,000 Sekisui Chemical Co. ................... 514
--------------
2,083
--------------
BUSINESS & PUBLIC SERVICES (1.6%)
63,000 Dai Nippon Printing Co., Ltd. .......... 1,005
30,000 Mitsubishi Logistics Corp. ............. 191
--------------
1,196
--------------
CHEMICALS (4.2%)
171,000 Daicel Chemical Industries Ltd. ........ 477
128,000 Kaneka Corp. ........................... 1,636
135,000 Mitsubishi Chemical Corp. .............. 475
116,000 Shin-Etsu Polymer Co., Ltd. ............ 681
--------------
3,269
--------------
CONSTRUCTION & HOUSING (1.1%)
95,000 Sekisui House Co., Ltd. ................ 841
--------------
DATA PROCESSING & REPRODUCTION (10.3%)
57,000 Canon, Inc. ............................ 2,264
81,000 Fujitsu Ltd. ........................... 3,692
107,000 Ricoh Co., Ltd. ........................ 2,016
--------------
7,972
--------------
ELECTRICAL & ELECTRONICS (14.3%)
143,000 Hitachi Ltd. ........................... 2,294
82,000 Minebea Co., Ltd. ...................... 1,406
59,000 Mitsumi Electric Co., Ltd. ............. 1,847
118,000 NEC Corp. .............................. 2,811
26,000 Ryosan Co. ............................. 646
266,000 Toshiba Corp. .......................... 2,029
--------------
11,033
--------------
ELECTRONIC COMPONENTS, INSTRUMENTS (10.7%)
15,000 Kyocera Corp. .......................... 3,888
5,000 Rohm Co., Ltd. ......................... 2,054
17,000 TDK Corp. .............................. 2,347
--------------
8,289
--------------
<CAPTION> VALUE
SHARES (000)
- ---------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (1.0%)
47,000 Kurita Water Industries Ltd. ........... $747
--------------
FINANCIAL SERVICES (1.6%)
62,000 Hitachi Credit Corp. ................... 1,258
--------------
FOOD & HOUSEHOLD PRODUCTS (2.6%)
24,000 Aiwa Co., Ltd. ......................... 498
15,000 House Foods Corp. ...................... 227
25,000 Nippon Meat Packers, Inc. .............. 324
21,000 Sangetsu Co., Ltd. ..................... 442
74,000 Yamaha Corp. ........................... 480
--------------
1,971
--------------
HEALTH & PERSONAL CARE (4.8%)
37,000 Ono Pharmaceutical Co., Ltd. ........... 992
64,000 Sankyo Co., Ltd. ....................... 1,314
40,000 Yamanouchi Pharmaceutical Co., Ltd. .... 1,397
--------------
3,703
--------------
INDUSTRIAL COMPONENTS (1.3%)
64,000 Furukawa Electric Co., Ltd. ............ 970
--------------
MACHINERY & ENGINEERING (8.0%)
110,000 Amada Co., Ltd. ........................ 601
106,000 Daifuku Co., Ltd. ...................... 612
93,000 Daikin Industries Ltd. ................. 1,265
29,000 Fuji Machine Manufacturing
Co., Ltd. ............................ 2,337
278,000 Mitsubishi Heavy Industries Ltd. ....... 927
128,000 Tsubakimoto Chain Co. .................. 470
--------------
6,212
--------------
MERCHANDISING (1.5%)
17,000 FamilyMart Co., Ltd. ................... 1,131
--------------
MULTI-INDUSTRY (0.8%)
60,000 Lintec Corp. ........................... 652
--------------
REAL ESTATE (0.8%)
67,000 Mitsubishi Estate Co., Ltd. ............ 653
--------------
RECREATION, OTHER CONSUMER GOODS (5.6%)
46,000 Fuji Photo Film Ltd. ................... 1,678
16,000 Nintendo Corp., Ltd. ................... 2,658
--------------
4,336
--------------
TELECOMMUNICATIONS (3.5%)
156 Nippon Telegraph & Telephone Corp. ..... 2,671
--------------
UTILITIES - ELECTRICAL & GAS (0.8%)
22,000 Tokyo Electric Power Co. ............... 590
--------------
WHOLESALE & INTERNATIONAL TRADE (0.5%)
30,000 Nissei Sangyo Co., Ltd. ................ 414
--------------
TOTAL COMMON STOCKS (Cost $46,672) ....................... 73,072
--------------
<CAPTION>
FACE
AMOUNT
(000)
- ------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (4.8%)
REPURCHASE AGREEMENT (4.8%)
$ 3,721 Chase Securities, Inc., 2.60%, dated 12/31/99, due
1/03/00, to be repurchased at $3,722, collateralized
by U.S. Treasury Bond, 6.125%, due 12/31/01, valued
at $3,797 (Cost $3,721) ...................... 3,721
----------
</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
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO (CONT.)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION> VALUE
(000)
- --------------------------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS (99.5%) (COST $50,393) $76,793
------------
OTHER ASSETS (0.8%)
Cash .................................... $ 611
Receivable for Portfolio Shares Sold .... 18
Dividends Receivable .................... 14
Other ................................... 5 648
-------
LIABILITIES (-0.3%)
Investment Advisory Fees Payable ........ (153)
Payable for Portfolio Shares Redeemed ... (16)
Administrative Fees Payable ............. (12)
Directors' Fees and Expenses Payable .... (12)
Custodian Fees Payable .................. (6)
Distribution Fees Payable ............... (3)
Other Liabilities ....................... (35) (237)
--------- ---------
NET ASSETS (100%) ....................... $77,204
===========
NET ASSETS CONSIST OF:
Paid in Capital ........................ $91,313
Accumulated Net Investment Loss ........ (376)
Accumulated Net Realized Loss .......... (40,135)
Unrealized Appreciation on Investments
and Foreign Currency Translations ..... 26,402
-------------
NET ASSETS ............................. $77,204
==============
CLASS A:
NET ASSETS ............................. $73,666
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 7,281,449 outstanding $0.001 par value
shares (authorized 500,000,000 shares).. $10.12
=================
CLASS B:
NET ASSETS ................................ $3,538
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 353,210 outstanding $0.001 par value
shares (authorized 500,000,000 shares .... $10.02
=================
</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 DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Argentina (6.2%)
Brazil (37.0%)
Chile (7.5%)
Colombia (0.4%)
Mexico (43.5%)
Peru (1.2%)
Venezuela (1.6%)
Other (2.6%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
MSCI Emerging
Latin Markets Free
American Latin American
Portfolio-Class A Index(1)
<S> <C> <C>
1/18/95* $ 500,000 $ 500,000
12/31/95 __________ __________
12/31/96 __________ __________
12/31/97 __________ __________
12/31/98 __________ __________
12/31/99 $1,033,925 $ 790,393
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested. The performance of Class B
shares will vary based upon the different inception dates and fees assessed
to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS
FREE LATIN AMERICA INDEX AND THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS
GLOBAL LATIN AMERICA INDEX(1)
- --------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------
AVERAGE
ANNUAL
ONE SINCE
YEAR INCEPTION
------ ---------
<S> <C> <C>
PORTFOLIO -- CLASS A ....................... 71.28% 15.80%
PORTFOLIO -- CLASS B ....................... 70.85 21.20
MSCI EMERGING MARKETS FREE LATIN
AMERICA INDEX -- CLASS A ................. 58.89 8.98
MSCI EMERGING MARKETS GLOBAL LATIN
AMERICA INDEX -- CLASS A ................... 65.45 9.69
MSCI EMERGING MARKETS FREE LATIN
AMERICA INDEX -- CLASS B ................. 58.89 12.83
MSCI EMERGING MARKETS GLOBAL LATIN
AMERICA INDEX -- CLASS B ................. 65.45 13.85
</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.
The MSCI Emerging Markets Global Latin America Index includes the same
markets, but does not take into account local market restrictions on share
ownership by foreigners.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN
THIS OVERVIEW ARE AS MEASURED BY THE MSCI EMERGING MARKETS COUNTRY OR
REGIONAL INDICES, ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST
PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE
PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH
INTERNATIONAL INVESTING.
- --------------------------------------------------------------------------------
Latin American Portfolio
75
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO (CONT.)
The investment objective of the Latin American Portfolio is long-term capital
appreciation through investment primarily in equity securities of Latin
American issuers. The Portfolio may also invest in debt securities issued or
guaranteed by a Latin American government or governmental entity.
For the year ended December 31, 1999, the Portfolio had a total return of
71.28% for the Class A shares and 70.85% for the Class B shares compared to
58.89% for the Morgan Stanley Capital International (MSCI) Emerging Markets
Free Latin America Index and 65.45% for the Morgan Stanley Capital
International (MSCI) Emerging Markets Global Latin America Index. For the
period from inception on January 18, 1995 through December 31, 1999, the
average annual total return of Class A shares was 15.80% compared to 8.98%
for the MSCI Emerging Markets Free Latin America Index and 9.69% for the MSCI
Emerging Markets Global Latin America Index. For the period from inception on
January 2, 1996 through December 31, 1999, the average annual total return of
Class B shares was 21.20% compared to 12.83% for the MSCI Emerging Markets
Free Latin America Index and 13.85% for the MSCI Emerging Markets Global
Latin America Index.
Outperformance relative to the Index was attributable to both strong stock
selection and country allocation. Stock selection in Brazilian and Mexican
equities contributed markedly to performance. Stock selection in Argentina
and Venezuela also added to performance. Our overweight position in Brazil
(+67.2%) and our underweight stance in Chile (+39.0%), Colombia (-13.7%) and
Peru (+18.9%) contributed positively to performance. Detracting from
performance was stock selection in Chile.
After the darkness of the second half of 1998, the sun shone brilliantly on
1999, ushering in a renaissance of the Latin markets. The series of emerging
market crises that began in Asia in October 1997 culminated with the
devaluation of the Brazilian real on January 13, 1999. In the weeks leading
up to the devaluation, sentiment towards and stock valuations in Latin
markets neared the lowest levels since the debt crisis of the 1980s. As a
result, once the anticipated devaluation finally occurred, all markets staged
a significant rally, relieved that the bad news had passed. In the coming
months, Latin governments demonstrated sensible and sound economic (monetary
and fiscal) management, allowing for lower risk premiums demanded by both
domestic and external investors. Real interest rates (both domestic and the
external Brady bonds) contracted significantly off their January highs
engendering a less severe recession in 1999 and setting the stage for an
economically strong 2000. We expect regional growth of 3-3.5% in 2000
compared with 0.1% in 1999.
In Brazil, the government's reaction to the crisis was swift and reassuring.
Within weeks after the devaluation, Arminio Fraga was recruited and appointed
as president of the Central Bank. Fraga, a former portfolio manager at Soros
Funds Management and previously a well-respected university professor in
Brazil, brought needed credibility to the position. He elucidated a new
monetary policy that seemed plausible. This prevented foreign commercial
banks from fully terminating loans to Brazilian institutions. In addition,
President Cardoso and his government took decisive action to ensure a primary
fiscal surplus large enough to offset the heavy interest service component on
government debt. The markets were greatly concerned about the solvency of the
Brazilian government, as interest rates over 40% for an extended period and
government debt/GDP at 50% made solvency doubtful. Fraga's appointment and
the government's measures allowed the currency to stabilize and for inflation
to remain surprisingly low, enabling domestic interest rates to fall to 19%
by year-end.
At the corporate level, 1999 was a disappointing year from a dollar earnings
perspective for most Brazilian companies, although not as poor as might have
been expected, setting the stage for a very strong 2000. Our strategic
allocation to the telecommunications sector worked favorably as the robust
subscriber growth provided strong revenue growth in a weak economic period.
Moreover, increased efficiency in capital investments ensured improving rates
of return on capital. The telecommunications sector was re-rated globally.
Investors increasingly recognized the potential growth for telecommunications
given the growth in wireless communication plus transmission of data with
growth in the internet.
In Mexico, from the very beginning of 1999, the government proved to the
financial markets its willingness to make tough decisions to remain
financially viable, risking political support in an election year. With some
thirty percent of fiscal revenues derived from oil, the price of which was at
cyclical lows, the government significantly cut back spending so that the
fiscal deficit would remain at 1.5% of GDP for the year. Also, in every
previous election year, the incoming government has traditionally appointed a
new president of the central bank, making the concept of independent monetary
policy (and the credibility in fighting inflation) a dubious one. In this
cycle, the central bank president would remain in office until 2002, thus
spanning both administrations. Both of these announcements allowed Mexico to
de-couple from Brazil in perceived sovereign risk and market performance.
Mexico also continues to benefit greatly from the trade agreement, with much
of 1999's growth fueled by strong exports, up 25% for the year. Mexico's
competitiveness and improving productivity
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- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO (CONT.)
continues to attract foreign investment, providing support for the peso and
helping to reduce price inflation. For 1999, Mexico's inflation rate was
12.3% which beat the government's and the market's forecast of 13%.
At the corporate level, Mexican earnings surprised positively in every
quarter of 1999. Some of the consumer companies we invest in had raised
prices in nominal terms at the beginning of the year and due to inflation
surprising on the low side, this translated to real peso price increases and
boosted margins. Moreover, the new generation of Mexican management, often
U.S.-educated and very focussed on capital efficiency, continued to
demonstrate margin improvement due to cost-cutting and efficiency gains.
Together, the stronger earnings in real peso terms plus a currency that
appreciated by 4% in nominal terms meant that the U.S. dollar effect appeared
particularly buoyant.
Chile had an economically difficult year, with GDP shrinking 1.2% and
industrial production contracting 5% after contracting 1% in 1998. A
combination of negative factors caused this. Some of these included commodity
prices reaching their cyclical lows (especially copper and pulp), the worst
drought in a decade, poor demand for Chilean exports particularly from Asia
in 1998 and, finally, beginning the year with extremely high real interest
rates post the Russian crisis. All of these factors led to a plunge in
consumer confidence. Over the course of the year, monetary policy was eased
significantly with real interest rates now at historical lows of 5%. Monetary
easing coupled with weaker exports caused a 12% slippage in the currency and
more importantly, an abandonment of the currency band. However, the economy
started showing signs of a nascent recovery in the fourth quarter, which we
expect to extend to strong growth in 2000.
Like its neighbors, Argentina's economy contracted 3.8% in 1999 with price
deflation of 1.2% and real interest rates over 12%, the highest level since a
short period in 1995. Argentina has considerable dependence on foreign
capital to roll over its public debt, the stock of which stands at 45% of
GDP. Therefore, high interest rates are required to ensure domestic money
remains in the country. While high interest rates relieve pressure on the
currency, they may threaten the currency board's existence. Again, the fourth
quarter showed impressive signs of a renaissance in this economy and the
outlook for the next twelve months is very positive. Another positive factor
was the smooth transition to a new president after the elections in October.
Argentina's new president, Fernando de la Rua, replaced President Carlos
Menem who had been in power for over a decade. De la Rua is from the
Alliance, a combination of two opposition parties and had beaten the
governing Peronist party for the first time. Importantly though, the latter
still controls the senate and our concern was that legislative reform,
particularly in the labor market would be difficult to get through. This
proved to be incorrect as the new budget was successfully steered through in
late December. Consequently, from a political perspective, we have become
more comfortable in this market.
The most significant event from an equity market perspective was the $10
billion takeover of oil company YPF, one of the major stocks listed in
Argentina. Repsol of Spain, bid at a 30% premium to the market, providing us
with strong returns on our holding.
We expect overall GDP growth for the region in the vicinity of 3.5% compared
to 0.1% in 1999. Moreover, the foreign direct investment coming into the
region is supportive of currency and hence dollar equity returns. The region
will still run a current account deficit of over 3%, so despite the
improvement, it will still be subject to the whim of global capital markets.
If the U.S. Federal Reserve engineers a global hard-landing, with a
concurrent reversal in risk-appetite, this would hinder market performance
from these levels. We believe valuations are still cheap on a global
comparison but the discount has narrowed off the extreme lows of early 1999.
As far as our economic outlook for 2000 and beyond, we are the most
optimistic we have been in a long time. Commodity prices have rebounded off
their lows as have the economies of Europe and Asia and, overall, the current
account picture for all the economies has significantly improved. Moreover,
the level of risk aversion to Latin America that grew after the crises in
Asia, Russia and Brazil has dissipated, as the response by Latin governments
was a disciplined one. This process is still in an evolutionary state and
further contraction in discount rates should propel equity valuations higher.
Andy B. Skov
PORTFOLIO MANAGER
Michael L. Perl
PORTFOLIO MANAGER
Robert L. Meyer
PORTFOLIO MANAGER
January 2000
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- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (97.3%)
ARGENTINA (6.2%)
4,986 Banco Rio de La Plata ADR .......................................... $ 61
15,295 Quilmes Industrial ADR ............................................. 182
10,678 Telecom Argentina ADR .............................................. 366
10,653 Telefonica de Argentina ADR ........................................ 329
------------------
938
------------------
BRAZIL (36.9%)
4,856 Aracruz Celulose ................................................... 128
25,515,000 Banco Bradesco (Preferred) ......................................... 200
500 Banco Bradesco ADR (Preferred) ..................................... 4
2,089,150 Banco Itau (Preferred) ............................................. 179
(d)11,847,000 Banco Nacional (Preferred).......................................... --
60,000 Brahma (Preferred) ................................................. 44
2,100 Brahma ADR (Preferred) ............................................. 29
(a)1,224,277 Celular CRT ........................................................ 214
1,694,386 CEMIG (Preferred) .................................................. 38
3,094 CEMIG ADR (Preferred) .............................................. 70
(e)1,275 CEMIG ADR (Preferred) .............................................. 29
416,736,600 Cia Electric Est Rio Janeiro ....................................... 127
3,727,900 Cia Siderurgica Nacional ........................................... 145
14,149 Copel ADR (Preferred) .............................................. 132
13,267,180 Copel, Class B ADR (Preferred) ..................................... 129
603,830 Coteminas .......................................................... 38
(d,e)9,105 Coteminas ADR ...................................................... 25
891,277 CRT (Preferred) .................................................... 276
5,000 CVRD ............................................................... 116
34,986 CVRD (Bonus Shares)................................................. --
7,465 CVRD ADR (Preferred) ............................................... 206
6,800 CVRD, Class A (Preferred) .......................................... 188
1,276,761 Electrobras, Class B (Preferred) ................................... 31
852,000 Eletrobras ......................................................... 19
370 Eletrobras ADR ..................................................... 4
4,630 Eletrobras, Class B ADR (Preferred) ................................ 56
9,292,800 Embratel ........................................................... 239
155 Embratel ADR ....................................................... 4
6,347,932 Gerdau (Preferred) ................................................. 169
5,000 Globex Utilidades (Preferred) ...................................... 40
116,000 Itausa-Investimentos Itau S.A. (Preferred) ......................... 120
(a,d)10,009,300 Lojas Arapua (Preferred)............................................ --
(a,e)13,460 Lojas Arapua ADR (Preferred)........................................ --
1,900,800 Petrobras (Preferred) .............................................. 484
6,100 Petrobras ADR (Preferred) .......................................... 157
(e)49,299 Rossi GDR .......................................................... 59
(a)101,175 Rossi GDS .......................................................... 120
6,234,632 Tele Centro Sul (Preferred) ........................................ 114
200 Tele Centro Sul ADR ................................................ 18
61,649,000 Tele Leste Celular (Preferred) ..................................... 51
550 Tele Leste Celular ADR ............................................. 23
82,525,000 Tele Norte Celular (Preferred) ..................................... 71
11,487,400 Tele Norte Leste (Preferred) ....................................... 308
1,516 Tele Norte Leste ADR ............................................... 39
1,240 Tele Sudeste Celular ............................................... 48
7,211,275 Tele Sudeste Celular (Preferred) ................................... 53
700 Telebras ADR (Preferred) ........................................... 90
7,772,118 Telesp (Preferred) ................................................. 188
16,175 Telesp ADR ......................................................... 395
3,940 Telesp Celular ..................................................... 167
3,632,675 Telesp Celular (Preferred) ......................................... $ 64
3,395 Unibanco GDR (Preferred) ........................................... 102
9,950 Usiminas (Preferred) ............................................... 54
------------------
5,604
------------------
CHILE (7.5%)
6,838 Banco Edwards ADR .................................................. 114
1,170 Banco Santander ADR ................................................ 18
2,903 Banco Santiago ADR ................................................. 62
5,444 CCU ADR ............................................................ 175
9,329 Chilectra ADR ...................................................... 187
12,729 Cia. de Telecomunicaciones de Chile ADR ............................ 232
3,706 D&S ADR ............................................................ 72
5,235 Endesa ADR ......................................................... 74
4,596 Enersis ADR ........................................................ 108
5,519 Quinenco ADR ....................................................... 61
(a)3,672 Santa Isabel ADR ................................................... 36
------------------
1,139
------------------
COLOMBIA (0.4%)
9,010 Bavaria ............................................................ 40
17,944 Valores Bavaria .................................................... 15
------------------
55
------------------
MEXICO (43.5%)
(a)40,989 Alfa, Class A ...................................................... 192
(a)72,246 Banacci, Class L ................................................... 278
(a)2,300 Banacci, Class O ................................................... 9
(a)310,711 Bancomer, Class O .................................................. 130
(a)31,443 Banorte, Class O ................................................... 47
(a)22,434 Carso Global Telecom ............................................... 211
56,984 Carso, Class A1 .................................................... 284
26,159 Cemex CPO ADR ...................................................... 729
(a)3,100 Cemex SA ........................................................... 17
(a)71,700 Cifra, Class C ..................................................... 136
(a)70,728 Cifra, Class V ..................................................... 142
6,597 Empresas ICA ADR ................................................... 21
32,751 Empresas ICA S.A. .................................................. 19
11,355 Femsa ADR .......................................................... 505
21,569 Grupo Industrial Bimbo, Class A .................................... 48
31,620 Grupo Mexico S.A., Class B ......................................... 157
36,814 Grupo Modelo, Class C .............................................. 101
118,040 Kimberly-Clark, Class A ............................................ 461
(a)3,577 Nuevo Grupo Iusacell S.A. ADR ...................................... 53
(a)48,315 Organizacion Soriana SA ............................................ 222
3,200 Panamerican Beverages, Inc., Class A ............................... 66
(a)7,705 Seminis, Inc., Class A ............................................. 49
4,399 Tamsa ADR .......................................................... 60
(a)9,615 Televisa CPO GDR ................................................... 656
214 Telmex ADR ......................................................... 24
17,154 Telmex, Class L ADR ................................................ 1,930
The accompanying notes are an integral part of the financial statements.
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78
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- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER, 31 1999
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
MEXICO (CONT.)
11,123 Vitro ADR .......................................................... $ 61
------------------
6,608
------------------
PERU (1.2%)
13,980 Tel Peru, Class B ADR .............................................. 187
------------------
VENEZUELA (1.6%)
9,998 CANTV ADR .......................................................... 246
------------------
TOTAL COMMON STOCKS (Cost $13,367) ......................................................... 14,777
------------------
<CAPTION>
NO. OF
RIGHTS
-------------
RIGHTS (0.1%)
BRAZIL (0.1%)
(d)25,981,000 Banco Bradesco (Preferred) (Cost $ ) ....................... 12
------------------
TOTAL FOREIGN SECURITIES (97.4%) (Cost $13,367) ............................................. 14,789
------------------
<CAPTION>
FACE
AMOUNT
(000)
-------------
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT (2.7%)
$ 414 Chase Securities, Inc., 2.60%, dated 12/31/99, due 1/03/00,
to be repurchased at $414, collateralized by U.S. Treasury
Notes, 6.125% due 12/31/01, valued at $424 (Cost $414)........... 414
------------------
FOREIGN CURRENCY (0.0%)
BRL 1 Brazilian Real...................................................... --
MXP 9 Mexican Peso........................................................ 1
------------------
TOTAL FOREIGN CURRENCY (Cost $1) 1
------------------
TOTAL INVESTMENTS (100.1%) (Cost $13,782)............................................. 15,204
------------------
OTHER ASSETS (0.5%)
<S> <C> <C>
Dividends Receivable ..................................... $ 55
Receivable for Portfolio Shares Sold...................... 15
Other..................................................... 1 71
-------------------------
LIABILITIES (0.6%)
Investment Advisory Fees Payable ......................... (23)
Custodian Fees Payable.................................... (16)
Directors' Fees and Expenses Payable ..................... (4)
Administrative Fees Payable .............................. (3)
Bank Overdraft Payable ................................... (2)
Distribution Fees Payable ................................ (1)
Other Liabilities ........................................ (30) (79)
------------------------- ------------------
NET ASSETS (100%) ....................................................................... $ 15,196
==================
NET ASSETS CONSIST OF:
Paid in Capital ......................................................................... $ 35,990
Undistributed Net Investment Income ..................................................... 193
Accumulated Net Realized Loss ........................................................... (22,393)
Unrealized Appreciation on Investments and Foreign Currency Translations................. 1,406
------------------
NET ASSETS .............................................................................. $ 15,196
==================
Amount
(000)
-----------------
CLASS A:
NET ASSETS.............................................................................. $ 13,809
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 1,219,467 outstanding $0.001 par value shares (authorized
500,000,000 shares)................................................................... $ 11.32
==================
CLASS B:
NET ASSETS.............................................................................. $ 1,387
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 122,092 outstanding $0.001 par value shares (authorized 500,000,000
shares)............................................................................... $ 11.36
==================
</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
CPO -- Certificate of Participation
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
- ------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT $ 100 0.7%
CONSUMER GOODS 1,714 11.3
ENERGY 1,642 10.8
FINANCE 1,396 9.2
MATERIALS 2,018 13.3
MULTI-INDUSTRY 673 4.4
SERVICES 7,246 47.7
------- -----
$ 14,789 97.4%
------- -----
------- -----
</TABLE>
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
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79
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INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Basic Materials (0.2%)
Capital Goods (17.3%)
Communication Services (4.4%)
Consumer Cyclicals (9.5%)
Consumer Staples (18.0%)
Financial (5.2%)
Healthcare (11.8%)
Technology (30.8%)
Utilities (0.3%)
Other (2.5%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- --------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Equity
Growth S&P 500
Portfolio-Class A Index(1)
<S> <C> <C>
4/2/91* $ 500,000 $ 500,000
10/31/91 _________ _________
10/31/92 _________ _________
12/31/92 _________ _________
12/31/93 _________ _________
12/31/94 _________ _________
12/31/95 _________ _________
12/31/96 _________ _________
12/31/97 _________ _________
12/31/98 _________ _________
12/31/99 $2,705,773 $2,398,097
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested. The performance of Class B
shares will vary based upon the different inception dates and fees assessed
to that class.
PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
- --------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YEAR YEARS INCEPTION
----- ------- ---------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A 39.89% 32.93% 21.28%
PORTFOLIO -- CLASS B 39.61 N/A 29.63
INDEX -- CLASS A 21.04 28.55 19.35
INDEX -- CLASS B 21.04 N/A 26.18
</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 Equity Growth Portfolio employs a growth-oriented investment strategy
seeking long-term capital appreciation. The Portfolio seeks to accomplish its
objective by investing primarily in equities of medium and large
capitalization companies exhibiting strong earnings growth.
For the year ended December 31, 1999, the Portfolio had a total return of
39.89% for the Class A shares and 39.61% for the Class B shares compared to
21.04% for the S&P 500 Index (the "Index"). For the five-year period ended
December 31, 1999, the average annual total return for the Class A shares was
32.93% compared to 28.55% for the Index. For the period from inception on
April 2, 1991 through December 31, 1999, the average annual total return for
Class A shares was 21.28% compared to 19.35% for the Index. For the period
from inception on January 2, 1996 through December 31, 1999, the average
annual total return for the Class B shares was 29.63% compared to 26.18% for
the Index.
The Portfolio generated excellent returns in 1999. For the three months ended
December 31, 1999, the Portfolio had a total return of 22.17% for the Class A
shares and 22.21% for the Class B shares compared to 14.88% for the S&P 500
Index and 25.54% for the Lipper Large Cap Growth Index. Major contributors to
the strong fourth quarter results were Cisco Systems, JDS Uniphase, General
Electric, Home Depot and Motorola. We note that these strong results were
achieved in spite of a major downward move in the price of top-10 holding
Tyco.
U.S. equity markets again set records in 1999, led by large-capitalization
growth stocks in general and a white-hot technology sector in particular. The
S&P 500's 21.04% increase left the Index at an all-time high, and 1999 marked
the 10th consecutive up year for this Index. The compounded return for the
past five years is a stunning 250%. With the exception of a brief period in
the Spring, growth outperformed value throughout the year. The Russell 1000
Growth Index increased 32.3% in 1999, compared to 5.4% for the Russell 1000
Value Index. Investors continue to believe and invest in the sustainability
of the growth of the largest companies, and for the most part, these
companies continue to deliver stellar results.
- -------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S
FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
- -------------------------------------------------------------------------------
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INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
The largest 50 stocks in the S&P 500 had a forward price-to-earnings of 33.2
at year-end, while the price-to-earnings of the remaining 450 stocks was
18.6. Excluding technology, the S&P 500 would have only risen about 7.5%. The
list of top contributors to S&P 500 performance is dominated by tech names
such as Microsoft (the top contributor in 1999), Cisco (#2), Oracle Systems
(#5), Qualcomm (#7), Sun Microsystems (#8), and Intel (#10). The performance
of the market remained narrow in 1999, although some healthy broadening did
occur late in the year. The top-30 stocks in the Index accounted for 100% of
the total return, and an equal-weighted return (versus a market-
capitalization weighted return) would have returned about 11.9% for the year.
With a rebound in November and December, the Russell 2000 Index of small and
mid-cap stocks returned 21.3%.
The Portfolio maintained and benefited from its philosophy of opportunistic
concentration driven by bottom-up fundamental company analysis and an emphasis
on gaining an "information edge" in the sectors and companies in which we
invest. At year-end, the Portfolio's top 10 holdings accounted for approximately
39% of net assets (versus 38% at year-end 1998), and the Portfolio held
positions in 82 stocks (slightly higher than the 70 names held at year-end 1998
due to an increased emphasis on smaller "farm-team" holdings). The Portfolio
continues to reflect a mix of classic growth stocks such as Microsoft (5.2% of
net assets at year end), Cisco Systems (5.0%), General Electric (4.9%), Home
Depot (3.6%) and less well known growth names such as Tyco International (5.1%),
Clear Channel Communications (3.5%), and United Technologies (3.3%). We were
pleased with the Portfolio's broad-based performance, particularly in the
context of a market that continued to be dominated by a small number of large
capitalization stocks. No single stock accounted for more than 10% of the
Portfolio's absolute performance. In addition, over 70% of the Portfolio's
relative outperformance was driven by stock picking versus sector allocation.
Importantly, the Portfolio's outperformance in 1999 was also consistent: the
Portfolio outperformed the S&P 500 in each quarter of the year.
Technology dominated the headlines and the sector performance charts in 1999.
Given the tremendous outperformance of the group, technology stocks now account
for 30% of the S&P 500's total market capitalization, up from 19% at the end of
1998 and 10% five years ago. Given technology's extremely strong performance,
one might find two things surprising. First, only about 28% of the Portfolio's
1999 outperformance relative to the S&P 500 was attributable to technology
holdings. Second, about 90% of that relative outperformance was attributable to
successful stock picking within the group as the Portfolio maintained a
relatively neutral posture toward technology versus the Index weight throughout
most of the year. We believe this reflects well on our bottom-up, research
intensive approach to stock-picking.
Avoiding prominent underperformers, while not as sexy as finding the next
"home-run", remains important to our success. In a bull market, it is very easy
to focus excessive attention on picking winning stocks. Simple math reinforces
our view that equal effort should be spent attempting to avoid those companies
with potential disappointing fundamental changes, particularly in a current
environment which has little tolerance for "negative newsflow". In fact, much of
our outperformance in 1999 was attributable to avoiding companies with
deteriorating fundamentals. Prominent underperformers which we largely avoided
owning were Coke, Gillete, Clorox, McDonalds, Compaq, Banc One, Bank of America
and First Union.
We believe Tyco remains an undervalued and misunderstood growth stock. Fears
of accounting irregularities prompted by a short seller's report and a
subsequently announced informal SEC inquiry resulted in a 22% decline in the
stock's price in the fourth quarter (although Tyco was up 5% for the year). We
continue to believe in the management of this company and in the growth of the
company's underlying cash flows. We emphasize that Tyco has continued to
outperform analyst expectations for earnings and cash flow in the back half of
1999.
Clear Channel Communications, another large holding in the Portfolio, continues
to reap the cash flow rewards of operating and consolidating the radio, outdoor
advertising and television business. Over the years that we have been invested
in this dynamic growth company, Clear Channel has become an opportunistic
dominant player in global media. This strong management team, which is well
motivated by their multi-billion dollar position in the company's stock,
continues to find ways to expand the company's platform in ways that are
accretive to the wealth of all stock holders. The pending AMFM Inc. acquisition
is another move to further consolidation in the radio industry that we believe
changes, yet again, to the advantage of Clear Channel, the powerful proposition
that can be delivered to its clients. With over 800 radio stations around the
country, this company can deliver a ubiquitous message in a targeted way at a
lower cost than most other advertising mediums. The imbedded internet
opportunity within Clear Channel, a theme common to many of our holdings, should
yet again
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- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
drive growth in ways not fully appreciated. This is likely to manifest
itself in advertising and e-commerce opportunities. We therefore remain
overweight the broadcasting group, including companies such as Time Warner and
Liberty Media.
United Technologies remains a top ten holding of the Portfolio. This "old
economy" company is consistently pumping out 15% plus annual earnings growth
despite its Asian exposure in 1998 and its commercial aerospace exposure in
1999. The company is embracing the internet. Examples include Otis.com, which
includes a joint venture with a company that will help them put internet based
advertisements in high story elevators, the use of and investment in
Freemarkets.com for business to business (B2B) auctions, and the sale of
aircraft engine spare parts via the internet. No - we are not positioning United
Technologies as an internet company, but just highlighting that they are
embracing the "new economy" in what are thought of as hard core industrial
sectors. This has positive implications not just for this company, but for all
the "new economy" companies that will provide the infrastructure for this
revolution.
Warner Lambert was the shining star in an otherwise dismal large cap
pharmaceutical universe in 1999, and it remains one of our most overweight names
as we enter 2000. We continue to believe in the stock's value as part of a
combination with either Pfizer (hostile acquisition proposal) or American Home
Products (partner in agreed-to merger of equals). A combination with Pfizer,
which the market is clearly betting will occur, would produce a company with
by-far the industry's fastest earnings growth rate driven by 15%-plus sales
growth and enormous cost synergies. In addition, we believe consensus
stand-alone Warner Lambert earnings estimates remain too low given estimates
that are too conservative for Lipitor (cholesterol) and Neurontin (epilepsy)
sales.
Costco, the leader in wholesale club retailing, has significantly higher unit
volumes and faster same store sales growth then its competitors, Sam's Club (a
division of Wal-Mart) and BJ's. Costco is using the internet as another
distribution channel, and generally carries higher end product than is available
in the stores, which minimizes cannibalization. At the same time the core
business is not threatened since shipping costs would be too high on the large,
inexpensive items they carry. Costco also has a self perpetuating business
model, as it uses it's rapidly growing sales base to get better pricing from
vendors, which in turn is passed on to members, leading to even sharper pricing
and higher volume.
The domestic economy continues to create a "Goldilocks" not too hot, not too
cold backdrop that we believe will create many opportunities for growth
investing. Notwithstanding modest interest rate increases, precipitated in part
by the anticipated global recovery and the demand for capital this will create,
we see little inflation pressure due to: 1) Continued lack of pricing in all but
a few sectors, 2) Productivity increases driven by technology (and the internet
specifically) and restructuring; and 3) Increasing domestic budget surpluses.
The benign inflation outlook combined with the gradual "u-shaped" recoveries we
expect in many foreign markets, leads us to believe the outperformance of large
cap growth is likely to continue.
We believe the Portfolio is well positioned for the current environment. We are
about market weighted in technology, but also own some non-technology stocks
that we believe should benefit from the growth of the internet and the impact it
will have on other companies. We are believers in the New Economy, but believe
there are many Old Economy companies that are likely to benefit from the
internet. We believe the pharmaceutical sector's 10-year low relative valuations
combined with improving relative earnings momentum (as the market's earnings
growth decelerates to a more normalized pace), justifies our slightly overweight
position in healthcare.
Philip W. Friedman
PORTFOLIO MANAGER
Margaret K. Johnson
PORTFOLIO MANAGER
William S. Auslander
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
Equity Growth Portfolio
82
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- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (97.5%)
BASIC MATERIALS (0.2%)
CHEMICALS (DIVERSIFIED) (0.2%)
71,600 Monsanto Co. ....................................................... $ 2,551
------------------
CAPITAL GOODS (17.3%)
AEROSPACE/DEFENSE (1.2%)
290,000 General Dynamics Corp. ............................................. 15,297
------------------
ELECTRICAL EQUIPMENT (5.5%)
387,800 General Electric Co. ............................................... 60,012
(a)76,700 Solectron Corp. .................................................... 7,296
------------------
67,308
------------------
MANUFACTURING (DIVERSIFIED) (9.4%)
160,000 Textron, Inc. ...................................................... 12,270
1,606,600 Tyco International Ltd. ............................................ 62,457
627,400 United Technologies Corp. .......................................... 40,781
------------------
115,508
------------------
OFFICE EQUIPMENT & SUPPLIES (1.2%)
294,800 Pitney Bowes, Inc. ................................................. 14,243
------------------
TOTAL CAPITAL GOODS 212,356
------------------
COMMUNICATION SERVICES (4.4%)
TELECOMMUNICATIONS (LONG DISTANCE) (2.4%)
(a)540,600 MCI Worldcom, Inc. ................................................. 28,685
------------------
TELEPHONE (2.0%)
293,500 Bell Atlantic Corp. ................................................ 18,069
38,200 BellSouth Corp. .................................................... 1,788
(a)57,600 Pinnacle Holdings, Inc. ............................................ 2,441
48,700 SBC Communications, Inc. ........................................... 2,374
------------------
24,672
------------------
TOTAL COMMUNICATION SERVICES ............................................................. 53,357
------------------
CONSUMER CYCLICALS (9.5%)
RETAIL (BUILDING SUPPLIES) (3.6%)
645,900 Home Depot, Inc. ................................................... 44,285
------------------
RETAIL (GENERAL MERCHANDISE) (3.6%)
(a)288,400 Costco Wholesale Corp. ............................................. 26,316
259,800 Wal-Mart Stores, Inc. .............................................. 17,959
------------------
44,275
------------------
RETAIL (SPECIALTY) (0.8%)
205,010 Intimate Brands, Inc. .............................................. 8,841
------------------
RETAIL (SPECIALTY/APPAREL) (0.3%)
43,800 Tiffany & Co. ...................................................... 3,909
------------------
SERVICES (ADVERTISING/MARKETING) (1.2%)
147,800 Omnicom Group, Inc. ................................................ 14,780
------------------
TOTAL CONSUMER CYCLICALS 116,090
------------------
CONSUMER STAPLES (18.0%)
BEVERAGES (ALCOHOLIC) (0.8%)
148,800 Anheuser Busch Cos., Inc. .......................................... $ 10,546
------------------
BROADCASTING (TV, RADIO, CABLE) (11.6%)
(a)211,000 AMFM, Inc. ......................................................... 16,511
(a)446,900 AT&T Corp., Liberty Media Group, Class A-Common .................... 25,362
150,400 CBS Corp. .......................................................... 9,616
(a)206,500 Charter Communications, Inc., Class A .............................. 4,517
(a)483,300 Clear Channel Communications, Inc. ................................. 43,135
67,600 Comcast Corp., Class A-Common ...................................... 3,236
361,500 Comcast Corp., Class A-Special ..................................... 18,165
(a)246,800 MediaOne Group, Inc. ............................................... 18,957
(a)54,300 Tivo, Inc. ......................................................... 1,833
(a)35,400 TV Guide, Inc. ..................................................... 1,522
------------------
142,854
------------------
ENTERTAINMENT (2.2%)
366,300 Time Warner, Inc. .................................................. 26,534
------------------
FOODS (0.8%)
(a)164,300 Keebler Foods Co. .................................................. 4,621
75,100 Quaker Oats Co. .................................................... 4,928
------------------
9,549
------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) (1.7%)
28,500 Estee Lauder Cos., Class A ......................................... 1,438
177,800 Procter & Gamble Co. ............................................... 19,480
------------------
20,918
------------------
RESTAURANTS (0.2%)
(a)106,700 Brinker International, Inc. ........................................ 2,561
------------------
RETAIL (FOOD CHAINS) (0.3%)
(a)92,600 Safeway, Inc. ...................................................... 3,293
------------------
TOBACCO (0.4%)
201,000 Philip Morris Cos., Inc. ........................................... 4,661
------------------
TOTAL CONSUMER STAPLES ...................................................................... 220,916
------------------
FINANCIAL (5.2%)
BANKS (MAJOR REGIONAL) (1.2%)
359,400 Bank of New York Co., Inc. ......................................... 14,376
------------------
FINANCIAL (DIVERSIFIED) (3.4%)
131,700 American Express Co. ............................................... 21,895
363,075 Citigroup, Inc. .................................................... 20,174
------------------
42,069
------------------
INSURANCE (MULTI-LINE) (0.6%)
71,800 American International Group, Inc. ................................. 7,763
------------------
TOTAL FINANCIAL 64,208
------------------
HEALTHCARE (11.8%)
HEALTHCARE (DIVERSIFIED) (7.0%)
284,000 American Home Products Corp. ....................................... 11,200
403,900 Bristol-Myers Squibb Co. ........................................... 25,925
183,500 Johnson & Johnson .................................................. 17,089
388,000 Warner Lambert Co. ................................................. 31,792
------------------
86,006
------------------
HEALTHCARE (DRUGS - GENERIC & OTHERS) (0.8%)
(a)146,700 Amgen, Inc. ........................................................ 8,811
(a)20,700 Tularik, Inc. ...................................................... 670
------------------
9,481
------------------
HEALTHCARE (DRUGS - MAJOR PHARMS) (3.5%)
58,500 Eli Lilly & Co. .................................................... 3,890
(a)42,500 Forest Laboratories, Inc., Class A ................................. 2,611
242,900 Merck & Co., Inc. .................................................. 16,290
627,000 Pfizer, Inc. ....................................................... 20,338
------------------
$ 43,129
------------------
</TABLE>
The accompanying notes are integral part of the financial statements.
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Equity Growth Portfolio
83
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- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
HEALTHCARE (CONT.)
HEALTHCARE (MEDICAL PRODUCTS & SUPPLIES) (0.5%)
159,300 Medtronic, Inc. .................................................... $ 5,805
------------------
TOTAL HEALTHCARE............................................................................. 144,421
------------------
TECHNOLOGY (30.8%)
COMMUNICATION EQUIPMENT (7.7%)
364,800 American Tower Corp., Class A ...................................... 11,149
(a)111,200 CIENA Corp. ........................................................ 6,394
(a)18,700 Finisar Corp. ...................................................... 1,681
(a)80,000 JDS Uniphase Corp. ................................................. 12,905
202,200 Lucent Technologies, Inc. .......................................... 15,127
244,200 Motorola, Inc. ..................................................... 35,958
103,500 Nortel Networks Corp. .............................................. 10,454
------------------
93,668
------------------
COMPUTERS (HARDWARE) (1.0%)
(a)162,800 Sun Microsystems, Inc. ............................................. 12,607
------------------
COMPUTERS (NETWORKING) (6.6%)
(a)573,350 Cisco Systems, Inc. ................................................ 61,420
(a)21,300 Cobalt Networks, Inc. .............................................. 2,308
(a)43,200 Inktomi Corp. ...................................................... 3,834
(a)11,300 Juniper Networks, Inc. ............................................. 3,842
(a)22,000 YAHOO!, Inc. ....................................................... 9,519
------------------
80,923
------------------
COMPUTERS (SOFTWARE & SERVICES) (8.7%)
(a)227,400 America Online, Inc. ............................................... 17,154
(a)24,900 Internet Capital Group, Inc. ....................................... 4,233
(a)168,800 IXnet, Inc. ........................................................ 5,085
(a)549,800 Microsoft Corp. .................................................... 64,189
(a)103,300 Novell, Inc. ....................................................... 4,113
(a)20,000 OpenTV Corp. ....................................................... 1,605
(a)74,650 Oracle Corp. ....................................................... 8,365
(a)9,900 VA Linux Systems, Inc. ............................................. 2,046
------------------
106,790
------------------
ELECTRONICS (DEFENSE) (0.8%)
66,100 General Motors Corp., Class H ...................................... 6,346
(a)61,500 Litton Industries, Inc. ............................................ 3,067
------------------
9,413
------------------
ELECTRONICS (SEMICONDUCTORS) (4.6%)
423,300 Intel Corp. ........................................................ 34,843
(a)210,800 Maxim Integrated Products, Inc. .................................... 9,947
111,600 Texas Instruments, Inc. ............................................ 10,811
------------------
55,601
------------------
EQUIPMENT (SEMICONDUCTORS) (1.4%)
(a)125,500 Applied Materials, Inc. ............................................ 15,899
(a)13,400 KLA-Tencor Corp. ................................................... 1,493
------------------
17,392
------------------
TOTAL TECHNOLOGY 376,394
------------------
UTILITIES (0.3%)
ELECTRIC COMPANIES (0.3%)
88,400 Montana Power Co. .................................................. 3,188
------------------
TOTAL COMMON STOCKS (Cost $785,209) ......................................................... 1,193,481
------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENT (2.5%)
REPURCHASE AGREEMENT (2.5%)
$ 30,591 Chase Securities, Inc., 2.60%, dated
12/31/99, due 1/03/99, to be repurchased
at $30,598, collateralized by U.S.
Treasury Bond, 3.625%, due 7/15/02,
valued at $31,214
(Cost $30,591)............................................................ $30,591
------------------
TOTAL INVESTMENTS (100.0%) (Cost $815,800).................................................... 1,224,072
------------------
OTHER ASSETS (0.2%)
Receivable for Portfolio Shares Sold............................................ $1,996
Dividends Receivable............................................................ 482
Interest Receivable............................................................. 2
Other........................................................................... 42 2,522
-------
LIABILITIES (0.2%)
Investment Advisory Fees Payable................................................ (1,680)
Payable for Portfolio Shares Redeemed........................................... (556)
Administrative Fees Payable..................................................... (148)
Distribution Fees Payable....................................................... (129)
Directors' Fees and Expenses Payable............................................ (44)
Bank Overdraft Payable.......................................................... (26)
Custodian Fees Payable.......................................................... (19)
Other Liabilities............................................................... (98) (2,700)
------------------
NET ASSETS (100%)..................................................................... $ 1,223,894
==================
NET ASSETS CONSIST OF:
Paid in Capital........................................................................... $ 779,283
Distributions in Excess of Net Investment Income.......................................... (45)
Accumulated Net Realized Gain............................................................. 36,384
Unrealized Appreciation on Investments.................................................... 408,272
------------------
NET ASSETS.................................................................................... $ 1,223,894
==================
CLASS A:
--------
NET ASSETS..................................................................................... $ 977,005
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 39,011,127 outstanding $0.001 par value
shares (authorized 500,000,000 shares)................................................... $ 25.04
==================
CLASS B:
--------
NET ASSETS................................................................................... $ 246,889
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 9,915,093 outstanding $0.001 par value
shares (authorized 500,000,000 shares)................................................... $ 24.90
==================
</TABLE>
- ------------------------------------------------------------------------------
(a) -- Non-income producing security
The accompanying notes are an integral part of the financial statements.
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84
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INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
FOCUS EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Capital Goods (17.3%)
Communication Services (10.9%)
Consumer Cyclicals (7.5%)
Consumer Staples (12.2%)
Financial (3.4%)
Healthcare (10.6%)
Technology (32.4%)
Utilities (1.8%)
Other (3.9%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Lipper
Focus Equity S&P Large Cap
Portfolio-Class A 500 Index(1) Growth Index
----------------- ------------ ------------
<S> <C> <C> <C>
3/8/95 $ 500,000 $ 500,000 $ 500,000
12/31/95 __________ __________ __________
12/31/96 __________ __________ __________
12/31/97 __________ __________ __________
12/31/98 __________ __________ __________
12/31/99 $2,240,832 $1,660,882 $1,402,073
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE S&P 500 INDEX
AND THE LIPPER LARGE CAP GROWTH INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------
AVERAGE
ANNUAL
ONE SINCE
YEAR INCEPTION
------ ---------
<S> <C> <C>
PORTFOLIO -- CLASS A .......................... 46.44% 36.58%
PORTFOLIO -- CLASS B .......................... 46.13 32.98
S&P 500 INDEX -- CLASS A ...................... 21.04 28.31
LIPPER LARGE CAP GROWTH INDEX -- CLASS A ...... 34.82 31.07
S&P 500 INDEX -- CLASS B ...................... 21.04 26.18
LIPPER LARGE CAP GROWTH INDEX -- CLASS B ...... 34.82 29.67
</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 (formerly the Aggressive Equity Portfolio) seeks
capital appreciation through a concentrated, non-diversified portfolio of
corporate equity securities. Short sales and options can be used to enhance
performance.
For the year ended December 31, 1999, the Portfolio had a total return of 46.44%
for the Class A shares and 46.13% for the Class B shares compared to 21.04% for
the S&P 500 Index and 34.82% for the Lipper Large Cap Growth Index. For the
period from inception on March 8, 1995 through December 31, 1999, the average
annual total return for the Class A shares was 36.58% compared to 28.31% for the
S&P 500 Index and 31.07% for the Lipper Large Cap Growth Index. For the period
from inception on January 2, 1996 through December 31, 1999, the average annual
total return for the Class B shares was 32.98% compared to 26.18% for the S&P
500 Index and 29.67% for the Lipper Large Cap Growth Index.
The Portfolio generated excellent returns in 1999. Major contributors to the
strong fourth quarter results were Cisco Systems, Nortel Networks, General
Electric, Associated Group, and Home Depot. We note that these strong results
were achieved in spite of a major downward move in the price of top-10 holding
Tyco.
For the three months ended December 31, 1999, the Portfolio had a total return
of 19.14% for the Class A shares and 19.10% for the Class B shares compared to
14.88% for the S&P 500 Index and 25.54% for the Lipper Large Cap Growth Index.
U.S. equity markets again set records in 1999, led by large- capitalization
growth stocks in general and a white-hot technology sector in particular. The
S&P 500's 21.04% increase left the Index at an all-time high and 1999 marked the
10th consecutive up year for this Index. The compounded return for the past five
years is a stunning 250%. With the exception of a brief period in the Spring,
growth continued to outperform value throughout the year. The Russell 1000
Growth Index increased 32.3% in 1999, versus 5.4% for the Russell 1000 Value
Index. Investors
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS
OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES
MENTIONED. THE PORTFOLIO'S CONCENTRATION OF ITS ASSETS IN A SMALL NUMBER OF
ISSUERS AND ITS USE OF EQUITY-LINKED SECURITIES WILL SUBJECT IT TO GREATER
RISKS. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE.
PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
- --------------------------------------------------------------------------------
Focus Equity Portfolio
85
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INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
FOCUS EQUITY PORTFOLIO (CONT.)
continue to believe and invest in the sustainability of the growth of the
largest companies, and for the most part, these companies continue to deliver
stellar results. The largest 50 stocks in the S&P 500 had a forward
price-to-earnings of 33.2 at year-end, while the price-to-earnings of the
remaining 450 stocks was 18.6. Excluding technology, the S&P 500 would have only
risen about 7.5%. The list of top contributors to S&P 500 performance is
dominated by tech names such as Microsoft (the top contributor in 1999), Cisco
(#2), Oracle Systems (#5), Qualcomm (#7), Sun Microsystems (#8), and Intel
(#10). The performance of the market remained narrow in 1999, although some
healthy broadening did occur late in the year. The top-30 stocks in the Index
accounted for 100% of the total return, and an equal-weighted return (versus a
market-capitalization weighted return) would have returned about 11.9% for the
year. With a rebound in November and December, the Russell 2000 Index of small
and mid-cap stocks returned 21.3%.
The Portfolio maintained and benefited from its philosophy of opportunistic
concentration driven by bottom-up fundamental company analysis and an emphasis
on gaining an "information edge" in the sectors and companies in which we
invest. At year-end, the Portfolio's top 10 holdings accounted for approximately
47% of net assets (versus 49% at year-end 1998) and the Portfolio held positions
in 40 stocks (versus 34 names held at year-end 1998). Cash was slightly above
normal levels at almost 4% of assets at year-end due to a desire to raise
liquidity in front of potential Y2K dislocations that fortunately did not
materialize. The Portfolio continues to reflect a mix of classic growth stocks
such as Microsoft (5.7% of net assets at year end), Cisco Systems (5.3%),
General Electric (5.2%), Home Depot (4.0%) and less well known growth names such
as Tyco International (5.7%), Clear Channel Communications (4.3%), and United
Technologies (4.0%). We were pleased with the Portfolio's fairly broad-based
performance, particularly in the context of a market that continued to be
dominated by a small number of very large capitalization stocks. No single stock
accounted for more than 11% of the Portfolio's absolute performance. In
addition, over 65% of the Portfolio's relative outperformance was driven by
stock picking versus sector allocation. The Portfolio's very consistent
outperformance in 1999 was also pleasing to us: the Portfolio outperformed the
S&P 500 in each quarter of the year.
Technology dominated the headlines and the sector performance charts in 1999.
Given the tremendous outperformance of the sector, technology stocks now account
for 30% of the S&P 500's total market capitalization, up from 19% at the end of
1998 and 10% five years ago. Given technology's extremely strong performance,
one might find two things surprising. First, only about 33% of the Portfolio's
1999 outperformance relative to the S&P 500 was attributable to technology
holdings. Second, about 70% of that relative outperformance was attributable to
successful stock picking within the group as the Portfolio maintained a
relatively neutral posture toward technology versus the Index weight throughout
most of the year. We believe this reflects well on our bottom-up, research
intensive approach to stock picking.
Avoiding prominent underperformers, while not as sexy as finding the next
"home-run", remains important to our success. In a bull market, it is very easy
to focus excessive attention on picking winning stocks. Simple math reinforces
our view that equal effort should be spent attempting to avoid those companies
with potential disappointing fundamental changes, particularly in a current
environment, which has little tolerance for "negative newsflow". In fact, much
of our outperformance in 1999 was attributable to avoiding companies with
deteriorating fundamentals. Prominent underperformers which we largely avoided
owning were Coke, Gillete, Clorox, McDonalds, Compaq, Banc One, Bank of America
and First Union.
We believe Tyco remains an undervalued and misunderstood growth stock. Fears
of accounting irregularities prompted by a short seller's report and a
subsequently announced informal SEC inquiry resulted in a 22% decline in the
stock's price in the fourth quarter (although Tyco was up 5% for the year). We
continue to believe in the management of this company and in the growth of the
company's underlying cash flows. We emphasize that Tyco has continued to
outperform analyst expectations for earnings and cash flow in the back half of
1999.
Clear Channel Communications, another large holding in the Portfolio, continues
to reap the cash flow rewards of operating and consolidating the radio, outdoor
advertising and television business. Over the years that we have been invested
in this dynamic growth company, Clear Channel has become an opportunistic
dominant player in global media. This strong management team, which is well
motivated by their multi-billion dollar position in the company's stock,
continues to find ways to expand the company's platform in ways that are
accretive to the wealth of all stock holders. The pending AMFM Inc. acquisition
is another move to further consolidation in the radio industry that we believe
changes, yet again, to the advantage of Clear Channel, the powerful proposition
that can be delivered to
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INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
FOCUS EQUITY PORTFOLIO (CONT.)
its clients. With over 800 radio stations around the country, this company can
deliver a ubiquitous message in a targeted way at a lower cost than most other
advertising mediums. The imbedded internet opportunity within Clear Channel, a
theme common to many of our holdings, should yet again drive growth in ways not
fully appreciated. This is likely to manifest itself in advertising and
e-commerce opportunities. We therefore remain overweight the broadcasting group,
including companies such as Time Warner and Liberty Media.
United Technologies remains a top ten holding of the Portfolio. This "old
economy" company is consistently pumping out 15% plus annual earnings growth
despite its Asian exposure in 1998 and its commercial aerospace exposure in
1999. The company is embracing the internet. Examples include Otis.com, which
includes a joint venture with a company that will help them put internet based
advertisements in high story elevators, the use of and investment in
Freemarkets.com for business to business (B2B) auctions, and the sale of
aircraft engine spare parts via the internet. No - we are not positioning United
Technologies as an internet company, but just highlighting that they are
embracing the "new economy" in what are thought of as hard core industrial
sectors. This has positive implications not just for this company, but for all
the "new economy" companies that will provide the infrastructure for this
revolution.
Warner Lambert was the shining star in an otherwise dismal large cap
pharmaceutical universe in 1999, and it remains one of our most overweight names
as we enter 2000. We continue to believe in the stock's value as part of a
combination with either Pfizer (hostile acquisition proposal) or American Home
Products (partner in agreed-to merger of equals). A combination with Pfizer,
which the market is clearly betting will occur, would produce a company with
by-far the industry's fastest earnings growth rate driven by 15%-plus sales
growth and enormous cost synergies. In addition, we believe consensus
stand-alone Warner Lambert earnings estimates remain too low given estimates
that are too conservative for Lipitor (cholesterol) and Neurontin (epilepsy)
sales.
Costco, the leader in wholesale club retailing, has significantly higher unit
volumes and faster same store sales growth then its competitors, Sam's Club (a
division of Wal Mart) and BJ's. Costco is using the internet as another
distribution channel, and generally carries higher end product than is available
in the stores, which minimizes cannibalization. At the same time the core
business is not threatened since shipping costs would be too high on the large,
inexpensive items they carry. Costco also has a self perpetuating business
model, as it uses its rapidly growing sales base to get better pricing from
vendors, which in turn is passed on to members, leading to even sharper pricing
and higher volume.
The domestic economy continues to create a "Goldilocks" not too hot, not too
cold backdrop that we believe will create many opportunities for growth
investing. Notwithstanding modest interest rate increases, precipitated in part
by the anticipated global recovery and the demand for capital this will create,
we see little inflation pressure due to: 1) Continued lack of pricing in all but
a few sectors, 2) Productivity increases driven by technology (and the internet
specifically) and restructuring; and 3) Increasing domestic budget surpluses.
The benign inflation outlook combined with the gradual "u-shaped" recoveries we
expect in many foreign markets, lead us to believe the outperformance of large
cap growth is likely to continue.
We believe the Portfolio is well positioned for the current environment. We are
about market weighted in technology, but also own some non-technology stocks
that we believe should benefit from the growth of the internet and the impact it
will have on the companies. We are believers in the "new economy", but believe
there are many "old economy" companies that are likely to benefit from the
internet. We believe the pharmaceutical sector's 10-year low relative valuations
combined with improving relative earnings momentum (as the market's earnings
growth decelerates to a more normalized pace), justifies our slightly overweight
position in healthcare.
Philip W. Friedman
PORTFOLIO MANAGER
William S. Auslander
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
Focus Equity Portfolio
87
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- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FOCUS EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
(000)
- ------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (96.1%)
CAPITAL GOODS (17.3%)
AEROSPACE & DEFENSE (1.0%)
29,200 General Dynamics Corp. ............ $ 1,540
----------------
ELECTRICAL EQUIPMENT (5.2%)
53,600 General Electric Co. .............. 8,295
----------------
MANUFACTURING (DIVERSIFIED) (11.1%)
27,800 Textron, Inc. ..................... 2,132
232,700 Tyco International Ltd. 9,046
98,500 United Technologies Corp. 6,403
----------------
17,581
----------------
TOTAL CAPITAL GOODS 27,416
----------------
COMMUNICATION SERVICES (10.9%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (5.1%)
(a)12,500 Associated Group, Inc., Class A ... 1,141
(a)75,300 Associated Group, Inc., Class B ... 6,927
----------------
8,068
----------------
TELECOMMUNICATIONS (LONG DISTANCE) (3.1%)
72,500 Sprint Corp. ...................... 4,880
----------------
TELEPHONE (2.7%)
71,000 Bell Atlantic Corp. ............... 4,371
----------------
TOTAL COMMUNICATION SERVICES .......................... 17,319
----------------
CONSUMER CYCLICALS (7.5%)
RETAIL (BUILDING SUPPLIES) (4.0%)
91,950 Home Depot, Inc. .................. 6,305
----------------
RETAIL (GENERAL MERCHANDISE) (2.5%)
(a)42,400 Costco Wholesale Corp. ............ 3,869
----------------
RETAIL (SPECIALTY) (1.0%)
37,500 Intimate Brands, Inc. ............. 1,617
----------------
TOTAL CONSUMER CYCLICALS .............................. 11,791
----------------
CONSUMER STAPLES (12.2%)
BROADCASTING (TV, RADIO, CABLE) (7.7%)
(a)28,400 AMFM, Inc. ........................ 2,222
(a)24,900 AT&T Corp.- Liberty Media,
Class A ................................. 1,413
(a)77,100 Clear Channel Communications,
Inc. ..................................... 6,881
(a)21,100 MediaOne Group, Inc. .............. 1,621
----------------
12,137
----------------
ENTERTAINMENT (2.1%)
46,800 Time Warner, Inc. ................. 3,390
----------------
FOODS (0.7%)
(a)39,100 Keebler Foods Co. ................. 1,100
----------------
HOUSEHOLD PRODUCTS (NON-DURABLES) (1.7%)
25,200 Procter & Gamble Co. .............. 2,761
----------------
TOTAL CONSUMER STAPLES ................................ 19,388
----------------
FINANCIAL (3.4%)
BANKS (MAJOR REGIONAL) (1.8%)
71,100 Bank of New York Co., Inc. ........ 2,844
----------------
FINANCIAL (DIVERSIFIED) (1.6%)
15,300 American Express Co. .............. 2,544
----------------
TOTAL FINANCIAL ....................................... 5,388
----------------
HEALTHCARE (10.6%)
HEALTHCARE (DIVERSIFIED) (7.5%)
41,100 American Home Products Corp. ...... 1,621
69,000 Bristol-Myers Squibb Co. .......... $ 4,429
70,000 Warner Lambert Co. ................ 5,735
----------------
11,785
----------------
HEALTHCARE (DRUGS - MAJOR PHARMS) (3.1%)
30,600 Merck & Co., Inc. ................. 2,052
89,600 Pfizer, Inc. ...................... 2,907
----------------
4,959
----------------
TOTAL HEALTHCARE ...................................... 16,744
----------------
TECHNOLOGY (32.4%)
COMMUNICATION EQUIPMENT (11.0%)
(a)85,400 American Tower Corp., Class A ..... 2,610
(a)11,600 JDS Uniphase Corp. ................ 1,871
29,000 Lucent Technologies, Inc. ......... 2,170
39,100 Motorola, Inc. .................... 5,758
49,400 Nortel Networks Corp. ............. 4,989
----------------
17,398
----------------
COMPUTERS (HARDWARE) (1.3%)
(a)26,800 Sun Microsystems, Inc. ............ 2,075
----------------
COMPUTERS (NETWORKING) (5.3%)
(a)77,800 Cisco Systems, Inc. ............... 8,334
----------------
COMPUTERS (SOFTWARE & SERVICES) (7.0%)
(a)26,900 America Online, Inc. .............. 2,029
(a)77,000 Microsoft Corp. ................... 8,990
----------------
11,019
----------------
ELECTRONICS (SEMICONDUCTORS) (6.4%)
52,500 Intel Corp. ....................... 4,321
(a)87,600 Maxim Integrated Products, Inc. ... 4,134
17,500 Texas Instruments, Inc. ........... 1,695
----------------
10,150
----------------
EQUIPMENT (SEMICONDUCTORS) (1.4%)
(a)17,600 Applied Materials, Inc. ........... 2,230
----------------
TOTAL TECHNOLOGY 51,206
----------------
UTILITIES (1.8%)
ELECTRIC COMPANIES (1.8%)
80,900 Montana Power Co. ................. 2,917
----------------
TOTAL COMMON STOCKS (COST $118,739) ................... 152,169
----------------
<CAPTION>
FACE
AMOUNT
(000)
SHORT-TERM INVESTMENT (4.0%)
REPURCHASE AGREEMENT (4.0%)
$ 6,343 Chase Securities, Inc., 2.60%,
dated 12/31/99, due 1/3/00, to be
repurchased at $6,344, collateralized by
U.S. Treasury Bonds, 6.125%, due 12/31/01,
valued at $6,477 (Cost $6,343) ........... 6,343
----------------
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Focus Equity Portfolio
88
<PAGE>
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INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FOCUS EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
AMOUNT
(000)
- ------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (100.1%) (COST $125,082) ............ $ 158,512
---------------
OTHER ASSETS (0.1%)
Receivable for Portfolio Shares Sold ..... $ 114
Dividends Receivable ..................... 52
Other .................................... 5 171
-----------
LIABILITIES (-0.2%)
Investment Advisory Fees Payable ......... (261)
Payable for Portfolio Shares Redeemed .... (41)
Administrative Fees Payable .............. (18)
Directors' Fees and Expenses Payable ..... (12)
Distribution Fees Payable ................ (12)
Custodian Fees Payable ................... (6)
Bank Overdraft Payable ................... (3)
Other Liabilities ........................ (34) (387)
----------- ---------------
NET ASSETS (100%) ..................................... $ 158,296
---------------
---------------
NET ASSETS CONSIST OF:
Paid in Capital ....................................... $ 116,210
Accumulated Net Investment Loss ....................... (12)
Accumulated Net Realized Gain ......................... 8,668
Unrealized Appreciation on Investments and Foreign
Currency Translations ............................... 33,430
---------------
NET ASSETS ............................................ $ 158,296
---------------
---------------
CLASS A:
NET ASSETS ............................................ $ 136,128
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 6,910,367 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .............. $ 19.70
---------------
---------------
CLASS B:
NET ASSETS ............................................ $ 22,168
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,136,855 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .............. $ 19.50
---------------
---------------
- ------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Focus Equity Portfolio
89
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
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INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Auto & Transportation (1.5%)
Consumer Discretionary (29.9%)
Financial Services (7.8%)
Healthcare (2.2%)
Producer Durables (12.7%)
Technology (30.6%)
Utilities (10.6%)
Other (4.7%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Small Cap Russell
Growth Portfolio 2000 Index(1)
---------------- -------------
<S> <C> <C>
11/1/89* $ 500,000 $ 500,000
10/31/90 __________ __________
10/31/91 __________ __________
10/31/92 __________ __________
12/31/92 __________ __________
12/31/93 __________ __________
12/31/94 __________ __________
12/31/95 __________ __________
12/31/96 __________ __________
12/31/97 __________ __________
12/31/98 __________ __________
12/31/99 $3,134,586 $1,773,312
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE RUSSELL 2000 INDEX(1)
- -------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------
AVERAGE AVERAGE AVERAGE
ANNUAL ANNUAL ANNUAL
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
------ -------- ---------- ---------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A 96.45% 31.00% 19.43% 19.78%
PORTFOLI -- CLASS B 95.97 N/A N/A 30.09
INDEX -- CLASS A 21.26 16.69 13.40 13.26
INDEX -- CLASS B 21.26 N/A N/A 13.87
</TABLE>
1. The Russell 2000 Index is comprised of the 2,000 smallest companies in the
Russell 3000 Index. The companies have an average market capitalization of
approximately $600 million.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Small Company Growth Portfolio (formerly the Emerging Growth Portfolio)
invests primarily in growth- oriented equity securities of small- to medium-
sized domestic corporations and, to a limited extent, foreign corporations. Such
companies generally have market capitalizations ranging from $200 million to $2
billion.
For the year ended December 31, 1999, the Portfolio had a total return of 96.45%
for the Class A shares and 95.97% for the Class B shares compared to 21.26% for
the Russell 2000 Index (the "Index"). For the five-year period ended December
31, 1999, the average annual total return for the Class A shares was 31.00%
compared to 16.69% for the Index. For the ten-year period ended December 31,
1999, the average annual total return for the Class A shares was 19.43% compared
to 13.40% for the Index. For the period from inception on November 1, 1989
through December 31, 1999, the average annual total return for the Class A
shares was 19.78% compared to 13.26% for the Index. For the period from
inception on January 2, 1996 through December 31, 1999, the average annual total
return for the Class B shares was 30.09% compared to 13.87% for the Index.
For the three months ended December 31, 1999 the Portfolio had a total return of
48.70% for the Class A shares and 48.55% for the Class B shares compared to
18.44% for the Index.
Bottom up stock picking continues to drive the Portfolio's results. During the
fourth quarter, roughly 60% of our relative outperformance was the result of
stock selection, while the remainder was attributable to sector allocation,
primarily the result of our overweight position in technology and underweight
position in financial services. Our best performers for the fourth quarter
included five positions in our current top ten holdings--Pegasus Communications,
American Tower, Pinnacle Holdings, Micromuse and Associated Group-- which are
either directly or indirectly benefiting from the explosive growth in wireless
communications.
For the year, the impact of our individual stock picking was even more
pronounced. Stock selection accounted for roughly 73% of the Portfolio's
relative outperformance in
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S
FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
- --------------------------------------------------------------------------------
Small Company Growth Portfolio
90
<PAGE>
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INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO (CONT.)
1999. Specifically, five top ten positions-- Corporate Executive Board,
Associated Group, RF Micro Devices, Micromuse and Nielsen Media Research--
contributed over 20% to the Portfolio's total return for the year. Each of these
companies' businesses are distinct from one another, demonstrating the
Portfolio's diversity and versatility:
- Corporate Executive Board is a business services company, which provides
best practices research to Fortune 500 firms. Because of its subscription
based business model and conservative revenue recognition policies,
Corporate Executive Board's earnings significantly understate its free
cash flow generation capability.
- Associated Group is a closely held holding company with a valuable
portfolio of telecommunication interests. In the beginning of June,
Liberty Media agreed to acquire Associated's shares primarily to gain
control of its Teligent subsidiary and its ability to offer customers
wireless voice and data communication solutions.
- RF Micro Devices (RFMD) designs, develops, manufactures and markets
proprietary radio frequency integrated circuits, for wireless
communications applications such as cellular and personal communication
services, cordless telephony, wireless local area networks, wireless local
loop, industrial radios, wireless security and remote meter reading. Their
unique position as a leading component supplier to wireless handset
manufacturers such as Nokia, Motorola and Ericcson, in our opinion makes
RFMD a pure play on the future growth of wireless.
- Micromuse is a technology company, which develops enterprise software
solutions for medium- to-large sized corporations. The company develops
markets, and supports scalable, configurable, rapidly deployable, software
solutions for the effective monitoring and management of multiple elements
underlying an enterprise's information technology infrastructure.
Enhancing such customers as Cisco and Lucent, Micromuse is a play on
leading telecomm equipment manufacturers rapid adoption and deployment of
software network management solutions.
- Nielsen Media is a media company which has a monopoly on television
ratings in the United States and a rapidly growing internet ratings
business. During the third quarter the company was acquired by VNU, a
Dutch marketing concern, in order to increase its exposure to internet
centric businesses.
We continue to view the internet as an exciting new medium with the potential to
fundamentally change the way businesses operate; however, our exposure to "pure
play" internet stocks remains minimal due to the extremely dynamic and
unpredictable nature of these business models. We believe that most of the
companies in our Portfolio are well positioned to potentially benefit from the
continuing proliferation of the internet, either through accelerating revenue
growth and/or lower operating costs.
At December 31, there were 97 names in the Portfolio, with the top 10
representing roughly 27% of the net assets.
Alexander L. Umansky
PORTFOLIO MANAGER
Dennis P. Lynch
PORTFOLIO MANAGER
January 2000
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91
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STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (95.3%)
AUTO & TRANSPORTATION (1.5%)
TRANSPORTATION MISCELLANEOUS (1.5%)
34,800 C.H. Robinson Worldwide, Inc. ....... $ 1,383
--------------
CONSUMER DISCRETIONARY (29.9%)
ADVERTISING AGENCIES (2.1%)
(a)102,862 R.H. Donnelly Corp. ................. 1,941
--------------
COMMERCIAL INFORMATION SERVICES (0.4%)
(a)3,800 QRS Corp. ........................... 399
--------------
COMMUNICATIONS & MEDIA (0.7%)
(a)13,300 Radio Unica Communications Corp. .... 384
(a)6,900 Spanish Broadcasting System Inc.,
Class A ........................... 278
--------------
662
--------------
ENTERTAINMENT (1.5%)
(a)89,600 Four Media Co. ...................... 1,333
--------------
HOTEL/MOTEL (0.7%)
12,400 Four Seasons Hotels, Inc. ........... 660
--------------
HOUSEHOLD FURNISHINGS (0.4%)
(a)14,400 Blyth Industries, Inc. .............. 354
--------------
LEISURE TIME (3.7%)
26,800 American Classic Voyages Co. ........ 938
65,564 Cedar Fair L.P. ..................... 1,270
(a)33,400 Championship Auto Racing Teams,
Inc. .............................. 768
(a)17,300 Ducati Motor Holdings, Inc. ADR ..... 438
--------------
3,414
--------------
RADIO & TV BROADCASTERS (9.0%)
(a)27,100 Acme Communications, Inc. ........... 901
(a)3,900 Citadel Communications Corp. ........ 253
(a)9,700 Cumulus Media, Inc., Class A ........ 492
(a)6,800 Emmis Communications Corp., Class A . 848
(a)18,500 Pegasus Communications Corp. ........ 1,808
(a)5,900 Radio One, Inc. ..................... 543
(a)24,700 TCI Satellite Entertainment, Inc. ... 395
(a)3,800 Tivo, Inc. .......................... 128
(a)8,900 ValueVision International, Inc., .... 510
Class A
(a)22,288 Westwood One, Inc. .................. 1,694
(a)13,400 Young Broadcasting, Inc., Class A ... 684
--------------
8,256
--------------
RESTAURANTS (2.8%)
(a)36,800 P.F. Chang's China Bistro, Inc. ..... 915
(a)28,200 Papa John's International, Inc. ..... 735
(a)33,146 Sonic Corp. ......................... 945
--------------
2,595
--------------
RETAIL (4.1%)
(a)81,700 David's Bridal, Inc. ................ 914
(a)25,800 InterTAN, Inc. ...................... 674
(a)46,500 Jack in the Box, Inc. ............... 962
(a)17,500 Linens' n Things, Inc. .............. 518
(a)38,700 Tuesday Morning Corp. ............... 714
--------------
3,782
--------------
SERVICES: COMMERCIAL (4.5%)
(a)5,500 Martha Stewart Living, Class A ...... 132
(a)71,100 Corporate Executive Board Co. ....... $ 3,973
--------------
4,105
--------------
TOTAL CONSUMER DISCRETIONARY ............................... 27,501
--------------
FINANCIAL SERVICES (7.8%)
INSURANCE: MULTI-LINE (1.2%)
41,400 Reinsurance Group of America, Inc.
(Non-Voting) ...................... 1,149
--------------
INVESTMENT MANAGEMENT COMPANIES (1.5%)
37,692 PIMCO Advisors Holdings L.P. ........ 1,421
--------------
REAL ESTATE INVESTMENT TRUSTS (REIT) (3.5%)
(a)74,900 Pinnacle Holdings, Inc. ............. 3,174
--------------
RENTAL & LEASING SERVICES: COMMERCIAL (1.6%)
(a)23,200 First Sierra Financial, Inc. ........ 397
(a)81,968 Indigo Aviation AB ADR .............. 1,045
--------------
1,442
--------------
TOTAL FINANCIAL SERVICES ................................... 7,186
--------------
HEALTHCARE (2.2%)
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (2.0%)
17,800 Cooper Cos., Inc. ................... 536
(a)13,600 Molecular Devices Corp. ............. 707
(a)10,600 Techne Corp. ........................ 584
--------------
1,827
--------------
MISCELLANEOUS HEALTHCARE (0.2%)
(a)6,900 Tularik, Inc. ....................... 223
--------------
TOTAL HEALTHCARE ........................................... 2,050
--------------
PRODUCER DURABLES (12.7%)
AEROSPACE (0.7%)
19,900 Cordant Technologies, Inc. .......... 657
--------------
ELECTRICAL EQUIPMENT & COMPONENTS (3.2%)
(a)4,300 C-COR.net Corporation ............... 329
(a)15,600 Commscope, Inc. ..................... 629
(a)28,900 RF Micro Devices, Inc. .............. 1,978
--------------
2,936
--------------
MACHINERY & ENGINEERING (0.3%)
(a)4,500 Asyst Technologies, Inc. ............ 295
--------------
PRODUCTION TECHNOLOGY EQUIPMENT (1.6%)
(a)9,600 Credence Systems Corp. .............. 830
(a)15,068 Dionex Corp. ........................ 621
--------------
1,451
--------------
TELECOMMUNICATIONS EQUIPMENT (6.9%)
86,840 American Tower Corp., Class A ....... 2,654
(a)16,000 L-3 Communications Corp. ............ 666
(a)111,100 SBA Communications Corp. ............ 2,083
(a)15,100 Terayon Communication Systems,
Inc. .............................. 949
--------------
6,352
--------------
TOTAL PRODUCER DURABLES .................................... 11,691
--------------
TECHNOLOGY (30.6%)
COMMUNICATIONS TECHNOLOGY (12.3%)
(a)25,400 Advanced Fibre Communications,
Inc. .............................. 1,135
(a)16,200 AudioCodes Ltd. ..................... 1,490
(a)8,400 Clearnet Communications, Inc.,
Class A ........................... 289
(a)19,800 CoreComm Ltd. ....................... 1,176
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Small Company Growth Portfolio
92
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INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<S> <C>
TECHNOLOGY (CONT.)
COMMUNICATIONS TECHNOLOGY (CONT.)
(a)19,400 CTC Communications Group, Inc. ...... $ 757
(a)6,100 Efficient Networks, Inc. ............ 415
(a)12,700 Harmonic Lightwaves, Inc. ........... 1,206
(a)21,900 IPC Information Systems, Inc. ....... 1,555
(a)19,300 Maker Communications, Inc. .......... 825
(a)20,500 Network Plus Corp. .................. 430
(a)32,800 Nuevo Grupo Iusacell S.A. de
C.V.ADR ........................... 490
(a)14,100 Proxim, Inc. ....................... 1,551
--------------
11,319
--------------
COMPUTER SERVICES SOFTWARE & SYSTEMS (9.9%)
(a)6,900 Allaire Corp. ....................... 1,001
(a)7,700 Deltathree.com, Inc., Class A ....... 198
(a)1,900 eSpeed, Inc., Class A ............... 68
(a)10,700 Informatica Corp. ................... 1,138
(a)11,400 Micromuse, Inc. ..................... 1,938
(a)2,000 NetIQ Corp. ......................... 104
(a)2,300 QLogic Corp. ........................ 368
(a)152,200 SAGA Systems, Inc. .................. 3,034
(a)17,500 Visio Corp. ......................... 831
(a)134,000 Warp 10 Technologies, Inc. .......... 402
--------------
9,082
--------------
COMPUTER TECHNOLOGY (1.9%)
(a)13,700 SanDisk Corp. 1,319
(a)9,400 Verio, Inc. 434
--------------
1,753
--------------
ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS (6.5%)
(a)23,400 Applied Science and Technology,
Inc. .............................. 778
(a)19,600 ASM International N.V. .............. 451
(a)22,500 Cirrus Logic, Inc. .................. 299
(a)5,200 Lattice Semiconductor Corp. ......... 245
(a)10,400 Micrel, Inc. ........................ 592
(a)9,400 Powerwave Technologies, Inc. ........ 549
(a)6,200 SDL, Inc. ........................... 1,352
(a)23,050 TranSwitch Corp. .................... 1,672
--------------
5,938
--------------
TOTAL TECHNOLOGY............................................ 28,092
--------------
UTILITIES (10.6%)
UTILITIES: ELECTRICAL (0.9%)
23,936 Montana Power Co. ................... 863
--------------
UTILITIES: TELECOMMUNICATIONS (9.7%)
(a)14,800 Advanced Radio Telecom Corp. ........ 355
(a)5,900 Airgate PCS, Inc. ................... 311
(a)24,532 Associated Group, Inc., Class B ..... 2,257
(a)14,000 Bell Canada International, Inc. ..... 318
60,800 CFW Communications Co. .............. 2,113
(a)8,400 Commonwealth Telephone
Enterprises, Inc. ................. $444
(a)49,200 IXnet, Inc. ......................... 1,482
(a)12,300 Microcell Telecommunications, Inc. .. 404
(a)3,200 Millicom International Cellular
S.A. .............................. 200
(a)8,700 Price Communications Corp. .......... 242
(a)8,300 Rural Cellular Corp. ................ 751
--------------
8,877
--------------
--------------
TOTAL UTILITIES ............................................ 9,740
--------------
TOTAL COMMON STOCKS (COST $59,603) ......................... 87,643
--------------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<S> <C> <C>
SHORT-TERM INVESTMENT (4.8%)
REPURCHASE AGREEMENT (4.8%)
$ 4,435 Chase Securities, Inc., 2.60%, dated
12/31/99, due 1/03/00, to be repurchased at
$4,436, collateralized by U.S. Treasury
Bonds, 6.125%, due 12/31/01, valued at
$4,531 (Cost $4,435) ........................ 4,435
--------------
TOTAL INVESTMENTS (100.1%) (COST $64,038) .................. 92,078
--------------
OTHER ASSETS (0.5%)
Cash ........................................ $79
Receivable for Investments Sold ............. 172
Receivable for Portfolio Shares Sold ........ 129
Dividends Receivable ........................ 26
Other ....................................... 10 416
------------
LIABILITIES (-0.6%)
Payable for Investments Purchased ........... (290)
Investment Advisory Fees Payable ............ (134)
Payable for Portfolio Shares Redeemed ....... (33)
Professional Fees Payable ................... (26)
Custodian Fees Payable ...................... (13)
Administrative Fees Payable ................. (12)
Directors' Fees and Expenses Payable ........ (7)
Distribution Fees Payable ................... (6)
Other Liabilities ........................... (5) (526)
------------ --------------
NET ASSETS (100%) .......................................... $ 91,968
--------------
--------------
NET ASSETS CONSIST OF:
Paid in Capital ............................................ $ 57,059
Accumulated Net Investment Loss ............................ (7)
Accumulated Net Realized Gain .............................. 6,876
Unrealized Appreciation on Investments and Foreign
Currency Translations .................................... 28,040
--------------
NET ASSETS ................................................. $ 91,968
--------------
--------------
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Small Company Growth Portfolio
93
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
AMOUNT
(000)
- ---------------------------------------------------------------------------
<S> <C>
CLASS A:
NET ASSETS $ 77,193
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 5,797,138 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $ 13.32
--------------
--------------
CLASS B:
NET ASSETS $14,775
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,135,663 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $ 13.01
--------------
--------------
- ---------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing security
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Small Company Growth Portfolio
94
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------
INVESTMENT OVERVIEW
- -----------------------------------------------------------
TECHNOLOGY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Biotechnology (0.1%)
Data Communications (30.4%)
Data Storage & Processing (2.3%)
Electronic Equipment (8.5%)
Information Processing (1.5%)
Micro Computer Mtg (0.9%)
Semiconductor Capital Equipment Mtg (3.5%)
Semiconductor Mtg (11.7%)
Software Products (27.5%)
Technology Other (9.5%)
Test, Analysis & Instrumentation (0.4%)
Other (3.7%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $250,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Technology Technology S&P
Portfolio-Class A Portfolio-Class B Index(1)
----------------- ----------------- ---------
<S> <C> <C> <C>
9/16/96* $ 250,000 $ 50,000 $ 250,000
12/31/96 ________ ________ ________
12/31/97 ________ ________ ________
12/31/98 ________ ________ ________
12/31/99 $1,474,181 $ 292,912 $ 564,914
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different fees assessed to that class. The S&P 500 Index value at
December 31, 1999 assumes a minimum investment of $250,000; if a minimum initial
investment of $50,000 (the minimum investment for Class B shares) is assumed,
the value at December 31, 1999 would be $241,040.
PERFORMANCE COMPARED TO THE S&P 500 INDEX AND THE LIPPER
SCIENCE AND TECHNOLOGY INDEX(1)
- --------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION
------- ---------------
<S> <C> <C>
PORTFOLIO -- CLASS A............. 160.62% 71.47%
PORTFOLIO -- CLASS B............. 160.26 71.13
S&P 500 INDEX.................... 21.04 28.15
LIPPER SCIENCE &
TECHNOLOGY FUNDS INDEX........... 114.17 49.14
</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. The Lipper Science and
Technology Funds Index is a composite index of mutual funds that invest at
least 65% of their assets in science and technology stocks.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the Technology Portfolio is to achieve long-term
capital appreciation by investing primarily in equity securities of companies
expected to benefit from their involvement in technology and technology-related
industries. The focus of the Portfolio is to identify significant long-term
technology trends and to invest in those premier companies we believe are
positioned to materially gain from these trends. Stocks selected for the
Portfolio are also expected to meet comprehensive selection criteria. The
Portfolio may invest up to 35% of its total investments in securities of foreign
companies to participate sufficiently in the global technology market.
For the year ended December 31, 1999, the Portfolio had a total return of
160.62% for the Class A shares and 160.26% for the Class B shares compared to
21.04% for the S&P 500 Index and 114.17% for the Lipper Science and Technology
Funds Index. For the period from inception on September 16, 1996 through
December 31, 1999, the average annual total return for the Class A shares was
71.47% and 71.13% for the Class B shares compared to 28.15% for the S&P 500
Index and 49.14% for the Lipper Science and Technology Funds Index.
During 1999, pursuant of our strategy, despite interest rate concerns and fears
of a Y2K meltdown, served the Portfolio well. In 1999, the Portfolio generated
excellent absolute and relative performance during both the up and down
movements of the technology sector.
Our investments in 1999 focused on market leaders enabling broadband
connectivity, wireless communications and internet communications. As reflected
in the top positions of the Portfolio, we predominantly invested in the
technology "arms dealers" rather than investing in those fighting the war. For
example, one of our top performing positions in 1999 was JDS Uniphase, the
leading optical components manufacturer in the world. Optical products
introduced by JDS Uniphase have enabled communications systems to transmit
significantly more data at exponentially greater speed. JDS Uniphase is the
"arms dealer" enabling bandwidth consumers like web companies to compete
effectively.
- -------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S
FUTURE PERFORMANCE. PAST PERFORAMANCE SHOWN IS NOT PREDICTIVE OF FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK
CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
- --------------------------------------------------------------------------
Technology Portfolio
95
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------
INVESTMENT OVERVIEW
- -----------------------------------------------------------
TECHNOLOGY PORTFOLIO (CONT.)
The technology sectors we chose to avoid are also consistent with our strategy.
We were absent from the PC industry in 1999 thinking that the PC market, being
highly competitive with a disproportionate reliance on one supplier for its key
component (microprocessors), would underperform more compelling technology
sectors. We were proved right as numerous companies in the industry (IBM, Dell,
etc.) disappointed.
As we look to 2000, we continue to find compelling investments domestically and
abroad. We will continue to be invested in market leaders but are also searching
daily for undiscovered companies that will dominate their sectors. With
improving fundamentals abroad, we see significant opportunities for the
Portfolio in international investments. It is our aim to increase our
international investments as a percentage of the Portfolio from the 10% level of
1999. As described above, investments in securities of foreign companies could
reach a maximum of 35%.
In 1999, our disciplined execution of our strategy produced excellent results.
In 2000, we will continue to stay true to this strategy and position the
Portfolio to own what we believe to be the 100 to 125 best technology companies
in the U.S. and, increasingly, abroad.
Alexander L. Umansky
PORTFOLIO MANAGER
Stephen C. Sexauer
PORTFOLIO MANAGER
January 2000
- -------------------------------------------------------------------------
Technology Portfolio
96
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -----------------------------------------------------------
TECHNOLOGY PORTFOLIO
- -----------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (95.4%)
TECHNOLOGY (95.4%)
BIOTECHNOLOGY (0.1%)
(a)902 Millennium Pharmaceuticals, Inc. ........... $ 110
---------------
DATA COMMUNICATIONS (30.4%)
(a)3,800 ADC Telecommunications, Inc. ............. 276
(a)40,100 Advanced Fibre Communications, Inc. ...... 1,792
(a)900 AudioCodes Ltd. ......................... 83
(a)3,900 C-COR.net Corp. .......................... 299
(a)5,800 CIENA Corp. .............................. 334
(a)11,400 Cisco Systems, Inc. ...................... 1,221
(a)13,550 Commscope, Inc. .......................... 546
(a)10,300 Efficient Networks, Inc. ................. 700
(a)1,000 Finisar Corp. ............................ 90
(a)35,500 General Instrument Corp. ................. 3,017
(a)14,700 Harmonic Lightwaves, Inc. ................ 1,396
(a)6,400 IPC Communications, Inc. ................. 454
(a)9,000 JDS Uniphase Corp. ....................... 1,452
(a)1,300 Korea Thrunet Co. Ltd. ................... 88
7,540 Lucent Technologies, Inc. ................ 564
(a)3,500 McLeodUSA, Inc., Class A ................. 206
(a)10,800 Metromedia Fiber Network, Inc., Class A . 518
(a)83,700 Newbridge Networks Corp. ................ 1,888
(a)1,700 Next Level Communications, Inc. .......... 127
(a)1,800 Nextel Communications, Inc., Class A ..... 186
19,942 Nortel Networks Corp. .................... 2,014
(a)8,900 Powerwave Technologies, Inc. ............. 520
(a)15,000 Proxim, Inc. ............................. 1,650
(a)6,800 QUALCOMM, Inc. ........................... 1,199
(a)13,300 Qwest Communications International, Inc... 572
(a)19,600 RF Micro Devices, Inc. ................... 1,341
(a)2,300 Rural Cellular Corp., Class A ............ 208
6,150 Scientific-Atlanta, Inc. ................. 342
2,050 Sprint PCS ............................... 210
(a)2,700 Teligent, Inc. Class A ................... 167
(a)13,400 Terayon Communication Systems, Inc. ...... 842
(a)18,000 Transwitch Corp. ......................... 1,306
4,850 Vodafone AirTouch plc ADR ................ 240
(a)1,700 Voicestream Wireless Corp. ............... 242
(a)2,800 Western Wireless Corp., Class A .......... 187
---------------
26,277
---------------
DATA STORAGE & PROCESSING (2.3%)
(a)10,050 SanDisk Corp. ........................... 967
(a)6,900 VERITAS Software Corp. .................. 988
---------------
1,955
---------------
ELECTRONIC EQUIPMENT (8.5%)
12,300 Avnet, Inc. .............................. 744
(a)1,200 Cobalt Networks, Inc. .................... 130
(a)4,000 Crossroads Systems, Inc. ................. 338
(a)12,400 Exodus Communications, Inc. .............. 1,101
(a)200 Foundry Networks, Inc. ................... 60
(a)7,200 Gemstar Internal Group Ltd. .............. 513
(a)300 Juniper Networks, Inc. ................... 102
(a)12,900 LSI Logic Corp. ......................... 871
(a)10,100 Maker Communications, Inc. .............. 432
(a)14,900 Micrel, Inc. ............................ 848
(a)5,600 Microchip Technology, Inc. .............. 383
2,500 Optical Coating Laboratory, Inc. ........ 740
(a)500 Sanmina Corp. ........................... 50
(a)4,800 SDL, Inc. ............................... 1,047
---------------
7,359
---------------
INFORMATION PROCESSING (1.5%)
(a)17,200 America Online, Inc. .................... 1,298
---------------
MICRO COMPUTER MFG (0.9%)
(a)10,000 Sun Microsystems, Inc. .................. 774
---------------
SEMICONDUCTOR CAPITAL EQUIPMENT MFG (3.5%)
(a)10,250 Applied Materials, Inc. ................. 1,299
(a)11,000 KLA Tencor Corp. ........................ 1,225
(a)3,900 Novellus Systems, Inc. .................. 478
---------------
3,002
---------------
SEMICONDUCTOR MFG (11.7%)
(a)26,200 Advanced Micro Devices, Inc. ............ 758
(a)6,200 Altera Corp. ............................ 307
(a)8,550 Analog Devices, Inc. .................... 795
(a)17,500 ASM International N.V. .................. 403
(a)5,600 ASM Lithography Holding N.V. ............ 637
(a)15,200 Atmel Corp. ............................. 449
(a)1,900 Broadcom Corp., Class A ................. 518
(a)2,200 Chartered Semiconductor Manufact-
uring Ltd................................ 161
(a)15,400 Conexant Systems, Inc. .................. 1,022
(a)21,100 Cypress Semiconductor Corp. ............. 683
(a)8,600 Lam Research Corp ....................... 959
3,700 Linear Technology Corp. ................. 265
(a)24,200 Maxim Integrated Products, Inc. ......... 1,142
(a)9,900 Micron Technology, Inc. ................. 770
(a)5,800 PMC-Sierra, Inc. ........................ 930
3,200 Texas Instruments, Inc. ................. 310
---------------
10,109
---------------
SOFTWARE PRODUCTS (26.6%)
(a)5,300 24/7 Media, Inc. ......................... 298
(a)3,600 Allaire Corp. ............................ 522
(a)400 Alteon Websystems, Inc. .................. 35
(a)1,200 Ariba Inc. ............................... 213
(a)4,800 At Home Corp., Series A .................. 206
(a)200 Cacheflow, Inc. .......................... 26
(a)5,700 CMGI, Inc. ............................... 1,578
(a)1,000 Deltathree.com, Inc., Class A ............ 26
(a)600 Digital Island, Inc. ..................... 57
(a)13,900 Documentum, Inc. ......................... 832
(a)2,400 DoubleClick, Inc. ........................ 607
(a)7,100 eBay, Inc. ............................... 889
(a)1,800 eSPEED, Inc. Class A ..................... 64
(a)5,500 Informatica Corp. ........................ 585
(a)7,000 Inktomi Corp. ............................ 621
(a)5,800 Internet Capital Group, Inc. ............. 986
(a)26,600 IXnet, Inc. .............................. 801
(a)1,300 Jacada Ltd. .............................. 36
The accompanying notes are an integral part of the financial statements.
- ---------------------------------------------------------------------------------
Technology Portfolio
97
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -----------------------------------------------------------
TECHNOLOGY PORTFOLIO (CONT.)
- -----------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------------
<S> <C>
SOFTWARE PRODUCTS (CONT.)
(a)2,200 Liberate Technologies, Inc. ............. $ 565
(a)14,800 Lycos, Inc. ............................. 1,178
(a)2,100 Micromuse, Inc. ......................... 357
(a)26,000 Microsoft Corp. ......................... 3,036
(a)1,300 NetIQ Corp. ............................. 68
(a)4,200 Network Solutions, Inc., Class A ........ 914
(a)19,200 Netzero, Inc. ........................... 517
(a)1,100 OpenTV Corp. ............................ 88
(a)7,700 Portal Software, Inc. ................... 792
(a)3,700 PSInet, Inc. ............................ 229
(a)3,900 Rational Software Corp. ................. 192
(a)2,400 RealNetworks, Inc. ...................... 291
(a)1,300 Red Hat, Inc. ........................... 275
(a)74,200 SAGA Systems, Inc. ...................... 1,479
6,200 Security First Technologies Corp ........ 484
(a)9,900 Terra Networks S.A., ADR ................ 542
(a)1,400 TIBCO Software, Inc. .................... 214
(a)600 Va Linux Systems. Inc. .................. 124
(a)13,900 Verio, Inc. ............................. 642
(a)3,000 Vignette Corp. .......................... 489
(a)4,900 YAHOO!, Inc. ............................ 2,120
---------------
22,978
---------------
TEST, ANALYSIS & INSTRUMENTATION EQUIPMENT (0.4%)
(a)3,400 Credence Systems Corp. ................... 294
---------------
OTHER (9.5%)
(a)4,900 Amazon.com, Inc. ........................ 373
(a)17,100 Applied Science and Technology, Inc. .... 568
(a)8,300 Asyst Technologies, Inc. ................ 544
3,100 Bell Atlantic Corp. ..................... 191
(a)18,900 Charter Communications, Inc. ............ 413
1,700 Corning, Inc. ........................... 219
(a)7,100 Extreme Networks, Inc. .................. 593
(a)13,600 First Sierra Financial, Inc. ............ 233
(a)3,900 MCI WorldCom, Inc. ...................... 207
(a)3,600 MediaOne Group, Inc. .................... 276
(a)1,900 MedImmune, Inc. ......................... 315
(a)2,500 NEXTLINK Communications, Inc. ........... 208
(a)11,150 Sprint Corp. (Fon Group) ................ 751
(a)1,400 Tularik, Inc. ........................... 45
(a)11,200 TV Guide, Inc. .......................... 482
(a)17,100 USWeb Corp. ............................. 760
(a)10,600 VeriSign, Inc. .......................... 2,022
---------------
8,200
---------------
TOTAL TECHNOLOGY .......................................... 82,356
---------------
TOTAL COMMON STOCKS (COST $45,733) ................................. 82,356
---------------
PREFERRED STOCKS (0.9%)
TECHNOLOGY (0.9%)
SOFTWARE PRODUCTS (0.9%)
(a,d,e)268,000 Warp Solutions, Inc.(Cost $804) .......... 804
---------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (4.0%)
REPURCHASE AGREEMENT (4.0%)
$ 3,474 Chase Securities, Inc. 2.60%, dated
12/31/99, due 1/03/00, to be repurchased at
$3,475, collateralized by U.S. Treasury Notes,
6.125%, due 12/31/01, valued at $3,550 (Cost
$3,474)........................................... $ 3,474
---------------
TOTAL INVESTMENTS (100.3%) (Cost $50,011) .......................... 86,634
---------------
OTHER ASSETS (0.7%)
Receivable for Portfolio Shares Sold ................. $475
Due from Broker ...................................... 103
Dividends Receivable ................................. 2
Other ................................................ 2 582
---------
LIABILITIES (-1.0%)
Payable for Investments Purchased .................... (414)
Payable for Fund Shares Redeemed ..................... (218)
Investment Advisory Fees Payable ..................... (142)
Administrative Fees Payable .......................... (11)
Custodian Fees Payable ............................... (8)
Directors' Fees and Expenses Payable ................. (5)
Distribution Fees Payable ............................ (3)
Overdraft Payable .................................... (1)
Other Liabilities .................................... (32) (834)
--------- ---------------
NET ASSETS (100%) .................................................. $86,382
===============
NET ASSETS CONSIST OF:
Paid in Capital .................................................... $43,754
Accumulated Net Investment Loss .................................... (5)
Undistributed Net Realized Gain .................................... 6,010
Unrealized Appreciation on Investments ............................. 36,623
---------------
NET ASSETS ......................................................... $86,382
===============
CLASS A:
- --------
NET ASSETS ......................................................... $82,190
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,112,345 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................. $38.91
===============
CLASS B:
- ---------
NET ASSETS ......................................................... $4,192
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 108,339 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................. $38.69
===============
</TABLE>
(a) -- Non-income producing
(d) -- Securities were 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
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Technology Portfolio
98
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------
INVESTMENT OVERVIEW
- -----------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
[CHART]
<TABLE>
<S> <C>
Basic Materials (2.9%)
Captial Goods (8.8%)
Communication Services (7.7%)
Consumer Cyclicals (12.6%)
Consumer Staples (8.5%)
Energy (5.5%)
Financial (12.2%)
Healthcare (9.1%)
Technology (29.2%)
Transportation (0.9%)
Utilities (2.7%)
Other (-0.1%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
<TABLE>
<CAPTION>
U.S. Equity Plus U.S. Equity Plus S&P 500
Portfolio-Class A Portfolio-Class B Index(1)
------------------- ----------------- ---------
<S> <C> <C> <C>
7/31/97 $500,000 $100,000 $500,000
12/31/97 ________ ________ ________
12/31/98 ________ ________ ________
12/31/99 $757,801 $150,831 $797,092
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different fees assessed to that class. The S&P 500 Index value at
December 31, 1999 assumes a minimum investment of $500,000; if a minimum initial
investment of $100,000 (the minimum investment for Class B shares) is assumed,
the value at December 31, 1999 would be $159,418.
PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
- --------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION
----- ---------------
<S> <C> <C>
PORTFOLIO -- CLASS A............. 20.25% 18.75%
PORTFOLIO -- CLASS B............. 19.99 18.52
INDEX............................ 21.04 21.26
</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 approximately equal 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 year ended December 31, 1999, the Portfolio had a total return of 20.25%
for the Class A shares and 19.99% for the Class B shares compared to 21.04% for
the Index. For the period from inception on July 31, 1997 through December 31,
1999, the Portfolio had an average annual total return of 18.75% for the Class A
shares and 18.52% for Class B shares compared to 21.26% for the Index.
For the three months ended December 31, 1999, the Portfolio had a total return
of 14.01% for the Class A shares and 13.93% for the Class B shares compared to
14.88% for the Index.
The Portfolio is sector neutral to the S&P 500, 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 consumer services,
telephones, beverages and home products, basic industries and hardware
manufacturers. Our worst performing sectors were finance, consumer non-durables,
other oil (international integrated), consumer durables and non-ferrous metals.
- -------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL
THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE
PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
99
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------
INVESTMENT OVERVIEW
- -----------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
Virtually all of the differential performance between the Portfolio and the
benchmark came from active stock selection. The five largest contributions to
our performance relative to the Index came from being overweight Yahoo, Sun
Microsystems and Walmart, and from being underweight (relative to the Index)
Coca Cola and Pfizer. 1) Yahoo, a global internet media company, skyrocketed
244% during the year. A large portion of the rally came on the news of it being
added to the Index in December. 2) Sun Microsystems, which provides products and
services for network computing, continued its impressive performance with a 262%
return this year, as investors remained optimistic about its market share, and
alliances with GTE, Cisco and others. 3) Walmart, which operates discount
stores, rose 70% on the year as the market reacted positively to its partnership
with AOL. Stock performance was also helped by the exceptionally strong holiday
sales. 4) Coca Cola, a global soft drink company, tumbled 33% during the year.
The company's earnings continued to disappoint investors amid the recall in
Europe and sluggish international sales. 5) Pfizer, a global pharmaceutical
company, declined 22% as investors remained skeptical of its hostile takeover
bid for Warner Lambert.
On the other side, the five most negative contributions to our performance
relative to the Index came from being overweight Philip Morris, Countrywide
Credit Industries, Bank of New York and Comerica, and from being underweight
(relative to the Index) Morgan Stanley Dean Witter. 1) Philip Morris, a
manufacturer of a variety of consumer products, tumbled 55%, as market
participants seemed to be more focused on its continued litigation problems than
its current financial performance. 2) Countrywide Credit Industries, a mortgage
banking company, sank 49% as investors raised questions about the company's
ability to produce strong earnings in a rising interest rate environment with
declining demand for mortgage refinancings. 3) Bank of New York, a provider of
banking and other financial services, returned only 1%, amid continued
disclosures of possible involvement of its Russian clients in a tax evasion and
money laundering operation. 4) Comerica, a holding company, declined 30%, as
average Value style stocks continued their underperformance. 5) Morgan Stanley
Dean Witter, a provider of financial and investment products, rose 103%, as the
company benefited from the torrid pace in mergers and acquisitions activity
worldwide (the Portfolio is restricted from holding the stock of the Advisers'
parent company).
During the fourth quarter of 1999, the U.S. economic expansion continued. Growth
in real GDP may exceed 5% (annualized for the quarter) and S&P earnings growth
in 1999 may exceed 12% year-over- year. The interest rate backdrop, however, was
not as friendly. The yield on the benchmark 30-year Treasury increased by over
160 basis points from lows in 1998 to 6.40%, amid expectations about the Federal
Reserve Board raising rates by 25 basis points or more early in 2000. These
concerns however did not prevent the S&P 500 from posting stellar gains during
the fourth quarter. It rallied 14.86%, leaving it with a 21.04% return for 1999.
Large capitalization value stocks continued their dramatic underperformance of
large capitalization growth by nearly 11% during the quarter (as measured by the
S&P 500 Barra Value and Growth indexes).
By many of the valuation measures we use, the Index is extremely overvalued.
While economic fundamentals continue to be positive we hold the view that the
present rate of above-trend GDP growth and the tightening labor market is
unsustainable and will require the Federal Reserve to raise interest rates at
least by another 75 basis points. Until the market registers that the Federal
Reserve wants to slow the economy down, it is likely that "hope" stocks continue
to maintain their edge over "value" stocks. Only when the market recognizes that
bonds have peaked in yield and growth rates for many stocks are too optimistic
will stock fundamentals reassert themselves - your Portfolio should benefit when
that happens. We hope that this will come to pass sooner rather than later.
Narayan Ramachandran
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
100
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -----------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
<S> <C>
COMMON STOCK (100.1%)
BASIC MATERIALS (2.9%)
ALUMINUM (0.4%)
400 Alcan Aluminum Ltd. .................... $16
900 Alcoa, Inc. ............................ 75
---------------
91
---------------
CHEMICALS (1.3%)
1,300 Dow Chemical Co. ....................... 174
1,500 E.I. du Pont de Nemours & Co. .......... 99
500 Praxair, Inc. .......................... 25
500 Rohm & Haas Co. ........................ 20
---------------
318
---------------
CHEMICALS (DIVERSIFIED) (0.1%)
500 Monsanto Co. ........................... 18
---------------
CHEMICALS (SPECIALTY) (0.0%)
100 Hercules, Inc. ......................... 3
---------------
GOLD & PRECIOUS METALS MINING (0.3%)
1,500 Barrick Gold Corp. ..................... 26
1,700 Newmont Mining Corp. ................... 42
---------------
68
---------------
IRON & STEEL (0.1%)
900 Worthington Industries, Inc. ........... 15
---------------
PAPER & FOREST (0.7%)
1,600 Georgia-Pacific Group .................. 81
1,300 International Paper Co. ................ 74
100 Weyerhauser Co. ........................ 7
300 Willamette Industries, Inc. ............ 14
---------------
176
---------------
TOTAL BASIC MATERIALS ...................................... 689
---------------
CAPITAL GOODS (8.8%)
AEROSPACE & DEFENSE (1.2%)
300 B.F. Goodrich Co. (The) ................ 8
1,400 Boeing Co. ............................. 58
300 General Dynamics Corp. ................. 16
2,800 Honeywell International, Inc. .......... 162
1,000 Northrop Grumman Corp. ................. 54
---------------
298
---------------
ELECTRICAL EQUIPMENT (5.1%)
1,200 Emerson Electric Co. .................. 69
6,300 General Electric Co. .................. 975
(a)400 Solectron Corp. ....................... 38
3,200 Wells Fargo Co. ....................... 129
---------------
1,211
---------------
MACHINERY (DIVERSIFIED) (0.6%)
3,100 Dover Corp. ............................ 140
---------------
MANUFACTURING (DIVERSIFIED) (1.4%)
100 Minnesota Mining & Manufacturing Co. ... 10
4,700 Tyco International Ltd. ................ 183
2,300 United Technologies Corp. .............. 149
---------------
342
---------------
MANUFACTURING (SPECIALIZED) (0.2%)
600 Avery Dennison Corp. .................... 44
100 Pall Corp. .............................. 2
---------------
46
---------------
TRUCKS & PARTS (0.3%)
100 Cummins Engine Co., Inc. ................. 5
(a)600 Navistar International Corp. ............. 28
800 PACCAR, Inc. ............................. 36
---------------
69
---------------
TOTAL CAPITAL GOODS .......................................... 2,106
---------------
COMMUNICATION SERVICES (7.7%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (0.5%)
(a)900 Nextel Communications, Inc., Class A ..... 93
(a)400 Sprint Corp. (PCS Group) ................. 41
---------------
134
---------------
TELECOMMUNICATIONS (LONG DISTANCE) (2.2%)
2,799 AT&T Corp. ............................... 142
(a)7,350 MCI Worldcom, Inc. ....................... 390
---------------
532
---------------
TELEPHONE (5.0%)
3,000 Alltel Corp. ............................. 248
5,900 Bell Atlantic Corp. ...................... 363
1,000 Bellsouth Corp. .......................... 47
500 CenturyTel, Inc. ......................... 24
3,200 GTE Corp. ................................ 226
3,126 SBC Communications, Inc. ................. 152
1,800 U.S. WEST, Inc. .......................... 130
---------------
1,190
---------------
---------------
TOTAL COMMUNICATION SERVICES 1,856
---------------
CONSUMER CYCLICALS (12.6%)
AUTOMOBILES (0.0%)
100 Ford Motor Co. ........................... 5
---------------
BUILDING MATERIALS (0.2%)
1,300 Armstrong World Industries, Inc. ......... 43
400 Owens Corning ............................ 8
---------------
51
---------------
FOOTWEAR (0.1%)
400 Nike, Inc., Class B ...................... 20
---------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES (0.1%)
(a)1,100 Harrah's Entertainment, Inc. ............. 29
---------------
HARDWARE & TOOLS (0.1%)
400 Black & Decker Corp. ..................... 21
---------------
HOMEBUILDING (0.7%)
3,800 Kaufman & Broad Home Corp. ............... 92
3,100 Pulte Corp. .............................. 70
---------------
162
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES (0.3%)
1,200 Whirlpool Corp. .......................... 78
---------------
LEISURE TIME PRODUCTS (0.0%)
600 Mattel, Inc. ............................. 8
---------------
LODGING - HOTELS (0.2%)
1,200 Carnival Corp., Class A .................. 57
---------------
PHOTOGRAPHY/IMAGING (0.2%)
600 Eastman Kodak Co. ........................ 40
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
101
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -----------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C>
CONSUMER CYCLICALS (CONT.)
PUBLISHING (NEWSPAPERS) (2.0%)
3,300 Dow Jones & Co., Inc. .................... $225
1,500 Gannett Co., Inc. ........................ 122
1,900 Times Mirror Co., Class A ................ 127
---------------
474
---------------
RETAIL (BUILDING SUPPLIES) (2.2%)
7,050 Home Depot, Inc. ......................... 483
600 Lowe's Cos., Inc. ........................ 36
---------------
519
---------------
RETAIL (COMPUTERS & ELECTRONICS) (0.2%)
1,200 Circuit City Stores- Circuit City Group... 54
---------------
RETAIL (DEPARTMENT STORES) (0.6%)
(a)2,000 Federated Department Stores, Inc. ........ 101
(a)500 Kohl's Corp. ............................. 36
400 May Department Stores, Co. ............... 13
---------------
150
---------------
RETAIL (DISCOUNTERS) (0.0%)
400 Dollar General Corp. ..................... 9
---------------
Retail (General Merchandise) (4.6%)
(a)300 Costco Wholesale Corp. ................... 28
3,000 Dayton Hudson Corp. ...................... 220
(a)2,500 Kmart Corp. .............................. 25
1,200 Sears Roebuck & Co. ...................... 37
11,300 Wal-Mart Stores, Inc. .................... 781
---------------
1,091
---------------
RETAIL (SPECIALTY) (0.6%)
3,100 Gap, Inc. ................................ 143
---------------
RETAIL (SPECIALTY/APPAREL) (0.2%)
3,000 Delphi Automotive Systems Corp. .......... 47
---------------
TEXTILES (APPAREL) (0.3%)
1,600 Liz Claiborne, Inc. ...................... 60
---------------
TOTAL CONSUMER CYCLICALS ..................................... 3,018
---------------
CONSUMER STAPLES (8.5%)
BEVERAGES (ALCOHOLIC) (1.5%)
4,900 Anheuser Busch Cos., Inc. ................ 347
400 Coors (Adolph), Inc., Class B ............ 21
---------------
368
---------------
BEVERAGES (NON-ALCOHOLIC) (0.4%)
1,100 Coca Cola Co. ............................ 64
1,000 PepsiCo, Inc. ............................ 35
---------------
99
---------------
BROADCASTING (TV, RADIO, CABLE) (0.1%)
600 Comcast Corp., Class A ................... 30
---------------
DISTRIBUTORS (FOOD & HEALTH) (0.7%)
1,100 Cardinal Health, Inc. .................... 53
2,400 SUPERVALU, Inc. .......................... 48
1,600 SYSCO Corp. .............................. 63
---------------
164
---------------
ENTERTAINMENT (0.4%)
1,400 Time Warner, Inc. ........................ 101
---------------
FOODS (1.6%)
1,700 Bestfoods ................................ 89
1,000 Quaker Oats Co. .......................... $66
2,700 Ralston-Ralston Purina Group ............. 75
5,700 Sara Lee Corp. ........................... 126
600 Unilever NV (NY Shares) .................. 33
---------------
389
---------------
HOUSEHOLD PRODUCTS (NON-DURABLES) (2.3%)
2,600 Kimberly-Clark Corp. ..................... 170
3,500 Procter & Gamble Co. ..................... 383
---------------
553
---------------
RESTAURANTS (0.3%)
1,300 McDonald's Corp. ......................... 53
300 Wendy's International, Inc. .............. 6
---------------
59
---------------
RETAIL (DRUG STORES) (0.2%)
100 CVS Corp. ................................ 4
1,500 Walgreen Co. ............................. 44
---------------
48
---------------
RETAIL (FOOD CHAINS) (0.3%)
200 Albertson's, Inc. ........................ 6
(a)2,100 Kroger Co. ............................... 40
(a)700 Safeway, Inc. ............................ 25
---------------
71
---------------
TOBACCO (0.7%)
6,800 Philip Morris Cos., Inc. ................. 158
---------------
TOTAL CONSUMER STAPLES ....................................... 2,040
---------------
ENERGY (5.5%)
OIL & GAS (DRILLING) (0.3%)
1,000 Schlumberger, Ltd. ....................... 56
194 Transocean Sedco Forex Inc. .............. 7
---------------
63
---------------
OIL & GAS (EXPLORATION & DRILLING) (0.5%)
3,100 Apache Corp. ............................. 114
---------------
OIL (DOMESTIC INTEGRATED) (0.4%)
1,100 Conoco, Inc., Class B .................... 27
3,100 USX-Marathon Group ....................... 77
---------------
104
---------------
OIL (INTERNATIONAL INTEGRATED) (4.3%)
1,500 Chevron Corp. ............................ 130
9,128 Exxon Mobile Corp. ....................... 735
1,300 Royal Dutch Petroleum Co. ................ 79
1,700 Texaco, Inc. ............................. 92
---------------
1,036
---------------
---------------
TOTAL ENERGY 1,317
---------------
FINANCIAL (12.2%)
BANKS (MAJOR REGIONAL) (1.1%)
800 Bank of New York Co., Inc. ............... 32
1,600 Comerica, Inc. ........................... 75
1,400 KeyCorp .................................. 31
1,600 Mellon Bank Corp. ........................ 54
600 SouthTrust Corp. ......................... 23
600 SunTrust Banks, Inc. ..................... 41
---------------
256
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
102
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -----------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C>
FINANCIAL (CONT.)
BANKS (MONEY CENTER) (2.1%)
3,800 BankAmerica Corp. ........................ $191
2,800 Chase Manhattan Corp. .................... 218
3,000 First Union Corp. ........................ 98
---------------
507
---------------
BANKS (REGIONAL) (0.5%)
5,600 Firstar Corp. ............................ 118
---------------
CONSUMER FINANCE (0.6%)
500 Countrywide Credit Industries, Inc. ...... 13
2,100 Household International, Inc. ............ 78
700 Providian Financial Corp. ................ 64
---------------
155
---------------
FINANCIAL (DIVERSIFIED) (4.2%)
1,100 American Express Co. ..................... 183
400 Associates First Capital Corp., Class A .. 11
9,499 Citigroup, Inc. .......................... 528
2,200 Federal Home Loan Mortgage Corp. ......... 103
2,800 Federal National Mortgage Association .... 175
---------------
1,000
---------------
INSURANCE (LIFE & HEALTH) (0.2%)
2,800 Conseco, Inc. ............................ 50
---------------
INSURANCE (MULTI-LINE) (2.0%)
1,700 American International Group, Inc. ....... 184
3,000 CIGNA Corp. .............................. 241
1,000 Loews Corp. .............................. 61
---------------
486
---------------
INSURANCE (PROPERTY - CASUALTY) (0.3%)
1,100 MGIC Investment Corp. .................... 66
---------------
INVESTMENT BANKING & BROKERAGE (1.0%)
2,110 Bear Stearns Cos., Inc. .................. 90
600 Charles Schwab Corp. ..................... 23
1,600 Lehman Brothers Holdings, Inc. ........... 136
---------------
249
---------------
SAVINGS & LOANS (0.2%)
1,400 Washington Mutual, Inc. .................. 36
---------------
TOTAL FINANCIAL............................................... 2,923
---------------
HEALTHCARE (9.1%)
HEALTHCARE (DIVERSIFIED) (4.9%)
1,000 Abbott Laboratories ...................... 36
2,200 American Home Products Corp. ............. 87
6,600 Bristol-Myers Squibb Co. ................. 424
4,000 Johnson & Johnson ........................ 372
3,000 Warner Lambert Co. ....................... 246
---------------
1,165
---------------
HEALTHCARE (DRUGS - MAJOR PHARMS) (2.6%)
800 Eli Lilly & Co. .......................... 53
5,900 Merck & Co., Inc. ........................ 396
4,500 Pfizer, Inc. ............................. 146
400 Pharmacia & Upjohn, Inc. ................. 18
100 Schering-Plough Corp. .................... 4
---------------
617
---------------
HEALTHCARE (HOSPITAL MANAGEMENT) (0.2%)
(a)1,600 Tenet Healthcare Corp. ................... $38
---------------
HEALTHCARE (MANAGED CARE) (0.4%)
200 Aetna, Inc. .............................. 11
1,500 United Healthcare Corp. .................. 80
(a)200 Wellpoint Health Networks, Inc. .......... 13
---------------
104
---------------
HEALTHCARE (MEDICAL PRODUCTS & SUPPLIES) (0.9%)
1,000 Bard (C.R.), Inc. ........................ 53
100 Bausch & Lomb, Inc. ...................... 7
800 Baxter International, Inc. ............... 50
(a)900 Guidant Corp. ............................ 43
1,900 Medtronic, Inc. .......................... 69
---------------
222
---------------
HEALTHCARE (SPECIALIZED SERVICES) (0.1%)
(a)4,300 HEALTHSOUTH Corp. ........................ 23
---------------
TOTAL HEALTHCARE ............................................. 2,169
---------------
TECHNOLOGY (29.2%)
COMMUNICATION EQUIPMENT (5.8%)
(a)500 ADC Telecommunications, Inc. ............ 36
6,000 Lucent Technologies, Inc. ................ 449
1,200 Motorola, Inc. ........................... 177
2,000 Nortel Networks Corp. .................... 202
(a)2,000 Qualcomm, Inc. ........................... 352
600 Scientific-Atlanta, Inc. ................. 33
(a)2,100 Tellabs, Inc. ............................ 135
---------------
1,384
---------------
COMPUTERS (HARDWARE) (4.2%)
800 Compaq Computer Corp. .................... 22
(a)5,200 Dell Computer Corp. ...................... 265
1,400 Hewlett Packard Co. ...................... 159
1,700 International Business Machines Corp. .... 184
(a)4,800 Sun Microsystems, Inc. ................... 372
---------------
1,002
---------------
COMPUTERS (NETWORKING) (4.1%)
(a)6,800 Cisco Systems, Inc. ...................... 728
(a)600 YAHOO!, Inc. ............................. 260
---------------
988
---------------
COMPUTERS (PERIPHERALS) (1.2%)
(a)2,400 EMC Corp. ................................ 262
(a)200 Network Appliance, Inc. .................. 17
---------------
279
---------------
COMPUTERS (SOFTWARE & SERVICES) (8.8%)
(a)4,700 America Online, Inc. ..................... 355
900 Autodesk, Inc. ........................... 30
600 Computer Associates International, Inc. .. 42
(a)300 Compuware Corp. .......................... 11
(a)700 Global Crossing Ltd. ..................... 35
(a)10,800 Microsoft Corp. .......................... 1,261
(a)3,100 Oracle Corp. ............................. 348
(a)1,200 Unisys Corp. ............................. 38
---------------
2,120
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
103
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -----------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C>
TECHNOLOGY (CONT.)
ELECTRONICS (INSTRUMENTATION) (0.2%)
(a)500 Micron Technology, Inc. .................. $ 39
---------------
ELECTRONICS (SEMICONDUCTORS) (2.9%)
6,300 Intel Corp. .............................. 518
1,700 Texas Instruments, Inc. .................. 165
---------------
683
---------------
EQUIPMENT (SEMICONDUCTORS) (0.8%)
(a)1,400 Applied Materials, Inc. .................. 178
(a)200 KLA-Tencor Corp. ......................... 22
---------------
200
---------------
SERVICES (COMPUTER SYSTEMS) (1.1%)
4,100 Electronic Data Systems Corp. ............ 274
---------------
SERVICES (DATA PROCESSING) (0.1%)
400 First Data Corp. ......................... 20
200 Paychex, Inc. ............................ 8
---------------
28
---------------
---------------
TOTAL TECHNOLOGY ............................................. 6,997
---------------
TRANSPORTATION (0.9%)
AIRLINES (0.3%)
1,500 Delta Air Lines, Inc. .................... 75
---------------
RAILROADS (0.6%)
2,000 Kansas City Southern Industries, Inc. .... 149
---------------
TOTAL TRANSPORTATION ......................................... 224
---------------
UTILITIES (2.7%)
ELECTRIC COMPANIES (1.2%)
1,900 Edison International ..................... 50
1,500 Entergy Corp. ............................ 38
1,500 Public Service Enterprise Group, Inc. .... 52
2,500 Texas Utilities Co. ...................... 89
1,700 Unicom Corp. ............................. 57
---------------
286
---------------
NATURAL GAS (1.0%)
300 Coastal Corp. ............................ 10
600 Columbia Gas System, Inc. ................ 38
1,700 EL Paso Energy Corp. ..................... 66
2,700 Enron Corp. .............................. 120
---------------
234
---------------
POWER PRODUCERS (INDEPENDENT) (0.5%)
(a)1,6 00 AES Corp. .......................... 120
---------------
TOTAL UTILITIES .............................................. 640
---------------
TOTAL COMMON STOCKS (Cost $20,907) ........................... 23,979
---------------
<CAPTION>
AMOUNT
(000)
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.1%) (Cost $20,907) .................. $ 23,979
---------------
OTHER ASSETS (0.4%)
Cash ........................................... $66
Dividends Receivable ........................... 24
Receivable for Portfolio Shares Sold ........... 10
Other .......................................... 6 106
---------
LIABILITIES (0.5%)
Investment Advisory Fees Payable ............... (65)
Professional Fees Payable ...................... (23)
Custodian Fees Payable ......................... (10)
Administrative Fees Payable .................... (4)
Payable for Portfolio Shares Redeemed .......... (4)
Directors' Fees and Expenses Payable ........... (2)
Distribution Fees Payable ...................... (1)
Other Liabilities .............................. (13) (122)
---------
NET ASSETS (100%) ............................................ $ 23,963
===============
NET ASSETS CONSIST OF:
Paid in Capital .............................................. $ 21,100
Undistributed Net Investment Income .......................... 4
Accumulated Net Realized Loss ................................ (213)
Unrealized Appreciation on Investments ....................... 3,072
---------------
NET ASSETS ................................................... $ 23,963
===============
CLASS A:
NET ASSETS ................................................... $ 22,430
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,817,430 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................... $ 12.34
===============
CLASS B:
NET ASSETS ................................................... $ 1,533
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 124,369 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................... $ 12.33
===============
</TABLE>
(a)Non-income producing
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
104
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- -------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Other (5.0%)
Self Storage (3.6%)
Retail (14.2%)
Apartments (25.2%)
Diversified (7.7%)
Healthcare (0.8%)
Lodging/Resorts (6.4%)
Office & Industrial (37.1%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- ------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
U.S. Real Estate NAREIT
Portfolio Class A Equity Index(1)
----------------- ------------
<S> <C> <C>
2/24/95* $500,000 $500,000
12/31/95 ----------------- ------------
12/31/96 ----------------- ------------
12/31/97 ----------------- ------------
12/31/98 ----------------- ------------
12/31/99 $931,664 $738,888
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested. The performance of Class B
shares will vary based upon the different inception dates and fees assessed
to that class.
PERFORMANCE COMPARED TO THE NATIONAL ASSOCIATION
OF REAL ESTATE INVESTMENT TRUSTS (NAREIT) EQUITY
INDEX(1)
- ------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------
ONE AVERAGE ANNUAL
YEAR SINCE iNCEPTION
------ ---------------
<S> <C> <C>
PORTFOLIO-- CLASS A................ -1.48% 13.68%
PORTFOLIO-- CLASS B................ -1.73 10.89
INDEX -- CLASS A................... -4.62 8.30
INDEX -- CLASS B................... -4.62 6.38
</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 year ended December 31, 1999, the Portfolio had a total return of
- -1.48% for the Class A shares and -1.73% for the Class B shares compared to
- -4.62% for the National Association of Real Estate Investment Trusts (NAREIT)
Equity Index (the "Index"). For the period from inception on February 24,
1995 through December 31, 1999, the average annual total return for the Class
A shares was 13.68% compared to 8.30% for the Index. For the period from
inception on January 2, 1996 through December 31, 1999, the average annual
total return for the Class B shares was 10.89% compared to 6.38% for the
Index.
Performance of the REIT market in the fourth quarter of 1999 resembled the
pattern established for much of the previous six quarters, featuring
persistent downward pressure with intermittent rallies. Despite declining
through mid-December to its 52-week low (a level last witnessed in November
1996), due to a lack of interest by non-dedicated investors and tax loss
selling, the sector rallied 9% in the last half of December as value
investors appeared to gain a renewed interest. The NAREIT Index fell by 1% in
the fourth quarter and provided a year-to-date loss of 4.6%. REIT share
prices are now trading at more than a 15% discount to the underlying Net
Asset Value ("NAV") of their assets. Despite the attractive arbitrage between
valuations in the public versus the private real estate markets, there was
very little interest by non-dedicated institutional investors in the sector
this past year. (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).
As stated in earlier quarterly reports, our investment perspective is that
over the medium and long-term the largest determinant of the value of real
estate stocks will be underlying real estate fundamentals. We measure the
sector based on the Price to Net Asset Value per share ratio ("P/NAV"). Given
the large and active private real estate
- -------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS
OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S
FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
- -------------------------------------------------------------------------------
U.S. Real Estate Portfolio
105
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- -------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
market, we believe that there are limits as to the level of premium or
discount at which the sector can trade relative to its NAV. These limits can
be viewed as the point at which the arbitrage opportunity between owning real
estate in the private versus public markets becomes compelling (allowing for
the notion that the public market has a tendency to over-shoot both on the
upside and downside). The current pricing causes us to return to the same
fundamental question: is the public market valuation accurately predicting a
decline in real estate values or is the public market simply oversold?
Although we retain a healthy respect for the predicting power of the public
markets, our bias is to support the opinion that the market is oversold.
The REIT industry hosted its annual conference in Los Angeles at the end of
October and the tone was more upbeat than we had expected in spite of the
weak share prices. Two general themes relayed by the companies were the
continued strong performance in the physical property markets and their
acceptance that the sector may trade at a discount to NAV for a substantial
period. As a result, companies generally have reoriented their thinking to
focus on the growth of NAV per share as opposed to absolute growth. They are
also attempting to become self-funding, which will require the implementation
of asset sales, joint ventures and more judicious use of free cash flow. In
fact, many companies have developed our recommended model of comparing any
development or acquisition activity to buying back their stock.
At year-end we can point to five completed or agreed-to LBO transactions in
the industry. These transactions provide the best evidence of both the
existence of the arbitrage opportunity between the valuation of public and
private real estate as well as the availability of equity investors. It is
interesting to note that the participants in the LBOs discussed below include
a number of the most sophisticated real estate opportunity funds. These
investors, who typically invest in the private real estate marketplace, took
advantage of the arbitrage opportunity to purchase public companies trading
at significant discounts to asset value. Generally, given an average leverage
ratio approaching 50% of total capital, a company trading at an NAV discount
of 15% to 25% allows an investor to buy the assets at an attractive price and
provides existing shareholders handsome return potential.
Further evidence of the favorable real estate arbitrage is the pervasive
adoption of share buyback programs. Instead of buying or developing
properties, companies are utilizing retained cashflow to fund share buybacks,
effectively to purchase real estate in the cheapest manner (by buying their
stock that trades at a discount to private real estate value). The most
recent decline in prices served to increase the number of share buyback
programs. We have been strong advocates for companies to perform the analysis
of this strategy. For many companies, their stock is the best investment that
they can identify in this competitive market for Real Estate. Due to the
large required dividend payout of the REIT structure, companies in the sector
can only generate modest levels of free cashflow to buy back shares. However,
we applaud the companies that have sold assets (at par) and redeployed that
capital into share repurchases (at a discount). Through the third quarter,
more than 50 companies authorized share buyback programs and had purchased in
excess of $1 billion of stock, representing more than 2% of their equity
capitalization.
Companies have taken greater steps in developing business plans that do not
require equity issuance. These plans place an emphasis on managing the
existing portfolio and external growth, if planned, is funded by asset sales
or is accomplished within a joint venture structure. These approaches provide
variations on a theme of self-funding. We support the strategy of growing NAV
per share as opposed to a strategy based simply on growing. We believe that
investors remain concerned that any improvement in pricing will cause REITs
to issue equity, thereby placing a ceiling on the price of the stocks. There
were no equity offerings completed in the fourth quarter. We expect the
calendar to remain dormant as a result of weak pricing, the lack of
significant demand from institutional buyers, and the propensity for
investors to pummel companies that issue equity.
The fourth quarter featured a number of exciting joint venture transactions.
The most notable was the joint venture established by Equity Office
Properties. The company sold interests in seven office buildings to Lend
Lease Real Estate (one of the most respected global real estate investors)
for $540 million at an attractive blended cashflow multiple. In addition,
Equity will retain the management and leasing of the assets and concurrently
announced a $250 million share buyback program. In a similar transaction,
Prime Group Realty sold a 50% interest in their best downtown Chicago office
asset for approximately $300 million to a large state pension plan. Prime
also retained management and leasing and subsequently announced a share
buyback program. Note that this marked the highest sale price ($300 per
square foot) achieved in this market.
The REIT Modernization Act, first proposed in the spring, has been passed.
The key feature is the ability for REITs to engage in service businesses that
are complementary to real estate through 100% ownership of a taxable REIT
- -------------------------------------------------------------------------------
U.S. Real Estate Portfolio
106
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- -------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
subsidiary ("TRS"), without jeopardizing their tax status. Many of the larger
REITs have successfully identified additional revenue sources by taking
advantage of ancillary businesses that access their existing client base.
This is being accomplished in all sectors. In multifamily, Equity Residential
earns income through relationships with service providers to their apartment
residents (e.g., cable television providers, long distance carriers, and
insurance companies). In the mall sector, Simon Property Group, through its
Simon Brand Ventures subsidiary, has developed relationships with companies
including Microsoft (to sell its Internet service) and Turner Broadcasting
(to air TBS programming in Simon malls) and has developed its own rewards
program to generate income. Finally, many of the office REITs generate income
through relationships with providers of broadband services to their tenants.
REAL ESTATE MARKET
We have continued to caution investors that there remain threats of
over-supply but strong demand is serving to mute any serious concern at this
time. Generally, there continues to be evidence of a maturing real estate
market as the improvement in fundamentals have begun to plateau. The
following presents an outline of our views.
Similar to last quarter, the data reported from the Census Bureau for the
fourth quarter demonstrated a modest level of risk to over-supply in the
market for apartments. Permits exceeded 350,000 units (annual pace on a
seasonally adjusted basis), for each of the last two reported months (October
and November). Starts barely exceeded 300,000 units in September and were
280,000 and below in October and November. With net demand estimates in the
300,000 to 320,000 unit range, we are monitoring this data for signs of
further acceleration. Based on projections by F.W. Dodge, prospective supply
is running about 1.1% higher than prospective demand for the next two-year
period. This would result in overall vacancy increasing from 7.1% towards 8%
over this period.
Rebounding from a slump in the summer and fall, consumer confidence rose in
the fourth quarter and ended December at its highest level since its all-time
high in October 1968. Despite earlier concerns, mall sales for the holiday
shopping season rose 7.7% over 1998 rates according to the International
Council for Shopping Centers. Landlords continue to point to a strong leasing
environment as retailers commit to new stores and expansions. It is
noteworthy that this proved to be a difficult period for certain e-commerce
retailers as the web sites of the traditional retailers gained market share
based upon both the greater brand name recognition of the traditional
retailers and their superior logistics and delivery systems. Despite the
unexpected strong performance over Christmas, the risk of e-commerce remains
the key mitigating factor that tempers enthusiasm for the sector.
The near-term trends remain similar in both the office and industrial
markets. While significant amounts of space continue to come on-line, demand
continues to remain strong, almost keeping pace with new supply on the
national level. According to data from Torto Wheaton, national office vacancy
rose a modest 0.2% to 9.8% in the third quarter. The downtown markets
experienced a slight improvement of 0.2% as vacancies declined to 8.7% while
vacancies in the suburban markets moved above 10%. The industrial market,
which featured a modest increase of 0.1% in vacancy rates in the second
quarter, reported an equally modest increase of 0.1% for the third quarter.
The national industrial vacancy rate now stands at 7.5%.
Despite a strong economy and relatively easy comps versus last year, the
hotel market demonstrated only modest revenue per available room ("RevPar")
growth in the fourth quarter. It is clear that the large supply of product
continues to put pressure on the market. Smith Travel Research reported
full-year RevPar growth of 3.2% and most public companies have provided
similar annual RevPar projections for 2000.
PORTFOLIO
We have continued to shape the Portfolio with companies offering attractive
fundamental valuations relative to their underlying real estate value.
Throughout the year, we were encouraged by the strength of the U.S. economy.
Current economic consensus for strong GDP growth in 2000 causes us to remain
constructive with regard to the likelihood that real estate fundamentals will
remain favorable. The top- down weightings in the Portfolio remain similar to
last quarter, with a modest bias toward central business district and
Southern California office properties and away from grocery-anchored shopping
centers. We maintain an overweight position to markets with greater barriers
to entry, including West Coast apartments and downtown office buildings. We
continue to take advantage of the relative similarity in pricing of companies
to upgrade the Portfolio, measured both in terms of the quality of properties
held by the companies and the management teams at the companies.
Theodore R. Bigman
PORTFOLIO MANAGER
Douglas A. Funke
PORTFOLIO MANAGER
January 2000
- -------------------------------------------------------------------------------
U.S. Real Estate Portfolio
107
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (94.8%)
DIVERSIFIED (7.7%)
354,000 Pacific Gulf Properties, Inc. REIT ........... $ 7,168
161,500 Pennsylvania REIT ............................ 2,352
215,900 Rouse Co. REIT ............................... 4,588
164,600 Vornado Realty Trust REIT .................... 5,349
(a)654,898 Wellsford Real Properties, Inc. .......... 5,567
--------------
25,024
--------------
HEALTHCARE (0.8%)
454,700 Meditrust Corp. REIT ......................... 2,501
--------------
LODGING/RESORTS (6.4%)
(a)106,500 Candlewood Hotel Company, Inc. ........... 186
324,200 Host Marriott Corp. .......................... 2,675
(a)32,838 Interstate Hotels Corp. ................... 107
(a)108,300 John Q Hammons Hotels, Inc., Class A ..... 420
619,193 Starwood Lodging Trust REIT .................. 14,551
(a)959,854 Wyndham International, Inc. .............. 2,819
--------------
20,758
--------------
OFFICE & INDUSTRIAL (36.4%)
INDUSTRIAL (6.4%)
22,600 EastGroup Properties, Inc. .................... 418
412,400 Prime Group Realty Trust REIT ................ 6,263
735,680 Prologis Trust REIT .......................... 14,162
--------------
20,843
--------------
MIXED (2.7%)
31,200 Duke Realty Investment, Inc. REIT ............. 608
187,410 PS Business Parks, Inc. REIT ................. 4,264
102,800 Spieker Properties, Inc. REIT ................ 3,746
--------------
8,618
--------------
OFFICE (27.3%)
863,200 Arden Realty, Inc. REIT ...................... 17,318
(a,d)335,100 Beacon Capital Partners, Inc. .......... 5,246
303,000 Boston Properties, Inc. REIT ................. 9,431
399,954 Brandywine Realty Trust REIT ................. 6,549
960,397 Brookfield Properties Corp. (Canada) ......... 10,074
356,330 CarrAmerica Realty Corp. REIT ................ 7,527
702,627 Equity Office Properties Trust REIT .......... 17,302
598,300 Great Lakes, Inc. REIT ....................... 8,601
20,800 Mack-Cali Realty Corp. REIT ................... 542
366,500 Trizec Hahn Corp. ............................ 6,185
--------------
88,775
--------------
--------------
118,236
--------------
OTHER (0.5%)
(a)440,100 Atlantic Gulf Communities Corp. .......... 22
(a)107,021 Atlantic Gulf Communities Corp. .......... 642
(a)140,284 Atlantic Gulf Communities Corp. .......... 7
(a)17,330 Merry Land Properties, Inc. ............... 91
(a)81,700 Security Capital Group, Inc., Class B ..... 1,022
--------------
1,784
--------------
RESIDENTIAL APARTMENTS (25.2%)
RESIDENTIAL APARTMENTS (19.5%)
121,600 Amli Residential Properties Trust REIT ....... 2,455
62,700 Apartment Investment & Management Co. REIT .... $2,496
379,214 Archstone Communities Trust REIT ............. 7,774
518,600 Avalon Bay Communities, Inc. REIT ............ 17,795
249,390 Equity Residential Properties Trust REIT ..... 10,646
359,800 Essex Property Trust, Inc. REIT .............. 12,233
278,200 Smith (Charles E.) Residential Realty, Inc. .. 9,841
REIT
--------------
63,240
--------------
RESIDENTIAL MANUFACTURED HOMES (5.7%)
542,652 Chateau Communities, Inc. REIT ............... 14,075
179,900 Manufactured Home Communities, Inc. REIT ..... 4,374
--------------
18,449
--------------
--------------
81,689
--------------
RETAIL (14.2%)
RETAIL REGIONAL MALLS (7.6%)
522,200 Simon Property Group, Inc. REIT .............. 11,978
970,278 Taubman Centers, Inc. REIT ................... 10,430
77,500 Urban Shopping Centers, Inc. REIT ............. 2,102
--------------
24,510
--------------
RETAIL STRIP CENTERS (6.6%)
132,800 Acadia Realty Trust REIT ..................... 614
944,890 Burnham Pacific Property Trust REIT .......... 8,858
457,800 Federal Realty Investment Trust REIT ......... 8,613
187,900 Pan Pacific Retail Properties, Inc. REIT ..... 3,065
18,900 Philips International Realty Corp. REIT ....... 311
2,300 Ramco-Gershenson Properties Trust REIT ......... 29
--------------
21,490
--------------
--------------
46,000
--------------
SELF STORAGE (3.6%)
507,290 Public Storage, Inc. REIT .................... 11,509
11,800 Shurgard Storage Centers, Inc., Series A REIT . 274
--------------
11,783
--------------
TOTAL COMMON STOCKS (COST $339,614) ................................. 307,775
--------------
PREFERRED STOCKS (0.5%)
OTHER (0.5%)
(k)15,369 Wyndham, Series B (Cost $1,434) ........... 1,434
--------------
CONVERTIBLE PREFERRED STOCKS (0.2%)
OTHER (0.2%)
(a,d)75,765 Atlantic Gulf Communities Corp., ........ 455
Series B(Cost $758)
--------------
WARRANTS (0.0%)
OTHER (0.0%)
(a,d)50,510 Atlantic Gulf Communities
Corp., Class A ....................... 2
(a,d)62,000 Atlantic Gulf Communities
Corp., Class A ....................... 3
The accompanying notes are an integral part of the fiancial statements.
- ----------------------------------------------------------------------------------
</TABLE>
U.S. Real Estate Portfolio
108
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------------------------------
<S> <C>
WARRANTS (CONT.)
OTHER (CONT.)
(a,d)50,510 Atlantic Gulf Communities
Corp., Class B ....................... $2
(a,d)62,000 Atlantic Gulf Communities
Corp., Class B ....................... 2
(a,d)50,510 Atlantic Gulf Communities
Corp., Class C ....................... 2
(a,d)62,000 Atlantic Gulf Communities
Corp., Class C ....................... 2
--------------
TOTAL WARRANTS (COST $ ) 13
--------------
FACE
AMOUNT
(000)
- ---------------
CORPORATE BONDS (0.7%)
OFFICE & INDUSTRIAL (0.7%)
OFFICE (0.7%)
$ 2,934 Brookfield Properties Corp. (Canada) 6.00%, ... 2,275
02/14/07 (Cost $2,251)
--------------
SHORT-TERM INVESTMENT (2.9%)
REPURCHASE AGREEMENT (2.9%)
9,491 Chase Securities, Inc., 2.60%, dated 12/31/99, 9,491
due 1/3/00, to be repurchased at $9,493,
collateralized by U.S. Treasury Bonds, 6.125%
due 12/31/01, valued $9,690 (Cost $9,491)
--------------
TOTAL INVESTMENTS (99.1%) (COST $353,548) 321,443
--------------
OTHER ASSETS (1.3%)
Cash ............................................ $43
Dividends Receivable ............................ 2,911
Receivable for Portfolio Shares Sold ............ 1,299
Interest Receivable ............................. 7
Other ........................................... 19 4,279
--------------------------
LIABILITIES (0.4%)
Investment Advisory Fees Payable ................ (597)
Payable for Portfolio Shares Redeemed ........... (487)
Administrative Fees Payable ..................... (40)
Directors' Fees and Expenses Payable ............ (20)
Custodian Fees Payable .......................... (12)
Distribution Fees Payable ....................... (9)
Other Liabilities ............................... (75) (1,240)
-------------------------- --------------
NET ASSETS (100%) ................................................... $ 324,482
NET ASSETS CONSIST OF:
Paid in Capital ..................................................... $ 359,011
Undistributed Net Investment Income ................................. 1,437
Accumulated Net Realized Loss ....................................... (3,861)
Unrealized Depreciation on Investments .............................. (32,105)
--------------
NET ASSETS .......................................................... $ 324,482
==============
CLASS A:
NET ASSETS .......................................................... $ 311,064
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 26,273,096 outstanding $0.001 par value shares ........ $11.84
(authorized 500,000,000 shares)
==============
CLASS B:
NET ASSETS .......................................................... $ 13,418
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 1,136,917 outstanding $0.001 par value shares ......... $11.80
(authorized 500,000,000 shares)
==============
(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 fiancial 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 DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Other (0.9%)
Utilities (1.5%)
Transportaion (2.2%)
Technology (13.3%)
Healthcare (3.6%)
Financial (28.2%)
Energy (4.0%)
Basic Materials (3.0%)
Capital Goods (11.8%)
Communication Services (14.6%)
Consumer Cyclicals (10.9%)
Consumer Staples (6.0%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- ------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Value Equity S&P 500
Portfolio Class A Index[cad 146]
----------------- ------------
<S> <C> <C>
1/31/90* $ 400,000 $ 400,000
10/31/91 ----------------- ------------
10/31/92 ----------------- ------------
12/31/91 ----------------- ------------
12/31/93 ----------------- ------------
12/31/94 ----------------- ------------
12/31/95 ----------------- ------------
12/31/96 ----------------- ------------
12/31/97 ----------------- ------------
12/31/98 ----------------- ------------
12/31/99 $2,849,635 $1,823,352
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested. The performance of Class B
shares will vary based upon the different inception dates and fees assessed
to that class.
PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
- ------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------
ONE AVERAGE AVERAGE
YEAR ANNUAL ANNUAL
FIVE SINCE
YEARS INCEPTION
-------- --------- ---------
<S> <C> <C> <C>
PORTFOLIO-- CLASS A........... 11.63% 20.22% 13.93%
PORTFOLIO-- CLASS B........... 11.22 N/A 16.53
S&P 500 INDEX-- CLASS A....... 21.04 28.55 19.21
INDATA EQUITY-MEDIAN INDEX
CLASS A....................... 21.35 24.70 17.37
S&P 500 INDEX -- CLASS B...... 21.04 N/A 26.18
INDATA EQUITY-MEDIAN INDEX
CLASS B....................... 21.35 N/A 22.80
</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.
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 long-term capital appreciation by investing
primarily in equity securities which the investment advisor believes to be
undervalued relative to the stock market in general at the time of purchase.
Our 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 year ended December 31, 1999, the Portfolio had a total return of
11.63% for the Class A shares and 11.22% for the Class B shares compared to
21.04% for the S&P 500 Index and 21.35% for the Indata Equity - Median Index.
For the five-year period ended December 31, 1999, the average annual total
return for the Class A shares was 20.22% compared to 28.55% for the S&P 500
Index and 24.70% for the Indata Equity - Median Index. For the period from
inception on January 31, 1990 through December 31, 1999, the average annual
total return for the Class A shares was 13.93% compared to 19.21% for the S&P
500 Index and 17.37% for the Indata Equity - Median Index. For the period
from inception on January 2, 1996 through December 31, 1999, the average
annual total return for the Class B shares was 16.53% compared to 26.18% for
the S&P 500 Index and 22.80% for the Indata Equity - Median Index.
For the three months ended December 31, 1999, the Portfolio had a total
return of 3.81% for the Class A shares and 3.67% for the Class B shares
compared to 14.88% for the S&P 500 Index and 16.71% for the Indata Equity
Median Index.
Capitalization-weighted stock indices produced extra ordinary returns and
valuations in 1999, a year in which long-bond yields rose 150 basis points
and bond returns were the worst in modern times.
- -------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS
OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S
FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
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INVESTMENT OVERVIEW
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VALUE EQUITY PORTFOLIO (CONT.)
PERFORMANCE: LOOSING IN A MEGA-CAP AND DOT-COM WORLD
During the first half of 1999 we experienced a broadening of the market and
value stocks began to perform strongly. For the six months ended June 30,
1999, the Portfolio had a total return of 21.15% for the Class A shares and
20.91% for the Class B shares compared to 12.38% for the S&P 500 Index and
8.36% for the Indata Equity Median Index. However, in the second half of the
year the market again narrowed and was led by a select group of large-cap
growth stocks and almost all technology stocks.
The 1999 market leaders, Microsoft, Cisco, General Electric, Wal-mart,
Oracle, Nortel Networks, Qualcomm, Sun Microsystems, Citigroup, and Intel,
accounted for 61% of the returns in the U.S. market. These ten stocks have
two things in common: (1) great businesses that had a great year and (2)
extraordinary valuations. The average year-end price-to-earnings of the group
is 120 times 1999 expected earnings. This contrasts to stocks in the
Portfolio that are generally good companies that had a good year (double-
digit earnings growth), but were valued at 15 times estimated 1999 earnings.
Even within sectors, the extraordinary returns of the market leaders have
been significant. In financial services both Chase (a Portfolio holding) and
Citigroup had a very good year and were generally seen as the leaders in
their sector with strong management teams. During 1998 and 1999, which
included the financial turmoil associated with Asia, Russia, and
Long-Term-Capital Management, Citigroup grew earnings at 15% per year and
Chase grew earnings at 16% per year. Yet, as 1999 finished, Citigroup was up
70% with a price-to-earnings of 20 and Chase was up 12% with a
price-to-earnings of 14.
In the retail sector the same phenomena occurred. In 1999, Wal-mart grew
earnings at 28%, was up 70%, and finished the year with a price-to-earnings
of 50. At the same time, a Portfolio holding, TJMaxx, also grew earnings at
28%. And like Wal-mart, TJMaxx generated excess cash, bought back shares, and
expects 2000 to be another strong year. Yet, for the year, TJMaxx was down
29% and was valued at 12 times expected 1999 earnings. While we would expect
TJMaxx to sell at some discount to Wal-mart, a 76% differential appears to us
to be too much.
Turning to the dot-com and wireless world, we believe that the Internet
(connectionless packet-based telecommunications) and wireless are
fundamentally changing the structure of the global economy. (See the reprint
below of the I.Net Economy from our March 31, 1999 First Quarter Report.) We
are, however, at a loss for words to describe the impact of the Internet on
the valuations of technology stocks and all of the major large-cap stock
indexes.
In the current environment of significant change and significant
valuations, our Portfolio strategy is to own the companies in every sector
that meet our value criteria and are adapting their businesses models to the
impact of the internet and wireless communications. In addition, when valua-
tions permit, our strategy is to own the Internet and wireless infrastructure
companies. Currently these include AT&T, Sprint, MCI Worldcom, NewBridge
Networks, and 3Com. Given the complexities and competitive nature of these
technologies, even the "best" companies hit an air pocket from time-to-time
(See Lucent's miss on January 7, 2000, and its subsequent 30% two-day
correction). When this happens, we buy these companies in momentum-driven
selloffs based on "bad" news or a missed quarter for earnings projections.
In 1999, this strategy added value.
As for the valuations of Internet stocks, it is clear that the expectation of
exponential growth is embedded in current valuations for many companies in
technology and "new economy" industries. We believe that the odds that they
all win by riding the wireless/internet tsunami is very small.
An example of the current valuation paradox is Cisco, the dominant Internet
router company (and fundamentally a great company) which trades at 26 times
trailing sales and over 100 times earnings. It's market capitalization is
over $370 billion. Looking back, Cisco has been the big Internet winner.
Looking forward, Juniper Networks, a start-up company and 1999 IPO that is
valued at $17 billion and has approximately $100 million in sales, now
competes with Cisco and in some markets is getting 50% market share. In
addition, both Lucent and Nortel have reconfigured their businesses to
compete with Cisco; and the Internet battle has moved from routers to routing
and optical networks. So the question is can Cisco still dominate in the new
optical internet arena while facing off against Lucent, Nortel, and
challenging start ups such as Juniper? Furthermore, is the probability of
Cisco's continued success times the forecasted earnings growth worth 26 times
sales?
PERFORMANCE:SECTORS AND STOCKS
The top performing sectors in the Portfolio were technology,
telecommunications services and farm equipment. The underperforming sectors
were retail, tobacco, and financial services. The top contributing stocks
included Case, Philips Electronics, Audiocodes, Nielsen Media Research,
Nextel, and BP Amaco. Nielsen Media Research received a cash offer of $37 a
share from NVU of the Netherlands. (In late 1998 Nielsen Media Research, with
a dominant franchise in television monitoring and an emerging internet
business, was languishing at 10 times 1998 earnings and was off 47% from its
prior high.) The performance of another holding, Sprint (now in an agreement
with Worldcom to be purchased at $76 per
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VALUE EQUITY PORTFOLIO (CONT.)
share), reflects the value of Sprint's CDMA wireless footprint and a very
high-quality data and voice network. Nextel was purchased during a sell-off
in the high $30s and low $40s and sold at about $80. Nextel's valuation
reflects the continuing impact of the explosive growth of the Internet and
wireless on infrastructure companies. BP Amaco's performance reflected both
the rebound in oil prices, the merger benefits being implemented, and
anticipated future benefits when the Arco merger closes this year.
The top performance detractors were TJX companies, USEC, NISource, Allstate,
Ogden and Philip Morris. We discussed TJX (TJMaxx) above. In 1999 TJX had
another great year, yet its price-to-earnings (on 2000 earnings) went from 15
to 10. We added to our position late in 1999. Allstate is a medium-term
disappointment as they announced a 20% decrease in earnings due to the
effects of increased competition, higher catastrophe losses, higher claims
costs, and higher costs to "Internet the company." Allstate is down over 50%
from its 1998 high of $51.50 and is now almost at book value. Allstate is the
low-cost provider of property and casualty insurance, and is a well- run
company. It is buying back shares, and taking steps to further leverage the
economics of the Internet. We met with Allstate management a number of times
in the fourth quarter of 1999, and, based on those meetings, increased our
holding at these valuations. NISource has a long-standing track record for
growing earnings with cost controls and acquisitions in growth markets. This
year they bid for Columbia Energy and are in a hostile take over battle.
Between this battle and the general underperformance of utilities, NISource
was down 39%. NISource trades at under 10 times earnings, yields over 5%, and
grows earnings at 10%. As such, we added to our position in 1999. USEC
processes uranium for nuclear power plants and has struggled with higher
electric costs and a difficult Russian contract. Yet, for the year, it bought
back 10% of its shares and declared a dividend that yields over 15%. Its
price-to- earnings is now under 6. Given these factors, we added to our
positions. Philip Morris and Ogden are problem/turn around companies and we
held small positions in each of these stocks. We sold Ogden after a
management change and an elimination of their dividend. We modestly reduced
our holding in Philip Morris and are monitoring its on-going battles in the
courts and with the U.S. Government.
At year-end our biggest positions were NewBridge Networks, Sprint, Chase
Manhattan, FleetBoston and Philips Electronics. These five stocks account for
21% of the Portfolio's net assets. Rounding out the top 10 positions are
United Technologies, AT&T/Media One, TJMaxx, and Lincoln National. These top
10 comprise 41% of the Portfolio's net assets.
THE i.NET ECONOMY (LETTER TO SHAREHOLDER IN THE FIRST
QUARTER REPORT ENDED MARCH 31, 1999)
The "Internet" has grown faster than any other technology. Internet traffic
is doubling every three-to-twelve months. Why? The structure of the Internet
lets any device (PC, Mainframe, PDA, Cell Phone) connect to any other device
any where in the world. Much like voice mail, the connection is not time
dependent, so you can connect at any time on any day. The connection can then
carry data, voice, and video, and the data arrives in discreet packets that
are very cheap to transport relative to existing dedicated phone circuits.
This structure has enormous implications for how business-to-business
transactions occur and how consumers buy services.
The power of the Internet is based on data/ telecommunications protocols
(rules) known by the acronym TCP/IP, which stands for Transmission Control
Protocol/Internet Protocol. The protocols are the same worldwide. While the
current surge in Internet demand has led to exponential growth in demand for
computer servers (Sun Microsystems, Hewlett Packard, IBM et.al.) and
telecommunications bandwidth (Worldcom, AT&T, Sprint. et.al.), the core of
the Internet is based on open standards. There are no monopolies. Anyone can
compete by writing a better browser, putting up a better portal, or selling a
product cheaper (DELL, Amazon). This leads to the question of which companies
win, and which companies struggle with more competition and lower margins.
The next question is can a low price-to-earnings and high-yield Value manager
position a value portfolio to benefit from the changes the Internet is
bringing?
We believe that the answer is yes. We are looking for businesses where scale
and technology allow the high- quality/low-cost producers to get to more
customers at less cost. We can also own broadband backbone companies,
broadband consumer companies and broadband infrastructure companies.
Stephen C. Sexauer
PORTFOLIO MANAGER
January 2000
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STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (99.1%)
BASIC MATERIALS (3.0%)
Chemicals (Specialty) (1.3%)
30,800 Milennium Chemicals, Inc. ............... $608
-----------------
METALS MINING (1.7%)
119,500 USEC, Inc. ............................. 837
-----------------
TOTAL BASIC MATERIALS. ...................................... 1,445
-----------------
CAPITAL GOODS (11.8%)
AEROSPACE/DEFENSE (4.3%)
45,100 Cordant Technologies, Inc. .............. 1,488
11,000 General Dynamics Corp. .................. 580
-----------------
2,068
-----------------
ELECTRICAL EQUIPMENT (3.3%)
87,600 NiSource, Inc. .......................... 1,566
-----------------
MANUFACTURING (DIVERSIFIED) (4.0%)
29,600 United Technologies Corp. ............... 1,924
-----------------
OFFICE EQUIPMENT & SUPPLIES (0.2%)
(a)21,650 Lanier Worldwide, Inc. ............... 84
-----------------
TOTAL CAPITAL GOODS ......................................... 5,642
-----------------
COMMUNICATION SERVICES (14.6%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (1.5%)
17,325 Telesp Celular Participacoes S.A. ....... 734
-----------------
TELECOMMUNICATIONS (LONG DISTANCE) (7.8%)
13,785 AT&T Corp. .............................. 700
(a)17,100 MCI WorldCom, Inc. ................... 907
31,300 Sprint Corp. ............................ 2,107
-----------------
3,714
-----------------
TELEPHONE (5.3%)
26,500 Bell Atlantic Corp. ..................... 1,631
7,500 BellSouth Corp. .......................... 351
7,500 U.S. WEST, Inc. .......................... 540
-----------------
2,522
-----------------
-----------------
TOTAL COMMUNICATION SERVICES ................................ 6,970
-----------------
CONSUMER CYCLICALS (10.9%)
AUTO PARTS & EQUIPMENT (3.9%)
96,066 Meritor Automotive, Inc. ................ 1,861
-----------------
AUTOMOBILES (1.7%)
11,400 General Motors Corp. .................... 829
-----------------
BUILDING MATERIALS (0.2%)
3,400 Masco Corp. .............................. 86
-----------------
PHOTOGRAPHY/IMAGING (0.8%)
5,700 Eastman Kodak Co. ........................ 378
-----------------
PUBLISHING (NEWSPAPERS) (0.6%)
8,200 News Corp., Ltd. ADR ..................... 274
-----------------
RETAIL (SPECIALTY) (3.7%)
87,200 TJX Cos., Inc. .......................... 1,782
-----------------
TOTAL CONSUMER CYCLICALS .................................... 5,210
-----------------
CONSUMER STAPLES (6.0%)
BROADCASTING (TV, RADIO, CABLE) (4.6%)
7,500 Comcast Corp., Class A ................... 377
(a)23,500 MediaOne Group, Inc. ................. 1,805
-----------------
2,182
-----------------
SPECIALTY PRINTING (1.1%)
(a)27,720 R.H. Donnelly Corp. .................. $523
-----------------
TOBACCO (0.3%)
5,800 Philip Morris Cos., Inc. ................. 135
-----------------
TOTAL CONSUMER STAPLES ...................................... 2,840
-----------------
ENERGY (4.0%)
OIL (DOMESTIC INTEGRATED) (4.0%)
8,200 BP Amoco plc ............................. 486
43,700 Conoco, Inc. ............................ 1,082
13,100 USX-Marathon Group ...................... 323
-----------------
TOTAL ENERGY ................................................ 1,891
-----------------
FINANCIAL (28.2%)
BANKS (MAJOR REGIONAL) (7.9%)
16,700 Bank of New York Co., Inc. .............. 668
56,345 Fleet Boston Financial Corp. ............ 1,962
16,100 Mellon Bank Corp. ....................... 548
13,100 PNC Bank Corp. .......................... 583
-----------------
3,761
-----------------
BANKS (MONEY CENTER) (4.2%)
25,800 Chase Manhattan Corp. ................... 2,004
-----------------
CONSUMER FINANCE (1.3%)
24,700 Countrywide Credit Industries, Inc. ..... 624
-----------------
FINANCIAL (DIVERSIFIED) (2.1%)
16,500 Federal National Mortgage Association ... 1,030
-----------------
INSURANCE (LIFE & HEALTH) (7.1%)
18,400 American General Corp. .................. 1,396
43,700 Lincoln National Corp. .................. 1,748
7,900 Torchmark Corp. .......................... 230
-----------------
3,374
-----------------
INSURANCE (MULTI-LINE) (2.1%)
16,300 Loews Corp. ............................. 989
-----------------
INSURANCE (PROPERTY - CASUALTY) (3.5%)
68,600 Allstate Corp. .......................... 1,646
-----------------
TOTAL FINANCIAL ............................................. 13,428
-----------------
HEALTHCARE (3.6%)
HEALTHCARE (DIVERSIFIED) (1.0%)
12,100 American Home Products Corp. ............ 477
-----------------
HEALTHCARE (DRUGS - GENERIC & OTHERS) (0.5%)
9,000 ICN Pharmaceuticals, Inc. ................ 228
-----------------
HEALTHCARE (MEDICAL PRODUCTS & SUPPLIES) (2.1%)
14,900 Bausch & Lomb, Inc. ..................... 1,020
-----------------
TOTAL HEALTHCARE ............................................ 1,725
-----------------
TECHNOLOGY (13.3%)
COMMUNICATION EQUIPMENT (1.2%)
21,650 Harris Corp. ............................ 578
-----------------
COMPUTERS (NETWORKING) (5.6%)
(a)10,800 3Com Corp. ........................... 508
(a)95,300 Newbridge Networks Corp. ............. 2,150
-----------------
2,658
-----------------
COMPUTERS (SOFTWARE & SERVICES) (4.7%)
(a)11,200 IXnet, Inc. .......................... 337
14,316 Philips Electronics N.V. (NY Shares) .... 1,933
-----------------
2,270
-----------------
The accompanying notes are an integral part of the fiancial statements.
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</TABLE>
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STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO (CONT.)
<TABLE>
<CAPTION>
SHARES (000)
- ------------------------------------------------------------------------------------
<S> <C>
TECHNOLOGY (CONT.)
ELECTRONICS (DEFENSE) (1.8%)
(a)16,900 Litton Industries, Inc. .............. $843
-----------------
TOTAL TECHNOLOGY ............................................ 6,349
-----------------
TRANSPORTATION (2.2%)
AIRLINES (2.2%)
(a)23,900 Continental Airlines, Inc., Class B .. 1,061
-----------------
UTILITIES (1.5%)
ELECTRIC COMPANIES (1.5%)
13,100 New Century Energies, Inc. .............. 398
10,400 Pinnacle West Capital Corp. ............. 318
-----------------
TOTAL UTILITIES ............................................. 716
-----------------
TOTAL COMMON STOCKS (COST $42,396) ............................. 47,277
FACE
AMOUNT
(000)
- ---------------
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT (0.4%)
$ 161 Chase Securities, Inc., 2.60%, dated 12/31/99, 161
due 1/03/00, to be repurchased at $161,
collateralized by U.S. Treasury Notes, 6.125%,
due 12/31/01, valued at $161 (Cost $161)
-----------------
TOTAL INVESTMENTS (99.5%) (COST $42,557) ....................... 47,438
-----------------
OTHER ASSETS (0.7%)
Receivable for Portfolio Shares Sold ............. $180
Receivable for Investments Sold .................. 109
Dividends Receivable ............................. 43
Other ............................................ 13 345
-------------------
LIABILITIES (-0.2%)
Investment Advisory Fees Payable ................. (45)
Professional Fees Payable ........................ (25)
Directors' Fees and Expenses Payable ............. (9)
Administrative Fees Payable ...................... (8)
Custodian Fees Payable ........................... (3)
Bank Overdraft Payable ........................... (1)
Distribution Fees Payable ........................ (1)
Other Liabilities ................................ (2) (94)
------------------- -----------------
NET ASSETS (100%) .............................................. $47,689
=================
NET ASSETS CONSIST OF:
Paid in Capital ................................................ $43,358
Undistributed Net Investment Income ............................ 8
Accumulated Net Realized Loss .................................. (558)
Unrealized Appreciation on Investments ......................... 4,881
-----------------
NET ASSETS ..................................................... $47,689
=================
CLASS A:
NET ASSETS ..................................................... $46,768
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 4,858,846 outstanding $0.001 par value shares
(authorized 500,000,000 shares)........................ $9.63
=================
CLASS B:
NET ASSETS ..................................................... $921
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 95,931 outstanding $0.001 par value shares
(authorized 500,000,000 shares) ...................... $9.60
=================
(a) --Non-income producing
ADR --American Depositary Receipt
</TABLE>
The accompanying notes are an integral part of the fiancial statements.
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INVESTMENT OVERVIEW
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EMERGING MARKETS DEBT PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Algeria (0.8%)
Argentina (18.8%)
Brazil (25.3%)
Bulgaria (3.6%)
Colombia (1.7%)
Ecuador (0.7%)
Indonesia (1.1%)
Jordan (1.0%)
Mexico (14.8%)
Morocco (2.4%)
Panama (0.6%)
Peru (2.7%)
Philippines (1.9%)
Poland (0.4%)
Russia (8.4%)
South Korea (0.5%)
Turkey (4.5%)
Venezuela (5.5%)
Other (5.3%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
J.P. Morgan
Emerging Markets Emerging Markets
Debt Portfolio Bond Plus
-Class A Index(1)
---------------- ---------------
<S> <C> <C>
2/01/94* $500,000 $500,000
12/31/94 ________ _______
12/31/95 ________ _______
12/31/96 ________ _______
12/31/97 ________ _______
12/31/98 ________ _______
12/31/99 $810,231 $847,068
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE J.P. MORGAN EMERGING
MARKETS BOND PLUS INDEX(1)
- --------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YEAR YEARS INCEPTION
------ ------- ---------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A.......... 29.22% 13.57% 8.53%
PORTFOLIO -- CLASS B.......... 28.01 N/A 9.75
INDEX -- CLASS A.............. 25.97 16.58 9.95
INDEX -- CLASS B.............. 25.97 N/A 13.86
</TABLE>
1. The J.P. Morgan Emerging Markets Bond Plus Index is a market weighted index
composed of all Brady bonds, outstanding loans and Eurobonds, as well as U.S.
Dollar local market instruments of Argentina, Brazil, Bulgaria, 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 is high total
return through investment primarily in debt securities of government and
government-related issuers and, to a lesser extent, of corporate issuers located
in emerging market countries.
For the year ended December 31, 1999, the Portfolio had a total return of 29.22%
for the Class A shares and 28.01% for the Class B shares compared to 25.97% for
the J.P. Morgan Emerging Markets Bond Plus Index (the "Index"). For the
five-year period ended December 31, 1999, the average annual total return for
the Class A shares was 13.57% compared to 16.58% for the Index. For the period
from inception on February 1, 1994 through December 31, 1999, the average annual
total return for the Class A shares was 8.53% compared to 9.95% for the Index.
For the period from inception on January 2, 1996 through December 31, 1999, the
average annual total return for the Class B shares was 9.75% compared to 13.86%
for the Index. As of December 31, 1999 the Portfolio had a SEC 30-day yield of
15.66% for the Class A shares and 15.36% for the Class B shares.
Emerging markets debt was easily the best performing fixed income asset class in
1999, returning 25.97% as measured by the Index. In addition, emerging markets
debt was the best performing fixed income asset class for the five-year period
through 1999--a remarkable feat given the multiple shocks witnessed during the
period (Mexico, Asia, Russia, Brazil and two distinct periods of U.S. monetary
tightening).
During the fourth quarter, overweights in Brazil and Peru, and underweights in
Argentina, South Korea and Poland and security selection decisions in Russia
positively impacted results relative to the Index. Conversely, an overweight
position in the Philippines and Indonesia detracted from relative performance.
For the three months ended December 31, 1999, the Portfolio had a total return
of 14.38% for the Class A shares and 14.26% for the Class B shares compared to
12.58% for the Index.
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS
OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES
MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S
FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING. YIELDS WILL FLUCTUATE AS MARKET
CONDITIONS CHANGE.
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EMERGING MARKETS DEBT PORTFOLIO (CONT.)
FACTORS INFLUENCING 1999 OUTCOME
Investors contended with several concerns during the year, including Brazil's
devaluation, a panic over the fate of the Argentine peso, rising global interest
rates, acute uncertainty in Russia, increased violence in Colombia and
Indonesia, a default in Ecuador, and a severe earthquake in Turkey, to name a
few. Nonetheless, the asset class posted exceptionally strong absolute returns
during 1999--a fact mainly reflecting its relative cheapness at the start of
last year. With yield spreads of approximately 1200 basis points above U.S.
Treasuries at the beginning of 1999, emerging markets debt clearly provided a
healthy amount of interest income, which, in turn, provided an excellent cushion
for investors.
For much of the year, relative valuations for the emerging market debt remained
near historically wide levels. Fueled by a variety of fundamental factors,
emerging market debt then enjoyed a powerful rally in the final months of 1999
with yield spreads tightening to approximately 830 basis points over U.S.
Treasuries. Investors were comforted by signs of a bottoming out of economic
activity in most Latin American economies, while growth in Emerging Asia
surprised on the upside throughout the year. Overall, external balances improved
during the latter part of the year, reflecting higher oil prices and import
compression. At the structural level, systemically important countries (e.g.,
Brazil and Mexico) were pushing through reform agendas while the absence of
reform setbacks in other countries (e.g., Argentina and Russia) provided
investors with a modicum of comfort. Finally, the political environment in
emerging countries remained benign with key elections proceeding relatively
smoothly.
OUTLOOK FOR 2000
Looking into the new-year, the outlook for emerging markets debt remains
favorable and encouraging. The asset class is attractive both in terms of income
(the Index now yields some 850 basis points over U.S. treasury rates) and
prospects for price appreciation. This prognosis reflects two self-reinforcing
factors.
Short-term uncertainties notwithstanding, the global environment continues to be
supportive. Emerging markets are facing a world in which economic growth looks
set to be both higher and better synchronized across regions. Moreover, the
developing world is benefiting from evidence of improved risk appetite that
should be manifested in higher capital inflows. Finally, commodity prices remain
on an upward trend that should help the most systemically important--but
precariously positioned--emerging countries.
The second factor relates to the ongoing process of adjustment and reform in
emerging economies. In the day-to-day flurry of headlines, it is easy to lose
sight of the fact that emerging countries are presently in a significantly
better position than only a decade ago. That Asia has recovered so impressively
and Latin America has avoided the old cycle of shocks-cum-hyperinflation is a
testament to the important economic advances that these regions have achieved
over the past decade. Encouragingly, we enter 2000 with no signs that "reform
fatigue" has set in.
However, the path of "convergence" will not be linear. There will always be
bumps along the way. The short-term outlook is an important case in point. We
have recently entered into a period of uncertainty over the short-term behavior
of U.S. financial markets. Indeed, if the Federal Reserve commences a period of
monetary tightening over the next few months, highly leveraged emerging
economies will be adversely affected. Moreover, should the tightening cause a
slowdown in U.S. growth rates, emerging economies will lose an important
export-growth market. As such, and following the very strong November/December
rally in emerging markets debt prices, we have adopted a less aggressive stance
by switching into shorter duration assets of countries that are less correlated
with overall market movements. Over a medium-term horizon, however, we remain on
the look out for resumed stability in global financial markets. In any event, we
feel there should be significant scope for emerging market assets to resume
their upward price path.
Stephen F. Esser
PORTFOLIO MANAGER
Abigail L. McKenna
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
116
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<S> <C> <C>
DEBT INSTRUMENTS (92.0%)
ALGERIA (0.8%)
SOVEREIGN (0.8%)
U.S.$ 200 Republic of Algeria, 6.125%, 3/31/00 .... $ 154
400 Republic of Algeria, Tranche 3,
6.125%, 3/31/00 ...................... 287
----------------
441
----------------
ARGENTINA (18.8%)
CORPORATE (2.1%)
(e)200 Cablevision S.A., 13.75%, 5/01/09 ....... 195
ARP 100 CIA International Telecommunications,
10.375%, 8/01/04 ................... 83
(e)750 CIA International Telecommunications,
10.375%, 8/01/04 ................... 623
U.S.$ (e)348 Nortel Inversora, Series A, 6.00%,
3/31/07 Series A ................... 209
----------------
1,110
----------------
SOVEREIGN (16.7%)
405 Republic of Argentina, (Floating Rate)
2.868%, 4/01/07 .................... 280
3,060 Republic of Argentina, Global Bond,
11.75%, 4/07/09 .................... 3,054
3,125 Republic of Argentina, Global Bond,
11.375%, 1/30/17 Series BGL5 ....... 3,115
2,728 Republic of Argentina, Global Bond,
Series L, (Floating Rate),
(Bearer), 6.813%, 3/31/05........... 2,498
----------------
8,947
----------------
10,057
----------------
BRAZIL (25.3%)
SOVEREIGN (25.3%)
8,995 Federative Republic of Brazil, C Bond,
PIK, 8.00%, 4/15/14 ................ 6,768
3,250 Federative Republic of Brazil, Debt
Conversion Bond, Series L,
(Floating Rate), 7.00%, 4/15/12 .... 2,413
2,376 Federative Republic of Brazil, Front
Loaded Interest Reduction Bond,
Series L, 14.50%, 10/15/09 ......... 2,639
2,000 Federative Republic of Brazil, New Money
Bonds, Series L,
(Floating Rate), 7.00%, 4/15/09 .... 1,612
150 Federative Republic of Brazil, Series L,
(Floating Rate), 7.00%, 4/15/09 .... 121
----------------
13,553
----------------
BULGARIA (3.6%)
SOVEREIGN (3.6%)
1,070 Republic of Bulgaria, Discount Bond,
(Floating Rate), Series A,
6.50%, 7/28/24 ..................... 859
(n)600 Republic of Bulgaria, Front Loaded
Interest Reduction Bond,
2.75%, 7/28/12 ..................... 434
U.S.$ 820 Republic of Bulgaria, Interest Arrears
PDI Bond, (Floating Rate),
6.50%, 7/28/11...................... 649
----------------
1,942
----------------
COLOMBIA (1.7%)
CORPORATE (0.3%)
(n)300 Occidente y Caribe Cellular, Series B,
0.00%, 3/15/04 ..................... 165
----------------
SOVEREIGN (1.4%)
300 Republic of Colombia, 8.375%, 2/15/27 ... 232
540 Republic of Colombia, Global Bond,
9.75%, 4/23/09 ..................... 505
----------------
737
----------------
902
----------------
ECUADOR (0.7%)
SOVEREIGN (0.7%)
(b)980 Republic of Ecuador, Discount Bond,
(Floating Rate), 6.75%,
2/28/25 ............................ 380
----------------
INDONESIA (1.1%)
CORPORATE (1.1%)
220 Idah Kiat, International Finance,
Series B, 11.875%, 6/15/02 ......... 196
440 Tjiwi Kimia International BV,
Global Bond, 13.25%, 8/01/01 ....... 391
----------------
587
----------------
JORDAN (1.0%)
SOVEREIGN (1.0%)
279 Government of Jordan, Discount Bond,
(Floating Rate), 7.00%, 12/23/23 ... 200
(e)443 Government of Jordan, Discount Bond,
(Floating Rate), 7.00%, 12/23/23 ... 318
----------------
518
----------------
MEXICO (14.8%)
CORPORATE (2.7%)
(e)400 Nuevo Grupo Iusacell S.A.
14.25%, 12/01/06 ................... 417
(e)650 Sanluis Corp. S.A. de C.V., 8.875%,
3/18/08 ............................ 583
535 TV Azteca S.A. de C.V., Series B,
10.50%, 2/15/07 .................... 467
----------------
1,467
----------------
SOVEREIGN (12.1%)
300 United Mexican States, Discount Bond,
Series B, (Floating Rate),
6.943%, 12/31/19 ................... 281
3,860 United Mexican States, Discount Bond,
Series D, (Floating Rate),
6.903%, 12/31/19 ................... 3,612
1,200 United Mexican States, Global Bond,
11.375%, 9/15/16 ................... 1,361
</TABLE>
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
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<S> <C> <C>
MEXICO (CONT.)
SOVEREIGN (CONT.)
U.S.$ 1,115 United Mexican States, Global Bond,
Series XW, 10.375%, 2/17/09 ........ $ 1,193
----------------
6,447
----------------
7,914
----------------
MOROCCO (2.4%)
SOVEREIGN (2.4%)
1,419 Government of Morocco, Reconstruction
& Consolidation Agreement,
Series A, (Floating Rate),
6.844%, 1/01/09 .................... 1,295
----------------
NETHERLANDS (0.7%)
CORPORATE (0.7%)
(e)400 Netia Holdings II B.V., 13.125%,
6/15/09 ............................ 402
----------------
PANAMA (0.6%)
SOVEREIGN (0.6%)
200 Republic of Panama, Global Bond,
8.875%, 9/30/27 .................... 168
216 Republic of Panama, PDI Bond,
(Floating Rate), 6.50%, 7/17/16 .... 171
----------------
339
----------------
PERU (2.7%)
SOVEREIGN (2.7%)
(e,n)648 Republic of Peru, Front Loaded Interest
Reduction Bond, 3.75%, 3/07/17 ..... 403
(n)450 Republic of Peru, Front Loaded
Interest Reduction Bond,
3.75%, 3/07/17 ..................... 279
1,080 Republic of Peru, PDI Bond,
(Floating Rate), 4.00%, 3/07/17 .... 754
----------------
1,436
----------------
PHILIPPINES (1.9%)
CORPORATE (1.0%)
(e)600 Bayan Telecommunications, 13.50%,
7/15/06 ............................ 528
SOVEREIGN (0.9%)
500 Republic of Philippines, Global Bond,
9.875%, 1/15/19 .................... 496
----------------
1,024
----------------
POLAND (0.4%)
CORPORATE (0.4%)
(e)200 PTC International Finance S.A., 11.25%,
12/01/09 ........................... 196
----------------
RUSSIA (8.4%)
SOVEREIGN (8.4%)
(e)480 Russian Federation, 8.75%, 7/24/05 ...... 300
600 Russian Federation, 10.00%, 6/26/07 ..... 366
(e)3,270 Russian Federation, 11.00%, 7/24/18 ..... 1,978
650 Russian Interest Arrears Note,
(Floating Rate), 6.906%, 12/15/15 .. 120
10,521 Russian Principal Loans,
(Floating Rate), 6.906%, 12/15/20 .. 1,703
----------------
4,467
----------------
SOUTH KOREA (0.5%)
SOVEREIGN (0.5%)
U.S.$ 250 Republic of Korea, 8.875%, 4/15/08 ...... 264
----------------
TURKEY (1.1%)
CORPORATE (1.1%)
(e)520 Cellco Finance NV, 15.00%, 8/01/05 ...... 564
----------------
VENEZUELA (5.5%)
SOVEREIGN (5.5%)
2,600 Government of Venezuela, 9.25%, 9/15/27 .. 1,742
1,524 Republic of Venezuela, Debt Conversion
Bond, Series DL, (Floating Rate),
7.00%, 12/18/07 .................... 1,204
----------------
2,946
----------------
TOTAL DEBT INSTRUMENTS (COST $44,592) ..................... 49,227
----------------
</TABLE>
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
- ---------------------------------------------------------------------------------
<S> <C> <C>
RIGHTS (0.0%)
MEXICO (0.0%)
6,401 United Mexican States, Value
Recovery Rights, expiring
6/30/03 (Cost $0)................... --
----------------
</TABLE>
<TABLE>
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS (0.0%)
ARGENTINA (0.0%)
(a)1,900 Republic of Argentina,
expiring 2/15/00 ................... 4
----------------
COLOMBIA (0.0%)
(a,e)12,600 Occidente y Caribe Cellular,
expiring 3/15/04 ................... 19
----------------
TOTAL WARRANTS (COST $8) .................................. 23
----------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.2%)
TURKEY (3.4%)
TREASURY BILLS (3.4%)
TRL 830,988,000 0.00%, 3/15/00 .......................... 1,410
222,532,000 0.00%, 3/15/00 .......................... 361
----------------
1,771
----------------
UNITED STATES (1.8%)
REPURCHASE AGREEMENT (1.8%)
U.S.$ 1,004 Chase Securities, Inc., 2.60%, dated
12/31/99, due 1/03/00, to be
repurchased at $1,004,
collateralized by U.S. Treasury
Note, 6.125% due 12/31/01,
valued at $1,028 ................... 1,004
----------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,348) ................ 2,775
----------------
FOREIGN CURRENCY (0.0%)
ARP 5 Argentine Peso (Cost $5) ................ 5
----------------
</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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)
- ----------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (97.2%) (Cost $47,953) ....................... $ 52,030
-----------
OTHER ASSETS (3.2%)
Cash ............................................. $ 96
Interest Receivable .............................. 1,527
Receivable for Portfolio Shares Sold ............. 92
Other ............................................ 8 1,723
---------
LIABILITIES (-0.4%)
Investment Advisory Fees Payable ................. (92)
Payable for Foreign Taxes ........................ (74)
Directors' Fees and Expenses Payable ............. (15)
Custodian Fees Payable ........................... (11)
Administrative Fees Payable ...................... (9)
Distribution Fees Payable ........................ (1)
Other Liabilities ................................ (37) (239)
--------- ---------
NET ASSETS (100%) .............................................. $ 53,514
=========
NET ASSETS CONSIST OF:
Paid in Capital ................................................ $ 148,918
Distributions in Excess of Net Investment Income ............... (15)
Accumulated Net Realized Loss .................................. (99,356)
Unrealized Appreciation on Investments and Foreign Currency ....
Translations ................................................. 3,967
---------
NET ASSETS ..................................................... $ 53,514
=========
CLASS A:
NET ASSETS ..................................................... $ 52,654
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 17,564,688 outstanding $0.001 par value shares
(authorized 500,000,000 shares) ............................ $ 3.00
==========
CLASS B:
NET ASSETS ..................................................... $ 860
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 283,459 outstanding $0.001 par value shares
(authorized 500,000,000 shares) ............................ $ 3.03
==========
- --------------------------------------------------------------------------------
</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 December 31,
1999. Maturity date disclosed is the ultimate maturity date.
ARP -- Argentine Peso
PDI -- Past Due Interest
PIK -- Payment-In-Kind. Income may be received in additional securities or
cash at the discretion of the issuer.
TRL -- Turkish Lira
Floating Rate -- The interest rate on these instruments are based on changes in
a designated base rate. The rates shown are those in effect on
December 31, 1999.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
119
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
U.S. Government &
Agency Obligations (47.4%)
Collateralized Mortgage
Obligations (6.9%)
Corporate Bonds
and Notes (34.7%)
Asset Backed Securities (9.9%)
Yankee Bond (5.6%)
Other (-4.5%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Fixed Income Lehman Brothers
Portfolio- Aggregate Bond
Class A Index(1)
------------ --------------
<S> <C> <C>
5/15/91* $500,000 $500,000
10/31/91 ________ ________
10/31/92 ________ ________
12/31/92 ________ ________
12/31/93 ________ ________
12/31/94 ________ ________
12/31/95 ________ ________
12/31/96 ________ ________
12/31/97 ________ ________
12/31/98 ________ ________
12/31/99 $916,372 $926,864
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE LEHMAN
AGGREGATE BOND INDEX(1)
- ----------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YEAR YEARS INCEPTION
------ ------- ---------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A ........ -1.56% 7.65% 7.24%
PORTFOLIO -- CLASS B ........ -1.76 N/A 4.89
INDEX -- CLASS A ............ -0.82 7.73 7.41
INDEX -- CLASS B ............ -0.82 N/A 5.21
</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 year ended December 31, 1999, the Portfolio had a total return of -1.56%
for the Class A shares and -1.76% for the Class B shares compared to -0.82% for
the Lehman Aggregate Bond Index (the "Index"). For the five-year period ended
December 31, 1999, the average annual total return for the Class A shares was
7.65% compared to 7.73% for the Index. For the period from inception on May 15,
1991 through December 31, 1999, the average annual total return for the Class A
shares was 7.24% compared to 7.41% for the Index. For the period from inception
on January 2, 1996 through December 31, 1999, the average annual total return
for the Class B shares was 4.89% compared to 5.21% for the Index. As of December
31, 1999, the Portfolio had a SEC 30-day yield of 6.77% for the Class A shares
and 6.62% for the Class B shares.
The potential for continued above-trend economic growth and the risk of further
Federal Reserve tightening moves forced U.S. interest rates higher during the
fourth quarter. In fact, the sharp rise in interest rates was a key theme
throughout 1999. For the year, yields on the most current (i.e., "on-the-run")
two-year and 30-year Treasury issues rose by 170 and 139 basis points,
respectively, bringing their yields to levels not seen since prior to the Asian
currency crisis of mid-1997.
As a consequence of the sustained rise in interest rates, the broader fixed
income indices posted negative annual returns for the first time since 1994.
Despite the unfavorable absolute returns, the non-Treasury sectors, such as
corporates and mortgages, experienced strong relative performance versus
Treasury issues with the same degree of interest rate risk, as their attractive
yield spreads provided an excellent cushion against the unfavorable effects of
declining bond prices.
The Federal Open Market Committee (FOMC) meets again in early February. Because
the tight labor market biases the Fed to lean against continued rapid growth,
the probability of a tightening move at that time is quite high, and there also
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED
IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL
THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT
PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. YIELDS WILL FLUCTUATE AS MARKET
CONDITIONS CHANGE.
- --------------------------------------------------------------------------------
Fixed Income Portfolio
120
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO (CONT.)
is the likelihood of one or more additional tightening moves during the course
of the year. Yet the market has already discounted such actions; in fact, the
current yield curve already discounts approximately 75 basis points of
additional Fed tightening in 2000. With this degree of tightening already
factored into the yield curve, and real yields at high levels, the result is
very attractive valuations in the level of bond yields.
Our slightly above-benchmark interest-rate sensitivity (IRS) strategy had an
unfavorable impact on relative returns due to the rise in interest rates during
the fourth quarter. The volatility in interest rates did allow us to make some
tactical changes in the Portfolio's IRS during the period. In reaction to rising
real rates early in the fourth quarter, we extended the IRS of the Portfolio
from +0.2 years to +0.4 years compared to the Index. Then, following a brief
bond market rally -- and a reduction in real rates -- in early November, we
reduced the magnitude of the above-benchmark IRS strategy to approximately +0.3
year compared to the Index, which was still slightly higher than the Portfolio's
IRS level at the start of the quarter. The yield curve does not present any
compelling value opportunities, so our yield curve strategy remains basically in
line with the Index at this time.
Historically, periods of high real rates have been excellent environments in
which to build an above - benchmark sensitivity to changes in interest rates.
Conceptually speaking, periods of high real rates suggest the pursuit of a
disinflationary monetary policy by the Fed, and typically lead to increases in
savings and investment while simultaneously discouraging borrowing; these
factors, in turn, produce lower levels of real interest rates as economic growth
eventually moderates. This concept is well-supported by the empirical evidence,
which demonstrates that longer-duration strategies tend to outperform shorter-
duration strategies when starting from a period of high real rates.
Alternatively, one could think of prevailing interest rates as providing
compensation for market expectations of higher inflation. While there is the
potential for rising inflation, the yield curve now is paying an unusually high
risk premium against that possibility. Also, there remain powerful forces
holding prices in check: domestic capacity utilization rates are not yet high,
foreign competition remains fierce, and technology is driving rapid productivity
gains. While we are disappointed that our interest-rate risk management strategy
detracted from relative performance during the fourth quarter and the entire
year, we remain very confident in our value measures with regard to bearing
interest-rate risk, and that our above-benchmark strategy should add value over
a full cycle.
Corporates exerted a positive influence on performance during the fourth quarter
and the entire year as a result of their attractive yield advantage compared to
Treasuries, as well as modest amount of spread compression. Security selection
also enhanced relative performance, as our actual Portfolio holdings tended to
outperform the corporate component of the Index after adjusting for differences
in interest-rate risk. Because corporate yield spreads are still quite
attractive relative to underlying fundamentals, the Portfolio continues to have
an above-benchmark sensitivity to changes in corporate yield spreads. At the
same time, we maintain a well-diversified Portfolio strategy with a high average
credit quality and strict position limits.
Mortgage yield spreads also narrowed during the fourth quarter. Like corporates,
mortgages outperformed Treasuries in the fourth quarter and the entire year due
to the combined effects of their running yield advantage versus government
securities and some narrowing of yield spreads. Our active management of the
sector allocation, which included material changes in the mortgage allocation in
reaction to changes in mortgage yield spreads, also added value and helped our
mortgage strategy to outperform Treasuries during 1999. With narrower yield
spreads as the year came to a close, we trimmed some of the mortgage overweight
during December. While the Portfolio has an above-benchmark exposure to changes
in mortgage yield spreads, the exposure to prepayment risk remained fairly close
to that of the broader market indexes as a result of our focus on securities
with coupons in the 6% to 7% range.
With the U.S. continuing to offer tremendous opportunities in the corporate and
mortgage areas, it remained difficult to identify superior opportunities among
high-quality non- dollar bonds. Accordingly, we continued to have no allocation
to the non-dollar sector during the fourth quarter.
Warren Ackerman, III
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
Fixed Income Portfolio
121
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<S> <C> <C>
FIXED INCOME SECURITIES (104.5%)
ASSET BACKED SECURITIES (9.9%)
$ (e)3,000 Aesop Funding II LLC,
Series 97-1, Class A1, 6.22%,
10/20/01 ........................... $ 2,993
3,000 COMED, Series 98-1, Class A2,
5.29%, 6/25/03 ..................... 2,961
4,711 Ford Credit Auto Owner Trust,
Series 98-B, 5.85%, 10/15/01 ....... 4,698
2,084 Mid-State Trust, Series IV A,
8.33%, 4/01/30 ..................... 2,128
1,250 Peco Energy Transition Trust,
Series 99-A, Class A6, 6.05%,
3/01/09 ............................ 1,173
(e)3,250 Team Fleet Financing Corp.,
Series 97-1A, 7.35%, 5/15/03 ....... 3,217
--------------
TOTAL ASSET BACKED SECURITIES ........................... 17,170
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS (6.9%)
622 Chase Commercial Mortgage
Securities Corp., Series 97-2,
Class A1, 6.45%, 12/19/04 .......... 607
2,367 First Union-Lehman Brothers
Commercial Mortgage, Series 97-C2,
Class A1, 6.479%, 3/18/04 .......... 2,346
3,939 Lehman Brothers Large Loan,
Series 97-LLIA1, 6.79%,
6/12/04 ............................ 3,890
2,610 Merrill Lynch Mortgage
Investors, Inc., Series 98-C2,
Class A1, 6.22%, 2/15/30 ........... 2,533
(e)2,822 World Financial Credit,
6.91%, 9/01/13 ..................... 2,648
--------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS ............... 12,024
--------------
CORPORATE BONDS AND NOTES (34.7%)
AEROSPACE/DEFENSE (1.1%)
(e)2,000 Lockheed Martin Corp.,
8.20%, 12/01/09 .................... 1,993
--------------
AUTOMOTIVE (2.0%)
2,000 Delphi Auto Systems Corp.,
7.125%, 5/01/29 .................... 1,770
2,000 Ford Motor Co., 6.375%, 2/01/29 ......... 1,684
--------------
3,454
--------------
BANKING (2.9%)
2,000 BT Capital Trust, Series B1,
7.90%, 1/15/27 ..................... 1,836
1,500 Chase Manhattan Corp., 6.00%,
2/15/09 ............................ 1,350
(e)2,000 First Chicago Corp., 7.75%,
12/01/26 ........................... 1,805
--------------
4,991
--------------
FINANCE (22.8%)
1,800 American General Finance
6.75%, 11/15/04 .................... 1,757
(e)2,000 American General
Institutional Capital, Series A,
7.57%, 12/01/45 .................... 1,870
2,500 Associates Corp. of North
America, 5.80%, 4/20/04 ............ 2,369
3,000 CNA Financial Corp., 6.50%,
4/15/05 ............................ 2,805
2,000 Donaldson, Lufkin & Jenrette,
Inc., 6.90%, 10/01/07 .............. 1,892
(e)2,500 Farmers Exchange Capital,
7.05%, 7/15/28 ..................... 2,139
2,000 Ford Motor Credit Co., 6.125%,
4/28/03 ............................ 1,940
2,000 General Motors Acceptance
Corp., 6.75%, 2/07/02 .............. 1,989
2,000 General Motors Acceptance
Corp., 6.85%, 6/17/04 ............ 1,971
(e)2,500 Goldman Sachs Group, 6.34%,
3/01/06 ............................ 2,340
2,950 John Hancock, 7.375%, 2/15/24 ........... 2,778
2,350 Lehman Brothers Holdings,
Inc., 6.625%, 4/01/04 .............. 2,275
(e)3,000 Liberty Mutual Insurance
Co., 8.20%, 5/04/07 ................ 3,034
(e)2,000 Lumbermans Mutual Casualty
Co., 8.45%, 12/01/97 ............... 1,700
3,000 Merrill Lynch & Co., 6.00%,
2/12/03 ............................ 2,907
(e)2,500 Prudential Insurance Co.,
6.375%, 7/23/06 .................... 2,339
2,000 Salomon, Inc., 7.30%, 5/15/02 ........... 2,006
1,500 Simon Debartolo Group, MTN,
7.125%, 9/20/07 .................... 1,383
--------------
39,494
--------------
RETAIL (1.0%)
2,000 Lowe's Companies, Inc., 6.50%,
3/15/29 ...................................... 1,688
--------------
TELECOMMUNICATIONS (2.9%)
2,500 AT&T Corp., 6.50%, 3/15/29 ............... 2,148
3,000 Worldcom, Inc., 6.40%, 8/15/05 ........... 2,877
--------------
5,025
--------------
UTILITIES (2.0%)
2,000 Conoco, Inc., 6.95%, 4/15/29 ............. 1,801
(e)1,773 Oil Enterprises Ltd.,
6.239%, 6/30/08 .............................. 1,673
--------------
3,474
--------------
TOTAL CORPORATE BONDS AND NOTES ......................... 60,119
--------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (47.4%)
FEDERAL HOME LOAN MORTGAGE CORPORATION (9.0%)
5 13.00%, 9/01/10 ......................... 6
(a)7,703 6.00%, 12/01/28 ......................... 7,051
6,631 6.00%, 12/01/28 ......................... 6,069
2,796 6.00%, 12/01/28 ......................... 2,559
--------------
15,685
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (24.4%)
(a)2,500 6.50%, 8/15/04 .......................... 2,469
1,764 8.00%, 2/01/12 .......................... 1,791
5,913 6.00%, 4/01/13 .......................... 5,625
7,187 5.50%, 5/01/14 .......................... 6,666
(n)10,000 0.00%, 10/09/19 ......................... 2,492
15,692 6.00%, 4/01/28 .......................... 14,353
9,682 6.00%, 2/01/29 .......................... 8,856
--------------
42,252
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (6.6%)
5,000 6.50%, 2/01/29 TBA .................... 4,694
7,000 7.00%, 2/01/29 TBA .................... 6,753
--------------
11,447
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Fixed Income Portfolio
122
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<S> <C> <C>
US TREASURY BONDS (6.8%)
$ (a)10,400 8.125%, 8/15/19 ......................... $ 11,849
--------------
US TREASURY NOTES (0.6%)
1,000 6.625%, 5/15/07 ......................... 1,004
--------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS ............ 82,237
--------------
YANKEE BONDS (5.6%)
ELECTRONICS (1.7%)
3,000 Sony Corp., 6.125%, 3/04/03 ............. 2,925
--------------
FINANCE (0.9%)
1,500 Abbey National plc, 7.95%,
10/26/29 ........................... 1,494
--------------
RETAIL (1.0%)
2,000 Ahold Finance USA, Inc.,
6.875%, 5/01/29 .................... 1,753
--------------
TELECOMMUNICATIONS (1.1%)
(e)2,000 AT&T Canada, Inc., 7.65%,
9/15/06 ............................ 1,994
--------------
UTILITIES (0.9%)
1,700 Endesa-Chile, 7.75%, 7/15/08 ............ 1,616
--------------
TOTAL YANKEE BONDS ...................................... 9,782
--------------
TOTAL FIXED INCOME SECURITIES (COST $190,678) ............. 181,332
--------------
SHORT-TERM INVESTMENT (1.3%)
REPURCHASE AGREEMENT (1.3%)
2,315 Chase Securities, Inc., 2.60%,
dated 12/31/99, due 1/03/00, to be
repurchased at $2,316,
collateralized by U.S. Treasury
Bond, 6.125% due 12/31/01, valued
at $2,365 (Cost $2,315) ............ 2,315
--------------
TOTAL INVESTMENTS (105.8%) (COST $192,994) .............. 183,647
--------------
OTHER ASSETS (1.2%)
Interest Receivable .................. $2,118
Other ................................ 14 2,132
----------
LIABILITIES (7.0%)
Payable for Investments
Purchased ........................... (11,644)
Payable for Portfolio Shares
Redeemed ........................... (389)
Investment Advisory Fees Payable ..... (116)
Administrative Fees Payable .......... (25)
Directors' Fees and Expenses
Payable ............................ (16)
Custodian Fees Payable ............... (4)
Bank Overdraft Payable ............... (3)
Distribution Fees Payable ............ (1)
Other Liabilities .................... (30) (12,228)
---------- ----------
NET ASSETS (100%) ................................. $173,551
==========
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
- -------------------------------------------------------------------------
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital ........................................... $ 185,038
Undistributed Net Investment Income ....................... 54
Accumulated Net Realized Loss ............................. (2,194)
Unrealized Depreciation on Investments .................... (9,347)
--------------
NET ASSETS ................................................ $ 173,551
==============
CLASS A:
- --------
NET ASSETS ................................................ $ 171,467
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 16,752,492 outstanding $0.001 par
value shares (authorized 500,000,000 shares) ......... $ 10.24
==============
CLASS B:
- --------
NET ASSETS ................................................ $ 2,084
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 203,344 outstanding $0.001 par
value shares (authorized 500,000,000 shares) ......... $ 10.25
==============
- --------------------------------------------------------------------------
</TABLE>
(a) -- Security is fully or partially segregated as collateral for TBA
securities.
(e) -- 144A Security -- certain conditions for public sale may exist.
(n) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of December 31, 1999. Maturity date disclosed
is the ultimate maturity date.
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
123
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Australian Dollar (2.4%)
British Pound (6.3%)
Canadian Dollar (3.4%)
Danish Krone (4.5%)
Euro (32.9%)
Japanese Yen (14.0%)
Swedish Krona (4.4%)
United States Dollar (24.5%)
Other (7.6%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
J.P. Morgan
Global Fixed Traded Global
Income Portfolio Bond Index (1)
---------------- ---------------
<S> <C> <C>
5/01/91* $500,000 $500,000
10/31/91 ________ ________
10/31/92 ________ ________
12/31/92 ________ ________
12/31/93 ________ ________
12/31/94 ________ ________
12/31/95 ________ ________
12/31/96 ________ ________
12/31/97 ________ ________
12/31/98 ________ ________
12/31/99 $855,138 $945,229
</TABLE>
* Commencement of operations
** Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE J.P. MORGAN
TRADED GLOBAL BOND INDEX(1)
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YEAR YEARS INCEPTION
----- ------- ---------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A ......... -6.84% 6.45% 6.38%
PORTFOLIO -- CLASS B ......... -7.09 N/A 3.22
INDEX -- CLASS A ............. -5.08 6.69 7.62
INDEX -- CLASS B ............. -5.08 N/A 3.76
</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 issuers including governments,
agencies, supranational entities, eurobonds and corporations with varying
maturities in various currencies.
For the year ended December 31, 1999, the Portfolio had a total return of -6.84%
for the Class A shares and -7.09% for the Class B shares compared to -5.08% for
the J.P. Morgan Traded Global Bond Index (the "Index"). For the five-year period
ended December 31, 1999, the average annual total return for the Class A shares
was 6.45% compared to 6.69% for the Index. For the period from inception on May
1, 1991 through December 31, 1999, the average annual total return for the Class
A shares was 6.38% compared to 7.62% for the Index. For the period from
inception on January 2, 1996 through December 31, 1999, the average annual total
return for the Class B shares was 3.22% compared to 3.76% for the Index. As of
December 31, 1999 the Portfolio had a SEC 30-day yield of 4.64% for the Class A
shares and 4.48% for the Class B shares.
Dollar bloc and European bond markets were dominated by negative sentiment in
1999 on accumulating evidence of stronger global growth and investor's concern
regarding the magnitude of actual and future monetary tightening. In contrast,
in Japan, the general weakness of the economy was supportive of the bond market.
In the U.S., ten-year yields ended the period approximately 170 basis points
higher as the economy continued to grow at a 4% pace despite a 75 basis point
rise in interest rates from the Federal Reserve. At year-end, the wealth effect
from a still buoyant equity market continued to lend support to domestic demand
and there was little indication of any significant downturn in activity bringing
relief to the central bank. In Europe, domestic factors were slightly more
supportive of bonds, given the lack of inflationary pressures and the persistent
weakness in many of the European economies, particularly Germany, for much of
the period. However, the broader message of a strengthening euro-zone recovery,
particularly in the second half of the year, kept pressure on bond yields, and
ten-year yields within the European markets rose around 140 basis points. The
exception was the U.K. market where yields in the ultra-
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS
OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES
MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY
AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE
PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING. YIELDS WILL FLUCTUATE AS MARKET
CONDITIONS CHANGE.
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
124
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO (CONT.)
long part of the curve moved down in the second part of the year on a severe
supply and demand imbalance. Japan was the best performing bond market, rallying
from its sharp sell off at year-end 1998, as the targeting of a zero overnight
call rate by the Bank of Japan and persistent deflation was viewed positively by
investors. This was despite a much stronger than anticipated economy as
evidenced by the large rise in the equity market.
While rising yields caused the Portfolio to return a small negative return in
local currency terms, this translated into more significant negative returns
when measured in U.S. dollars due to the weakness of the European currencies.
The euro depreciated nearly 15% versus the dollar during the year, compared to
the Japanese yen, which appreciated 10% against the U.S. currency.
In terms of relative performance, our long duration exposure to the dollar bloc
and European markets and our short duration exposure to the Japanese market were
negative factors. Also subtracting from performance was our underweighting to
the yen and our underweight exposure to the long end of the U.K. market. More
positively, our exposure to the credit sector and our overweighting to the
Australian and Canadian dollars enhanced performance.
Over the year, the Portfolio remained long duration in the dollar bloc and
European markets and short duration in the Japanese market. In terms of sector
positioning, the Portfolio retained an overweight exposure to the credit sector.
Activity within the Portfolio throughout the year was reasonably low.
Within Europe, we added exposure to the Danish bond market and in the U.K. cut
all exposure to longer than 5-years adding duration to the euro market. In terms
of currency positioning, the Portfolio remained underweight the Japanese yen
versus the U.S. dollar and the European currencies although this was shifted
more in favor of the European currencies in December. The Portfolio also
continued to increase exposure to the credit sector throughout the year.
The outlook for the global economy continues to improve and over the next year,
we expect activity between the regions to be more closely synchronized. In the
euro-zone, low real interest rates and an undervalued currency should continue
to support the broadening recovery while in Japan, the economy will continue to
benefit, at least in the short term, from ongoing fiscal stimulus. Meanwhile in
the U.S., we expect tighter monetary conditions to lead to some slowdown in
domestic demand growth and activity to moderate from its current 4% pace.
We believe the rise in yields in the dollar bloc and European markets over the
past year reflects this strong growth outlook as being already discounted by the
bond markets, and that it is inflation that holds the key to bond market
performance in 2000. We expect that in the absence of significantly higher
inflation, the potential for a further rise in yields will be limited, and as a
result, we retain our modestly positive view for this year.
The greatest risk to the current benign inflation environment is clearly to be
found in the U.S. given the maturity of the expansion and the tightness of the
labor market. However, while the recent rise in the oil price has impacted
headline inflation, there is as yet no sign that ex-energy prices are rising in
the U.S. Also important, productivity gains, currently running at more than 3%
will continue to limit any up-tick in inflationary pressures. We therefore
believe that the need for further Fed action will be limited.
While the improving prospects for growth in the euro-zone can be expected to
lead to some upturn in inflation, the degree of slack in the economy means that
we do not view this as a serious cause for concern. Upcoming wage talks do
present some risk however, and we will be monitoring the IG Metall negotiations
closely, viewing an excessive settlement as a signal to be more cautious.
We continue to see value in U.S. dollar denominated corporate issues in absolute
terms but given the contraction in dollar to euro swap spreads, we see less
relative value. As a result, we will probably shift our overweighting to U.S.
dollar denominated issues more in favor of euro denominated issues.
In terms of currency positioning, we believe that growth and interest rate
differentials will continue to disadvantage the Japanese yen and we retain our
bearish stance. At current levels, the yen real exchange rate is close to a
10-year high versus the euro and as such we view the yen as being particularly
overvalued relative to the euro. We have therefore shifted our yen
underweighting in favor of the euro and euro-linked currencies which we expect
to recover over the near-or medium-term in line with a stronger European
economy.
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
January 2000
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
125
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C>
FIXED INCOME SECURITIES (92.4%)
AUSTRALIAN DOLLAR (2.4%)
GOVERNMENT BONDS (1.5%)
AUD 700 Government of Australia 12.00%, 11/15/01 ....... $ 506
----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS-GLOBAL (0.9%)
500 Federal National Mortgage Association -
Global 6.375%, 8/15/07 ....................... 310
----------
816
----------
BRITISH POUND (6.3%)
GOVERNMENT BONDS (6.3%)
GBP 650 United Kingdom Treasury Gilt 8.00%,
12/07/00 ..................................... 1,063
600 United Kingdom Treasury Gilt 8.50%, 7/16/07 .... 1,120
----------
2,183
----------
CANADIAN DOLLAR (3.4%)
GOVERNMENT BOND (3.4%)
CAD 1,500 Government of Canada 8.75%, 12/01/05 ........... 1,164
----------
DANISH KRONE (4.5%)
GOVERNMENT BONDS (4.5%)
DKK 4,600 Kingdom of Denmark 7.00%, 12/15/04 ............. 668
5,900 Kingdom of Denmark 8.00%, 3/15/06 .............. 904
----------
1,572
----------
EURO (32.9%)
CORPORATE BONDS (4.3%)
EUR 200 BAT International Finance MTN 4.875%,
2/25/09 ...................................... 181
200 Burmah Castrol Plc 4.875%, 3/31/09 ............. 185
500 Depfa Pfandbriefbank 5.50%, 1/15/10 ............ 495
(e)150 Dresdner Funding Trust 5.79%, 6/30/11 .......... 136
200 Mannesmann Finance BV 4.75%, 5/27/09 ........... 178
200 Philip Morris Financial 4.50%, 4/06/06 ......... 184
150 Royal Bank of Scotland Plc MTN 4.875%,
3/26/09 ...................................... 137
----------
1,496
----------
GOVERNMENT BONDS (28.6%)
1,000 Bundesobligation 5.00%, 8/20/01 ................ 1,022
800 Bundesrepublik Deutschland 6.00%, 7/04/07 ...... 843
1,000 Buoni Poliennali Del Tesoro 9.50%, 2/01/06 ..... 1,230
800 Deutschland Republic 6.50%, 7/04/27 ............ 862
700 Government of France 5.50%, 10/25/07 ........... 711
1,200 Government of France 5.25%, 4/25/08 ............ 1,200
1,000 Government of France 6.00%, 10/25/25 ........... 1,015
1,350 Government of The Netherlands, Series 1,
8.25%, 2/15/02 ............................... 1,466
1,400 Spanish Government 7.90%, 2/28/02 .............. 1,511
----------
9,860
----------
11,356
----------
JAPANESE YEN (14.0%)
CORPORATE BONDS (6.2%)
JPY 110,000 International Bank for Reconstruction
& Development 4.75%, 12/20/04 ................ $1,278
90,000 KFW International Finance 1.00%, 12/20/04 ...... 882
----------
2,160
----------
GOVERNMENT BONDS (7.8%)
300,000 Government of Japan, Series 207, 0.90%,
12/22/08 ..................................... 2,693
----------
4,853
----------
SWEDISH KRONA (4.4%)
GOVERNMENT BONDS (4.4%)
SEK 7,000 Swedish Government 13.00%, 6/15/01 ............. 917
4,900 Swedish Government 6.00%, 2/09/05 .............. 590
----------
1,507
----------
UNITED STATES DOLLAR (24.5%)
CORPORATE BONDS AND NOTES (10.7%)
U.S.$ 100 Abbey National Plc 7.95%, 10/26/29 ............. 100
260 AT&T Corp. 6.50%, 3/15/29 ...................... 223
220 BankAmerica Corp. 5.875%, 2/15/09 .............. 196
200 Conoco, Inc., 6.95%, 4/15/29 ................... 180
400 Deutsche Ausgleichsbank, Series E, MTN .........
5.125%, 9/22/03 .............................. 377
(e)250 Farmers Exchange Capital, 7.05%, 7/15/28 ....... 212
(e)150 First Chicago Corp., 7.75%, 12/01/26 ........... 136
250 Ford Motor Co., 6.375%, 2/01/29 ................ 210
150 General Motors 6.75%, 5/01/28 .................. 133
300 Lucent Technologies 6.45%, 3/15/29 ............. 261
250 Merrill Lynch & Co., Inc. 6.875%, 11/15/18 ..... 226
(e)300 Metropolitan Life Insurance 7.45%, 11/01/23 .... 268
(e)200 Monsanto Co., 6.60%, 12/01/28 .................. 172
(e)300 Nationwide Mutual Insurance 7.50%, 2/15/24 ..... 273
350 Procter & Gamble Co. 6.60%, 12/15/04 ........... 345
150 Wal-Mart Stores 6.875%, 8/10/09 ................ 146
250 Wells Fargo Co. 6.625%, 7/15/04 ................ 245
----------
3,703
----------
EUROBONDS (1.3%)
(e)150 Bayer Hypo-Vereinsbank 8.741%, 6/30/31 ......... 148
(e)100 Florida Windstorm 7.125%, 2/25/19 .............. 92
200 Kingdom of Belgium 9.20%, 6/28/10 .............. 225
----------
465
----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (12.5%)
U.S. TREASURY BOND (5.6%)
1,700 U.S. Treasury Bond 8.125%, 8/15/19 ............. 1,937
----------
U.S. TREASURY NOTES (6.9%)
1,950 U.S. Treasury Note 7.50%, 2/15/05 .............. 2,034
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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
U.S. TREASURY NOTES (CONT.)
U.S.$ 350 U.S. Treasury Note 6.25%, 2/15/07 ......... $ 345
-----------
2,379
-----------
4,316
-----------
8,484
-----------
TOTAL FIXED INCOME SECURITIES (92.4%) (Cost $33,490) ............... 31,935
-----------
SHORT-TERM INVESTMENT (3.4%)
REPURCHASE AGREEMENT (3.4%)
1,180 Chase Securities, Inc. 2.60%, dated
12/31/99, due 1/03/00, to be repurchased at
$1,180, collateralized by U.S. Treasury Notes,
6.125%, due 12/31/01 valued at $1,208
(Cost $1,180) ................................ 1,180
-----------
FOREIGN CURRENCY (0.1%)
JPY 2,613 Japanese Yen (Cost $26) ........................ 26
-----------
TOTAL INVESTMENTS (95.9%) (COST $34,696) ........................... 33,141
-----------
OTHER ASSETS (4.4%)
Cash ............................................. $ 679
Interest Receivable .............................. 827
Other ............................................ 7 1,513
-----------
LIABILITIES (-0.3%)
Investment Advisory Fees Payable ................. (47)
Net Unrealized Loss on Foreign Currency
Exchange Contracts ............................. (13)
Directors' Fees and Expenses Payable ............. (8)
Administrative Fees Payable ...................... (7)
Custodian Fees Payable ........................... (6)
Other Liabilities ................................ (26) (107)
------------ -----------
NET ASSETS (100%) .................................................. $34,547
-----------
-----------
NET ASSETS CONSIST OF:
Paid in Capital .................................................... $37,842
Distributions in Excess of Net Investment Income ................... (91)
Accumulated Net Realized Loss ...................................... (1,626)
Unrealized Depreciation on Investments and Foreign Currency
Translations ..................................................... (1,578)
-----------
NET ASSETS ......................................................... $34,547
-----------
-----------
CLASS A:
NET ASSETS ......................................................... $34,225
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 3,051,192 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ........................... $11.22
-----------
-----------
CLASS B:
NET ASSETS ........................................................ $322
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 28,766 outstanding $0.001 par value
shares (authorized 500,000,000 shares) .......................... $11.19
-----------
-----------
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts
open at December 31, 1999, the Portfolio is obligated
to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<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>
EUR 1,230 $1,247 3/07/00 U.S.$1,240 $1,240 $ (7)
U.S.$ 337 337 3/07/00 EUR 330 334 (3)
U.S.$ 893 893 3/08/00 JPY 90,000 890 (3)
------ ------ -----
$2,477 $2,464 $(13)
------ ------ -----
------ ------ -----
- -------------------------------------------------------------------------------------
(e) -- 144A Security -- certain conditions for public sale may exist.
MTN -- Medium Term Notes
- -------------------------------------------------------------------------------------
SUMMARY OF FIXED INCOME SECURITIES BY SECTOR CLASSIFICATION
<CAPTION>
PERCENT
VALUE OF NET
SECTOR (000) ASSETS
- -------------------------------------------------------------------------------------
<S> <C> <C>
Finance ..........................$ 7,824 22.6%
Foreign Government and Agency
Obligations ...................... 19,485 56.4
U.S. Government and Agency
Obligations ...................... 4,626 13.4
------- -----
$31,935 92.4%
------- -----
------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
127
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Asset Backed Securities (0.1%)
Corporate Bonds and Notes (81.7%)
Preferred Stocks (3.2%)
Sovereign & Emerging Markets (12.0%)
Other (3.0%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- -------------------------------------------------
<TABLE>
CS First
High Yield Boston High
Portfolio Yield Index(1)
---------- --------------
<S> <C> <C>
9/28/92* $ 500,000 $ 500,000
12/31/92 __________ __________
12/31/93 __________ __________
12/31/94 __________ __________
12/31/95 __________ __________
12/31/96 __________ __________
12/31/97 __________ __________
12/31/98 __________ __________
12/31/99 $1,078,868 $ 923,329
</TABLE>
* Commencement of operations
** Minimum Investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE CS FIRST
BOSTON HIGH YIELD INDEX(1)
- ------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YEAR YEARS INCEPTION
---- ------ ---------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A ........... 7.77% 12.79% 11.18%
PORTFOLIO -- CLASS B ........... 7.44 N/A 9.90
INDEX -- CLASS A ............... 3.28 9.07 8.82
INDEX -- CLASS B ............... 3.28 N/A 7.07
</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 (the "Portfolio") seeks to maximize total return by
investing primarily in a diversified portfolio of high yield fixed income
securities that offer a yield above that generally available on debt securities
in the four highest rating categories of the recognized rating services.
For the year ended December 31, 1999, the Portfolio had a total return of 7.77%
for the Class A shares and 7.44% for the Class B shares compared to 3.28% for
the CS First Boston High Yield Index (the "Index"). For the five-year period
ended December 31, 1999, the average annual total return of Class A shares was
12.79% compared to 9.07% for the Index. For the period from inception on
September 28, 1992 through December 31, 1999, the average annual total return of
Class A shares was 11.18% compared to 8.82% for the Index. For the period from
inception on January 2, 1996 through December 31, 1999, the average annual total
return of Class B shares was 9.90% compared to 7.07% for the Index. As of
December 31, 1999 the Portfolio had a SEC 30-day yield of 10.58% for the Class A
shares and 10.33% for the Class B shares.
High yield bonds experienced a mixed year in 1999 but still managed to
outperform higher quality bonds for the year. Higher interest rates, Y2K fears
and higher default rates all caused the prices of most high yield bonds to fall
during the year. However, the high current income generated by the market
resulted in positive returns for the Index and enabled high yield bonds to
outperform treasuries and high quality corporate bonds.
The high yield market began the year with a rally in January, and it remained
fairly strong through April. The market then experienced difficulties for the
next six months as a large supply of new issues hit the market at the same time
that investors and dealers pulled away from the market due to Y2K concerns,
higher interest rates and an increase in defaults. Finally, the year ended with
a rally as investors returned to the market as Y2K fears diminished and default
rates leveled off.
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. INVESTING IN HIGH YIELD FIXED INCOME SECURITIES,
OTHERWISE KNOWN AS "JUNK BONDS" IS SPECULATIVE AND INCLUDES GREATER RISK OF
LOSS OF PRINCIPAL AND INTEREST. THE PERFORMANCE RESULTS PROVIDED ARE FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE
PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
- --------------------------------------------------------------------------------
High Yield Portfolio
128
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
Results relative to the Index were positively impacted by exposure to non-U.S.
issues and an overweighting in the telecommunications sector. Emerging markets
debt recovered well in 1999, experiencing the highest returns of any fixed
income asset class. The telecommunications sector was one of the best performing
sectors in the high yield market led by strong growth and a high level of merger
and investment activity. We also did a good job of avoiding problem credits
throughout the year. Negatively impacting our performance was our underweighting
of the energy and paper sectors, which performed well in 1999.
The Portfolio remains overweighted in the telecommunications and emerging market
sectors, where we continue to find the most value, and, to a lessor extent, in
the gaming and healthcare sectors. We have less-than-Index exposure to the
consumer, media, commodity and cyclical sectors. We are also finding value in
securities of selected Western European issuers. As a result of our valuation
discipline, the Portfolio continues to maintain an average credit quality that
is higher than that of the Index, while the interest-rate sensitivity is close
to that of the Index.
Even with the rebound we saw in November and December, spreads on high yield
bonds still remain historically wide. We believe that the high-yield market is
undervalued at a time when the fundamental credit quality of most high-yield
issuers is quite strong and the U.S. and global economies continue to show
strength. Consequently, we believe the high yield market should perform well in
the near future, and we continue to find attractive investment opportunities in
this market using our strict valuation criteria.
Robert Angevine
PORTFOLIO MANAGER
Stephen F. Esser
PORTFOLIO MANAGER
Gordon W. Loery
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
High Yield Portfolio
129
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS AND NOTES (81.7%)
ASSET BACKED CORPORATES (0.3%)
$ 510 Long Beach Auto, Series 97-1, Class B, 14.22%,
10/26/03 ........................................... $ 502
----------------
CABLE (6.2%)
850 Adelphia Communications, Series B, 7.75%, 1/15/09 .... 762
2,200 Adelphia Communications, Series B, 8.375%, 2/01/08 ... 2,052
475 Adelphia Communications, Series B, 9.875%, 3/01/07 ... 481
600 CSC Holdings, Inc., 7.25%, 7/15/08 ................... 570
1,175 CSC Holdings, Inc., 9.875%, 5/15/06 .................. 1,237
(n)3,050 NTL, Inc., 0.00%, 4/01/08 ............................ 2,097
(n)410 Rogers Cablesystems of America, 10.125%, 9/01/12 ..... 438
(e,n)3,300 Telewest Communication plc, 0.00%, 4/15/09 ........... 2,058
(e)1,740 United Pan-Europe Communications N.V.,
10.875%, 8/01/09 ................................... 1,757
----------------
11,452
----------------
CHEMICALS (2.9%)
(e)1,900 Huntsman ICI Chemicals, Inc., 10.125%, 7/01/09 ....... 1,962
1,400 ISP Holdings, Inc., Series B, 9.00%, 10/15/03 ........ 1,379
1,900 Lyondell Chemical Co., 9.625%, 5/01/07 ............... 1,943
----------------
5,284
----------------
COMMUNICATIONS (21.6%)
1,200 American Cellular Corp., 10.50%, 5/15/08 ............. 1,323
1,195 AMSC Acquisition Co., Inc., 12.25%, 4/01/08 .......... 938
1,475 Centennial Cellular, 10.75%, 12/15/08 ................ 1,578
(e)1,255 Dobson Communications Corp., 11.75%, 4/15/07 ......... 1,450
(n)2,425 Dolphin Telecom plc, 0.00%, 6/01/08 .................. 1,182
(e,n)300 Dolphin Telecom plc, 0.00%, 5/15/09 .................. 140
1,495 Global Crossing Holdings, 9.625%, 5/15/08 ............ 1,491
965 Global Tele-Systems Ltd., 10.875%, 6/15/08 ........... 955
600 Global Tele-Systems Ltd., 11.50%, 12/15/07 ........... 606
1,175 Globalstar Capital Corp., 11.375%, 2/15/04 ........... 775
310 Globalstar LP, 11.50%, 6/01/05 ....................... 202
1,760 Hermes Europe Railtel BV, 11.50%, 8/15/07 ............ 1,813
(n)1,510 Hyperion Telecommunication, 0.00%, 4/15/03 ........... 1,342
(n)2,025 Intermedia Communications, Inc., Series B,
0.00%, 7/15/07 ..................................... 1,509
$ 1,500 Intermedia Communications, Inc., Series B,
8.50%, 1/15/08 ..................................... $ 1,376
(f)1,620 Iridium LLC/Capital Corp., Series A, 13.00%,
7/15/05 ............................................ 73
1,020 Metromedia Fiber Network, 10.00%, 11/15/08 ........... 1,032
(n)1,860 Nextel Communications, Inc., 9.75%, 8/15/04 .......... 1,916
(n)4,100 Nextel Communications, Inc., 0.00%, 9/15/07 .......... 3,075
(n)735 Nextel Communications, Inc., 0.00%, 2/15/08 .......... 518
(n)2,550 NEXTLINK Communications, Inc., 0.00%, 4/15/08 ........ 1,670
450 NEXTLINK Communications, Inc., 10.75%, 11/15/08 ...... 463
(e)1,290 Onepoint Communications Corp., 14.50%, 6/01/08 ....... 845
1,315 Primus Telecommunications Group, Inc., 9.875%,
5/15/08 ............................................ 1,210
640 Primus Telecommunications Group, Inc., 11.25%,
1/15/09 ............................................ 619
1,120 Psinet, Inc., 10.00%, 2/15/05 ........................ 1,109
670 Psinet, Inc., 11.00%, 8/01/09 ........................ 683
(e,n)2,265 RCN Corp., 0.00%, 2/15/08 ............................ 1,484
(n)2,250 Rhythms Netconnections, 0.00%, 5/15/08 ............... 1,215
(n)1,440 RSL Communications, plc, 0.00%, 3/01/08 .............. 886
3,225 RSL Communications, plc, 9.125%, 3/01/08 ............. 2,870
51 RSL Communications, plc, 12.25%, 11/15/06 ............ 52
1,025 Tele1 Europe B.V., 13.00%, 5/15/09 ................... 1,063
(n)1,930 Viatel, Inc., 0.00%, 4/15/08 ......................... 1,216
(e)520 Voicestream Wireless Corp., 10.375%, 11/15/09 ........ 536
(n)1,290 Wam!Net, Inc., 13.25%, 3/01/05 ....................... 774
----------------
39,989
----------------
ENERGY (2.0%)
(e)800 Husky Oil Ltd., 8.90%, 8/15/28 ....................... 754
2,040 Snyder Oil Corp., 8.75%, 6/15/07 ..................... 2,035
425 Vintage Petroleum, 8.625%, 2/01/09 ................... 410
570 Vintage Petroleum, 9.75%, 6/30/09 .................... 584
----------------
3,783
----------------
FINANCIAL (0.9%)
1,860 Golden State Holdings, 7.125%, 8/01/05 ............... 1,658
----------------
FOOD & BEVERAGES (0.9%)
1,925 Smithfield Foods, Inc., 7.625%, 2/15/08 .............. 1,733
----------------
GAMING & LODGING (6.6%)
2,800 Harrahs Operating Co., Inc., 7.875%, 12/15/05 ........ 2,695
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
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------------------
<S> <C>
GAMING & LODGING (CONT.)
$ 1,965 Horseshoe Gaming Holdings Corp., 8.625%, 5/15/09 ..... $ 1,886
2,655 International Game Technology, 8.375%, 5/15/09 ....... 2,545
1,975 ParkPlace Entertainment, 7.875%, 12/15/05 ............ 1,881
1,400 Station Casinos, Inc., 8.875%, 12/01/08 .............. 1,348
470 Station Casinos, Inc., 9.75%, 4/15/07 ................ 475
1,413 Station Casinos, Inc., 10.125%, 3/15/06 .............. 1,439
----------------
12,269
----------------
GENERAL INDUSTRIAL (6.0%)
820 Applied Power, Inc., 8.75%, 4/01/09 .................. 797
950 Axia, Inc., 10.75%, 7/15/08 .......................... 872
2,000 Hayes Lemmerz International, Inc., 8.25%, 12/15/08 ... 1,836
(n)1,450 Norcal Waste Systems, Inc., Series B, 13.50%,
11/15/05 ........................................... 1,537
965 Sequa Corp., 9.00%, 8/01/09 .......................... 934
(e)1,835 Tenneco Automotive, Inc., 11.625%, 10/15/09 .......... 1,872
(e)1,100 Waste Management, Inc., 6.875%, 5/15/09 .............. 930
700 Waste Management, Inc., 7.00%, 10/15/06 .............. 619
1,105 Waste Management, Inc., 7.125%, 10/01/07 ............. 966
400 Waste Management, Inc., 7.125%, 12/15/17 ............. 315
450 Waste Management, Inc., 7.65%, 3/15/11 ............... 389
----------------
11,067
----------------
HEALTHCARE (7.0%)
2,100 Columbia/HCA Healthcare Corp., 7.69%, 6/15/25 ........ 1,717
1,500 Columbia/HCA Healthcare Corp., 6.91%, 6/15/05 ........ 1,366
1,570 Columbia/HCA Healthcare Corp., 7.25%, 5/20/08 ........ 1,403
600 Columbia/HCA Healthcare Corp., 7.58%, 9/15/25 ........ 485
895 Columbia/HCA Healthcare Corp., 8.13%, 8/04/03 ........ 875
1,450 Columbia/HCA Heathcare Corp., 7.00%, 7/01/07 ......... 1,288
(e)1,730 Fresenius Medical Capital Trust II, 7.875%,
2/01/08 ............................................ 1,605
2,250 Tenet Healthcare Corp., 8.125%, 12/01/08 ............. 2,104
$ 2,175 Tenet Healthcare Corp., 8.625%, 1/15/07 .............. $2,099
----------------
12,942
----------------
HOTEL/MOTEL (3.2%)
1,925 Hilton Hotels Corp., 7.95%, 4/15/07 .................. 1,810
2,925 HMH Properties, Inc., Series A, 7.875%, 8/01/05 ...... 2,720
625 Host Marriott Travel Plaza, Series B, 9.50%, 5/15/05 . 651
700 Host Marriott LP, 8.375%, 2/15/06 .................... 655
----------------
5,836
----------------
MEDIA & ENTERTAINMENT (4.2%)
1,770 Chancellor Media Corp., 8.125%, 12/15/07 ............. 1,761
1,805 Chancellor Media Corp., 9.00%, 10/01/08 .............. 1,873
2,100 Echostar DBS Corp., 9.375%, 2/01/09 .................. 2,107
2,000 Outdoor Systems, Inc., 8.875%, 6/15/07 ............... 2,070
----------------
7,811
----------------
METALS (2.8%)
435 Glencore Nickel Property Ltd., 9.00%, 12/01/14 ....... 371
2,080 Murrin Murrin Holdings, PTY, (Yankee Bond),
9.375%, 8/31/07 .................................... 1,862
2,300 National Steel Corp., 9.875%, 3/01/09 ................ 2,363
(e)825 Republic Technologies International LLC/RTI
Capital Corp., 13.75%, 7/15/09 ..................... 544
----------------
5,140
----------------
PACKAGING (3.0%)
1,950 Norampac, Inc., 9.50%, 2/01/08 ....................... 1,999
1,945 Pacifica Papers Corp., 10.00%, 3/15/09 ............... 2,003
1,145 SD Warren Co., 12.00%, 12/15/04 ...................... 1,198
435 Tembec Industries, Inc., 8.625%, 6/30/09 ............. 436
----------------
5,636
----------------
REAL ESTATE (3.3%)
2,390 American Standard, Cos., Inc., 7.375%, 2/01/08 ....... 2,184
2,155 D R Horton, Inc., 8.00%, 2/01/09 ..................... 1,983
1,970 Nortek, Inc., 8.875%, 8/01/08 ........................ 1,881
----------------
6,048
----------------
RETAIL (5.5%)
586 DR Securitized Lease Trust, Series 93-K1 Class A1,
6.66%, 8/15/10 ..................................... 511
2,079 DR Securitized Lease Trust, Series 94-K1 Class
A1, 7.60%, 8/15/07 ................................. 1,947
975 DR Securitized Lease Trust, Series 94-K1 Class A2,
8.375%, 8/15/15 .................................... 865
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
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------------------
<S> <C>
RETAIL (CONT.)
$ 2,275 HMV Media Group plc, Series B, 10.25%, 5/15/08 ....... $ 2,002
850 Kmart Funding Corp., 8.80%, 7/01/10 .................. 815
500 Musicland Group, Inc., 9.00%, 6/15/03 ................ 482
2,245 Musicland Group, Inc., 9.875%, 3/15/08 ............... 2,043
1,400 Stater Brothers Holdings, Inc., 10.75%, 8/15/06 ...... 1,414
----------------
10,079
----------------
SUPERMARKET/DRUG (0.8%)
(e)1,601 CA FM Lease Trust, 8.50%, 7/15/17 .................... 1,489
----------------
TECHNOLOGY (0.1%)
320 Entex Telecom Group plc, 12.50%, 8/01/06 ............. 128
----------------
TRANSPORTATION (1.9%)
1,677 Aircraft Lease Portfolio Securitization Ltd.,
Series 96-1 P1, Class D, 12.75%, 6/15/06............ 1,677
(e)525 Jet Equipment Trust, Series 95-D, 11.44%,
11/01/14 ........................................... 596
1,050 Jet Equipment Trust, Series C-1, 11.79%, 6/15/13 ..... 1,209
----------------
3,482
----------------
UTILITIES (2.5%)
1,780 AES Corp., 8.50%, 11/01/07 ........................... 1,664
2,400 CMS Energy, 7.50%, 1/15/09 ........................... 2,189
(e)795 Ras Laffan Gas Liquified Natural Gas, 8.294%,
3/15/14 ............................................ 749
----------------
4,602
----------------
TOTAL CORPORATE BONDS AND NOTES (COST $158,547) .......................... 150,930
----------------
ASSET BACKED SECURITIES (0.1%)
COMMERCIAL MORTGAGE (0.1%)
(e)875 FMAC Loan Receivables Trust, Series 96-B, Class C
(Floating Rate), 7.929%, 11/15/18 (Cost $749) ........ 306
----------------
SOVEREIGN & EMERGING MARKETS (12.0%)
(e)2,000 Bayan Telecommunications, Inc., 13.50%, 7/15/06 ...... 1,760
850 Cablevision SA, 13.75%, 5/01/09 ...................... 833
(e)825 Cellco Finance N.V. Turkcell, 12.75%, 8/01/05 ........ 854
(n)2,600 CTI Holdings, 0.00%, 4/15/08 ......................... 1,508
1,808 Federative Republic of Brazil, C Bond, 8.00%,
4/15/14 ............................................ 1,359
(e)975 Hyundai Semiconductor, 8.625%, 5/15/07 ............... 816
2,350 Indah Kiat Financial Mauritius, 10.00%, 7/01/07 ...... 1,739
1,640 Multicanal SA, 10.50%, 2/01/07 ....................... 1,417
$ (e)1,375 Netia Holdings II BV, 13.125%, 6/15/09 ............... $ 1,375
(d,e,f)1,010 NSM Steel, Inc., 12.25%, 2/01/08 ..................... 1
(e)1,175 Nuevo Grupo Iusacell SA, 14.25%, 12/01/06 ............ 1,222
(n)2,275 Occidente y Caribe Cellular, 0.00%, 3/15/04 .......... 1,138
(e)1,155 Paiton Energy Funding BV, 9.34%, 2/15/14 ............. 231
1,350 Pindo Deli Finance Mauritius, 10.75%, 10/01/07 ....... 992
(n)1,690 PTC International Finance BV, 0.00%, 7/01/07 ......... 1,141
950 Republic of Colombia, 9.75%, 4/23/09 ................. 882
1,180 Satelites Mexicanos, 10.125%, 11/01/04 ............... 802
3,415 TV Azteca, Series B, 10.50%, 2/15/07 ................. 2,954
1,500 United Mexican States, 6.25%, 12/31/19 ............... 1,180
----------------
TOTAL SOVEREIGN & EMERGING MARKETS (COST $24,863) ........................ 22,204
----------------
<CAPTION>
SHARES
- ------------------
COMMON STOCKS (0.0%)
HOTEL/MOTEL (0.0%)
(a,e)1,300 Motels of America, Inc. (Cost $84) ................... 11
----------------
PREFERRED STOCKS (3.2%)
COMMUNICATIONS (2.0%)
(a)8,208 Concentric Network Corp., PIK 13.50% ................. 813
(a)8,782 Dobson Communications Corp., PIK, 13.00% ............. 957
(a)1,521 IXC Communications, Inc., Series B, PIK, 12.50% ...... 1,688
(a)175 Nextel Communications, Inc., PIK, 13.00% ............. 189
----------------
3,647
----------------
MEDIA & ENTERTAINMENT (0.8%)
11,428 Paxson Communications Corp., PIK, 13.25%, 11/15/06. 1,169
(e)3,619 Paxson Communications Corp., PIK, 9.75%,
12/31/06. .............................................. 386
----------------
1,555
----------------
RETAIL (0.4%)
15,100 Kmart Financing, 7.75% .......................... 666
----------------
TOTAL PREFERRED STOCKS (COST $4,848) ..................................... 5,868
----------------
<CAPTION>
NO. OF
WARRANTS
- --------------
WARRANTS (0.3%)
COMMUNICATIONS (0.2%)
(a,e)18,450 American Mobile Satellite Corp., expiring
4/01/08 ............................................ 74
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
High Yield Portfolio
132
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- -------------------------------------------------------------------------------------------
<S> <C>
WARRANTS (CONT.)
COMMUNICATIONS (CONT.)
$ (a,e)600 Globalstar Telecommunications Ltd., expiring
2/15/04 ............................................ $ 90
(a,e)605 Iridium World Communications, Inc., expiring
7/15/05 ............................................ --
(a)12,900 Onepoint Communications Corp., expiring 6/1/08 ....... 1
EUR (a)10,250 Tele1 Europe B.V., expiring 5/15/09 .................. 176
U.S.$ (a)38,700 Wam!Net, Inc., expiring 3/01/05 ...................... 87
----------
428
----------
MEDIA &ENTERTAINMENT (0.0%)
(a,e)1,024 Paxson Communications Corp., expiring
6/30/03 ............................................. --
----------
SOVEREIGN & EMERGING MARKETS (0.1%)
(a,d,e)6,394,240 NSM Steel Ltd., Inc., expiring 2/01/08 6
(a,e) 91,000 Occidente y Caribe Cellular, expiring
3/15/04 ............................................... 137
----------
143
----------
TOTAL WARRANTS (COST $0) ................................................. 571
----------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT (0.6%)
$ 1,069 Chase Securities, Inc., 2.60%, dated 12/31/99,
due 1/03/00, to be repurchased at $1,069,
collateralized by U.S. Treasury Bonds, 6.125% due
12/31/01, valued at $1,093 (Cost $1,069) ........... 1,069
----------------
TOTAL INVESTMENTS (97.9%) (Cost $190,160) ................................ 180,959
----------------
OTHER ASSETS (2.3%)
Interest Receivable ..................................... $ 3,778
Receivable for Portfolio Shares Sold .................... 473
Other ................................................... 7 4,258
-------------
LIABILITIES (-0.2%)
Investment Advisory Fees Payable ........................ (174)
Payable for Portfolio Shares Redeemed ................... (86)
Distribution Fees Payable ............................... (28)
Administrative Fees Payable ............................. (24)
Bank Overdraft Payable .................................. (12)
Directors' Fees and Expenses Payable .................... (12)
Custodian Fees Payable .................................. (4)
Other Liabilities ....................................... (34) (374)
-------------- ----------------
NET ASSETS (100%) ...................................................... $ 184,843
----------------
----------------
<CAPTION>
AMOUNT
(000)
- -------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in Capital ........................................................ $ 199,375
Distributions in Excess of Net Investment Income ....................... (173)
Accumulated Net Realized Loss .......................................... (5,158)
Unrealized Depreciation on Investments and Foreign Currency
Translations ......................................................... (9,201)
----------------
NET ASSETS $ 184,843
----------------
----------------
CLASS A:
NET ASSETS ............................................................. $ 136,386
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 12,889,010 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ............................... $ 10.58
----------------
----------------
CLASS B:
NET ASSETS ............................................................. $48,457
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 4,591,160 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ............................... $ 10.55
----------------
----------------
- -------------------------------------------------------------------------------------------
</TABLE>
(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.
(f) -- Defaulted securities
(n) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of December 31, 1999. Maturity date disclosed is the
ultimate maturity date.
PIK -- Payment-In-Kind. Income may be received in additional securities or cash
at the discretion of the issuer.
Floating Rate -- The interest rate changes on these instruments are based on
changes in a designated base rate. The rates shown are those in effect
at December 31, 1999.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
133
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Fixed Rate Instruments (96.1%)
Other (1.7%)
Variable/Floating Rate Instruments (2.2%)
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- --------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MUNICIPAL BOND 7-YEAR
PORTFOLIO- MUNICIPAL BOND
CLASS A INDEX(1)
---------------- ---------------
<S> <C> <C>
5/01/91* $500,000 $500,000
10/31/91 ________ ________
10/31/92 ________ ________
12/31/92 ________ ________
12/31/93 ________ ________
12/31/94 ________ ________
12/31/95 ________ ________
12/31/96 ________ ________
12/31/97 ________ ________
12/31/98 ________ ________
12/31/99 $626,816 $667,687
</TABLE>
* Commencement of operations
**Minimum investment
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested.
PERFORMANCE COMPARED TO THE LEHMAN
7-YEAR MUNICIPAL BOND INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION
------ -----------------
<S> <C> <C>
Portfolio--Class A....................... -1.79% 4.67%
Index.................................... -0.14 6.02
</TABLE>
1. The Lehman 7-Year Municipal Bond Index consists of investment grade bonds
with maturities between 6-8 years, rated BAA or better. All bonds have been
taken from issues of at least $50 million in size sold within the last five
years.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Municipal Bond Portfolio seeks high current income consistent with
preservation of principal through investment in a portfolio consisting
primarily of intermediate and long-term investment grade municipal
obligations, the interest on which is exempt from Federal income tax.
For the year ended December 31, 1999, the Portfolio had a total return of -1.79%
for the Class A shares compared to -0.14% for the Lehman 7-Year Municipal Bond
Index (the "Index"). For the period from inception on January 18, 1995 through
December 31, 1999, the average annual total return for the Class A shares was
4.67% compared to 6.02% for the Index. As of December 31, 1999 the Portfolio had
a SEC 30-day yield of 4.97% for the Class A shares.
The Portfolio closely matched the performance of the Index during the fourth
quarter but lagged the Index for the year. Portfolio performance was hampered by
a significant amount of redemption activity driven by investors taking advantage
of fixed income losses to offset realized equity gains.
In what was a tough year for the U.S. fixed income markets, the municipal
bond market managed to outperform the U.S. Treasury market. Municipal bonds
with maturities of five years or less posted positive total returns for the
year. Bonds maturing beyond five years didn't fare as well, with the longer
the maturity the worse the performance. Long-term AAA municipal bonds
started the year yielding 4.94% and ended the year at a yield of 5.93%, an
increase that compares favorably to the 30-year Treasury's more dramatic
movement from 5.09% to 6.48%.
The U.S. fixed income market ended the century on a less than memorable note.
The year 1999 will go on record as the second worst year in the fixed income
markets in recent memory (1994 has the dubious distinction of being the worst).
Bond market activity was driven during the year by the threat of inflation and
the fear of real and perceived Federal Reserve rate hikes. The seventy-five
basis point increase in the targeted Federal Funds rate, spread out over the
course of the year, took its toll on the bond market.
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S
FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
- --------------------------------------------------------------------------------
Municipal Bond Portfolio
134
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO (CONT.)
The municipal bond market's outperformance during the year was mainly a function
of supply and demand remaining in check. Total issuance of $225.8 billion,
although a 21% decrease from 1998's level, represents the fourth busiest year on
record. The demand side of the equation was led by the individual investor.
Historically, demand in the municipal market has been driven by property and
casualty insurance companies and municipal bond funds. During 1999 the demand
side shifted. Property and casualty insurance companies, due to operating
losses, could not take full advantage of tax-exempt income and individuals were
net sellers of bond funds during the year. Crossover buyers, experiencing losses
across their fixed income holdings, appeared to seek better returns outside the
fixed income asset class. That said, the municipal market depended on
individuals making direct purchases of bonds. Bonds with maturities of ten years
and in with coupons close to par, especially from high tax states, were easily
absorbed by individual investors. The longer end of the yield curve was a
tougher sell, with the usual buyers (ex. long-term bond funds) sitting on the
sidelines. This forced dealers to execute swaps (selling new issue deals by
purchasing weaker structured outstanding bonds from customers). This, coupled
with tax loss swapping, built up dealer inventories. At various times during the
year this caused municipal bonds with maturities of fifteen years and out to
trade at close to 100% of comparable maturity Treasury yields. Municipals ended
the year on a strong note, as limited supply during December helped municipals
outperform Treasuries as the year came to a close.
Looking forward to the New Year, we expect municipal new issue supply in 2000 to
once again be led by new money issuance. Refunding bond volume during 2000 will
likely be constrained, as it was during 1999, by the higher absolute level of
interest rates. The education sector should continue to lead the way, as
municipalities across the country must continue to deal with increasing
enrollment levels and school facilities already beyond capacity limits.
California and New York, as they have in the past, will probably remain the
leading issuers of new issue supply among the states. With most state coffers
full from record tax receipts courtesy of a strong U.S. economy, officials will
look to push through as many things on their constituents "wish lists" as they
can while the revenues are flowing.
The Federal Open Market Committee meets again in early February. Because the
tight labor market biases the Fed to lean against continued rapid growth, the
probability of a tightening move at that time is high. There also is the
likelihood of one or more additional tightening moves during the course of the
year. Yet the market has already discounted such actions: in fact, the current
yield curve already discounts approximately 75 basis points of additional Fed
tightening in 2000. With this degree of tightening already factored into the
yield curve, and real yields at high levels, we believe there will be an
opportunity to invest cash or extend out current maturities at what should be
attractive bond yields.
Lori A. Cohane
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
Municipal Bond Portfolio
135
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C>
TAX-EXEMPT INSTRUMENTS (98.3%)
FIXED RATE INSTRUMENTS (96.1%)
$ 1,500 Connecticut State General Obligation Bonds,
Series E, 6.00%, 3/15/12 ......................... $1,592
500 Fairfax County Virginia, Water Authority
Revenue Bonds, 6.00%, 4/01/22
Prerefunded 4/01/07 at 102 ....................... 537
500 Georgia State General Obligation Bonds,
Series F, 6.50%, 12/01/06 ........................ 547
1,000 Hawaii State General Obligation Bonds,
Series CJ, Revenue Bonds, 6.20%,
1/01/12 Prerefunded 1/01/05 at 100 ............... 1,059
1,625 Michigan State Housing Development
Authority, Revenue Bonds,
Series A, 6.75%, 12/01/14 ........................ 1,656
1,400 Mississippi State General Obligation
Bonds, 6.00%, 2/01/09,
Prerefunded 2/01/05 at 100 ....................... 1,468
500 Municipal Assistance Corp. for City of New
York, New York, Revenue Bonds,
6.00%, 7/01/04 ................................... 524
935 Ohio State Housing Finance Agency,
Residential Mortgage Revenue Bonds,
Series A-1, 6.20%, 9/01/14 ....................... 954
600 Salt Lake City Utah, General Obligation
Bonds, 6.375%, 6/15/11 ........................... 613
1,500 Texas State Public Finance Authority,
Series A, 5.95%, 10/01/15,
Prerefunded 4/01/05 at 100 ....................... 1,571
500 Virginia State Housing Development
Authority, Commonwealth Mortgage
Revenue Bonds, Series B, 6.60%, 1/01/12 .......... 507
--------
11,028
--------
VARIABLE/FLOATING RATE INSTRUMENTS (2.2%)
100 Louisiana Public Facilities Authority,
Industrial Revenue Bonds, 12/01/15 ............... 100
150 New York City, New York,
General Obligation Bonds, 10/01/23 .............. 150
--------
250
--------
TOTAL TAX-EXEMPT INSTRUMENTS (Cost $11,041) ............................ 11,278
--------
<CAPTION>
VALUE
(000)
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (98.3%) (Cost $11,041) ...............................$11,278
--------
OTHER ASSETS (2.0%)
Cash ............................................ $46
Interest Receivable ............................. 187
Receivable from Investment Advisor .............. 1
Other ........................................... 1 235
----
LIABILITIES (0.3%)
Professional Fees Payable ....................... (24)
Administrative Fees Payable ..................... (5)
Directors' Fees and Expenses Payable ............ (4)
Custodian Fees Payable .......................... (1)
Other Liabilities ............................... (1) (35)
---- --------
NET ASSETS (100%) ......................................................$11,478
--------
--------
NET ASSETS CONSIST OF:
Paid in Capital ........................................................$11,301
Distribution in Excess of Net Investment Income ........................ (4)
Accumulated Net Realized Loss .......................................... (56)
Unrealized Appreciation on Investments ................................. 237
--------
NET ASSETS .............................................................$11,478
--------
--------
CLASS A:
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,205,781 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ........................... $9.52
--------
--------
</TABLE>
- --------------------------------------------------------------------------------
Prefunded Bonds--Outstanding bonds have been refunded to the first call date
(prefunded date) by the issuance of new bonds. Principal and interest are
paid from monies escrowed in U.S. Treasury securities. Prefunded bonds are
generally re-rated AAA due to the U.S. Treasury escrow.
- --------------------------------------------------------------------------------
SUMMARY OF TAX-EXEMPT INSTRUMENTS BY STATE CLASSIFICATION
<TABLE>
<CAPTION>
STATE VALUE PERCENT OF
(000) NET ASSETS
- ------------------------------------------------------------------------
<S> <C> <C>
Connecticut......................... $1,592 13.9%
Georgia............................. 547 4.8
Hawaii.............................. 1,059 9.2
Louisiana........................... 100 0.9
Michigan............................ 1,656 14.4
Mississippi......................... 1,468 12.8
New York............................ 674 5.9
Ohio................................ 954 8.3
Texas............................... 1,571 13.7
Utah................................ 613 5.3
Virginia............................ 1,044 9.1
------- ----
$11,278 98.3%
------- ----
------- ----
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Bond Portfolio
136
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Certificates of Deposit (12.2%)
Commercial Paper (63.8%)
Other (10.6%)
U.S. Government & Agency Obligations (13.4%)
</TABLE>
COMPARATIVE MONTHLY AVERAGE YIELDS
- ------------------------------------------------
[GRAPH]
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 maturity 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 December 31, 1999 were 5.33% and 5.47%, respectively. As with
all money market portfolios, the seven day yields are not necessarily indicative
of future performance.
Over the past year, economic growth remained robust as powerful consumer
demand propelled sales of both new homes and motor vehicles to record highs.
After real GDP increased, on average, by 3.8% during the first three quarters
of the year, the economy displayed little evidence of slowing down in the
fourth quarter. In fact, strong retail sales and industrial production
figures released in December indicate that the U.S. economy retains a
powerful head of steam heading into the New Year. Primarily as a result of
surging crude oil prices, broad price measures experienced slight upward
pressure during 1999. Through November, the Consumer Price Index (CPI), on a
year-over-year change basis, rose by 2.6% as compared to 1.6% for all of
1998. However, excluding food and energy, CPI was up only 2.1% during the
same time span as compared to 2.4% for all of 1998.
In contrast to the period of rather stable short-term interest rates which
prevailed during most of the first half of 1999, the period beginning in late
June through the end of the year produced a pattern of rising money market
yields. The Federal Open Market Committee (FOMC) raised its target rate for
federal funds by 25 basis points on three occasions, reversing the three similar
cuts made in the second half of 1998 to stabilize financial markets following
Russia's currency and debt crisis. Throughout most of the past year, our primary
strategy has consisted of barbelling the maturity structure of the Portfolio
between securities that were due near upcoming FOMC meeting dates and
longer-term maturities with yields that better reflected crossover year- end
yield premiums.
On December 31, 1999, approximately 64 percent of the Portfolio was invested in
high quality commercial paper, 11 percent in Federal agency obligations, 3
percent in U.S. Treasury bills, 10 percent in overnight repurchase agreements,
and 12 percent in short-term bank notes and negotiable certificates of deposit
issued by financially
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. INVESTMENTS IN SHARES OF THE
PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS
NO ASSURANCE THAT THE PORTFOLIO WILL REMAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
- --------------------------------------------------------------------------------
Money Market Portfolio
137
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO (CONT.)
strong commercial banks. At December 31, the Portfolio's weighted average
maturity was 32 days and 96% 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. We always try to operate the
Portfolio in a conservative manner without the use of derivatives or funding
agreements. 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 anticipate some moderation in the pace of economic
activity during the year 2000, the current growth rate could remain stronger
than the Federal Reserve believes desirable for the long run. As a result,
future meetings of the FOMC could result in further upward adjustments for
short-term interest rates. The Portfolio is well positioned to take advantage of
money market yield levels which become available during the months ahead.
January 2000
- --------------------------------------------------------------------------------
Money Market Portfolio
138
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- --------------------------------------------------------------------------------
<S> <C>
MONEY MARKET INSTRUMENTS (89.4%)
CERTIFICATES OF DEPOSIT (12.2%)
BANKS (12.2%)
$ 20,000 Bank of America 5.88%, 1/27/00 ..................... $ 20,000
50,000 Bank of Austria, New York 5.04%, 1/12/00 ........... 50,000
30,000 Barclays Bank 6.01%, 1/03/00 ....................... 30,000
15,000 Chase Manhattan 5.60%, 1/24/00 ..................... 15,000
25,000 Commerzbank AG, New York 5.09%, 2/16/00 ............ 24,999
34,550 Deutsche Bank, New York 5.02%, 1/12/00 ............. 34,550
13,000 Deutsche Bank, New York 5.10%, 2/17/00 ............. 12,999
15,000 Dresdner Bank 6.15%, 1/06/00 ....................... 15,000
20,000 First Union National Bank 5.82%, 2/01/00 ........... 20,000
25,000 First Union National Bank 5.83%, 1/10/00 ........... 25,000
20,000 Fleet National Bank 6.06%, 2/29/00 ................. 20,000
25,000 Fleet National Bank 6.07%, 2/28/00 ................. 25,000
25,000 Fleet National Bank 6.08%, 2/22/00 ................. 25,000
20,000 U.S. Bank 5.85%, 1/18/00 ........................... 20,000
20,000 U.S. Bank 6.00%, 1/31/00 ........................... 20,000
----------
TOTAL CERTIFICATES OF DEPOSIT (Cost $357,548) 357,548
COMMERCIAL PAPER (63.8%) ----------
AUTOMOTIVE (5.1%)
20,000 Daimler Chrysler North America Holding
Corp. 5.94%, 2/02/00 ............................. 19,894
25,000 Daimler Chrysler North America Holding
Corp. 5.96%, 2/02/00 ............................. 24,868
25,000 Daimler Chrysler North America Holding
Corp. 5.86%, 2/11/00 ............................. 24,833
50,000 Ford Motor Credit Corp. 6.01%, 1/03/00 ............. 49,983
30,000 Ford Motor Credit Corp. 5.81%, 1/07/00 ............. 29,971
----------
149,549
----------
BANKING (8.0%)
20,000 Bank of America 6.01%, 1/05/00 ..................... 19,987
25,000 Bank of America 5.97%, 2/23/00 ..................... 24,780
20,000 Bank of America 5.92%, 4/12/00 ..................... 19,665
30,000 Bank of New York 5.77%, 2/04/00 .................... 29,836
25,000 Citicorp 5.84%, 1/14/00 ............................ 24,947
15,000 Citicorp 5.70%, 1/20/00 ............................ 14,955
30,000 Citicorp 5.95%, 2/08/00 ............................ 29,812
25,000 J.P. Morgan & Co. 5.80%, 1/25/00 ................... 24,903
20,000 J.P. Morgan & Co. 5.90%, 2/08/00 ................... 19,875
25,000 J.P. Morgan & Co. 5.78%, 3/22/00 ................... 24,675
----------
233,435
----------
COMPUTER HARDWARE (1.0%)
30,000 IBM Credit Corp. 5.88%, 2/09/00 .................... 29,809
----------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (0.7%)
20,000 Jonh Deere Capital Corp. 5.91%, 2/07/00 ............ 19,878
----------
CONSUMER FINANCE (8.6%)
35,000 American Express Credit Corp. 5.83%, 1/20/00 ....... 34,892
20,000 American Express Credit Corp. 5.92%, 2/15/00 ....... 19,852
15,000 American Express Credit Corp. 5.90%, 2/18/00 ....... 14,882
30,000 Household Finance Corp. 6.45%, 1/05/00 ............. $29,978
25,000 New Center Asset Trust Corp. 5.73%, 2/10/00 ....... 24,841
25,000 New Center Asset Trust Corp. 5.75%, 2/11/00 ........ 24,837
25,000 New Center Asset Trust Corp. 5.80%, 3/21/00 ........ 24,678
25,000 Norwest Financial, Inc. 5.78%, 2/03/00 ............. 24,868
25,000 Norwest Financial, Inc. 5.72%, 2/07/00 ............. 24,853
15,000 Norwest Financial, Inc. 5.83%, 2/25/00 ............. 14,866
15,000 Norwest Financial, Inc. 6.00%, 3/10/00 ............. 14,828
----------
253,375
----------
DIVERSIFIED FINANCIAL SERVICES (5.9%)
25,000 Associates Corp. of North America 5.73%, 1/11/00 ... 24,960
60,000 Associates First Capital Corp. 6.50%, 1/31/00 ...... 59,675
20,000 General Electric Capital Corp. 4.86%, 1/19/00 ...... 19,951
15,000 General Electric Capital Corp. 5.42%, 1/21/00 ...... 14,955
28,000 General Electric Capital Corp. 5.00%, 1/26/00 ...... 27,903
25,000 General Electric Capital Corp. 5.99%, 5/15/00 ...... 24,439
----------
171,883
----------
DIVERSIFIED MANUFACTURING (1.3%)
40,000 3M Corp. 6.00%, 3/30/00 ............................ 39,407
----------
FINANCE - CORPORATE (4.9%)
30,000 Ciesco, LP 5.96%, 1/27/00 .......................... 29,871
30,000 Ciesco, LP 5.80%, 1/28/00 .......................... 29,870
20,000 Ciesco, LP 5.92%, 2/24/00 .......................... 19,822
25,000 CIT Group, Inc. 6.01%, 1/04/00 ..................... 24,988
20,000 CIT Group, Inc. 6.00%, 1/04/00 ..................... 19,990
20,000 CIT Group, Inc. 5.93%, 1/07/00 ..................... 19,980
----------
144,521
----------
INSURANCE (5.3%)
50,000 MetLife Funding, Inc. 5.87%, 2/01/00 ............... 49,747
25,000 MetLife Funding, Inc. 5.90%, 2/04/00 ............... 24,861
30,000 Prudential Funding 5.84%, 1/13/00 .................. 29,942
20,000 Prudential Funding 6.12%, 1/21/00 .................. 19,932
30,000 Prudential Funding 5.99%, 1/26/00 .................. 29,875
----------
154,357
----------
INTEGRATED OIL COMPANIES (2.2%)
65,000 Chevron USA, Inc. 6.51%, 1/11/00 ................... 64,882
----------
INTERNATIONAL BANKS (6.5%)
40,000 Deutsche Bank, Financial Inc. 5.50%,
1/13/00 ............................................ 39,927
40,000 Dresdner U.S. Finance 6.34%, 1/03/00 ............... 39,986
20,000 Societe Generale North America Inc., New
York 6.25%, 1/06/00 ................................ 19,983
40,000 Toronto Dominion Holdings 5.60%, 2/29/00 ........... 39,633
50,000 UBS Finance, Inc. 5.00%, 1/05/00 ................... 49,972
----------
189,501
----------
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Money Market Portfolio
139
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT BANKERS/BROKERS/SERVICES (4.7%)
$ 20,000 Goldman Sachs Group, Inc. 6.00%, 1/14/00 ................ $ 19,957
25,000 Goldman Sachs Group, Inc. 5.98%, 2/03/00 ................ 24,863
25,000 Goldman Sachs Group, Inc. 5.96%, 2/04/00 ................ 24,859
10,000 Merrill Lynch & Co. 5.96%, 1/28/00 ...................... 9,955
35,000 Merrill Lynch & Co.5.87%, 2/10/00 ....................... 34,772
25,000 Merrill Lynch & Co. 5.94%, 2/28/00 ...................... 24,761
----------
139,167
----------
OILFIELD SERVICES/EQUIPMENT (2.9%)
35,000 Halliburton Co. 6.45%, 1/04/00 .......................... 34,981
50,000 Halliburton Co. 6.45%, 1/10/00 .......................... 49,920
----------
84,901
----------
TELECOMMUNICATIONS (6.7%)
40,200 AT&T Capital Corp. 5.00%, 1/06/00 ....................... 40,172
30,000 AT&T Capital Corp. 6.40%, 1/19/00 ....................... 29,904
50,000 Bell South Telecommunications 6.05%, 2/18/00 ............ 49,597
28,500 Bell South Telecommunications 6.07%, 2/23/00 ............ 28,245
50,000 Motorola Inc. 5.20%, 1/27/00 ............................ 49,812
---------
197,730
----------
TOTAL COMMERCIAL PAPER (Cost $1,872,395) 1,872,395
----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (13.4%)
U.S. AGENCY DISCOUNT NOTES (10.8%)
25,000 Federal Home Loan Bank 4.77%, 3/16/00 ................... 24,752
35,000 Federal Home Loan Bank 5.01%, 4/28/00 ................... 34,995
40,000 Federal Home Loan Mortgage Corp. 1.40%, 1/03/00 ......... 39,997
75,000 Federal Home Loan Mortgage Corp. 4.75%, 1/14/00 ......... 74,871
50,000 Federal Home Loan Mortgage Corp. 5.55%, 2/25/00 ......... 49,580
50,000 Federal National Mortgage Assoc. 5.54%, 2/24/00 ......... 49,587
25,000 Federal National Mortgage Assoc. 5.75%, 6/22/00 ......... 24,309
20,000 Federal National Mortgage Assoc. 5.63%, 11/20/00 ........ 18,987
----------
317,078
----------
U.S. TREASURY SECURITIES (2.6%)
75,000 U.S. Treasury Bill 4.52%, 1/13/00 ....................... 74,895
----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost $391,973) ................................................... 391,973
----------
TOTAL MONEY MARKET INSTRUMENTS (Cost $2,621,916) .................. 2,621,916
----------
SHORT-TERM INVESTMENT (10.3%)
REPURCHASE AGREEMENT (10.3%)
$301,840 J.P. Morgan & Co., 2.75%, dated
12/31/99, due 1/03/00, to be repurchased at $301,909,
collateralized by U.S. Treasury Bonds having various
maturities and interest rates valued at $307,877
(Cost $301,840) ........................................ $ 301,840
----------
TOTAL INVESTMENTS (99.7%) (Cost $2,923,756) ....................... 2,923,756
----------
OTHER ASSETS (0.4%)
Cash ....................................... $ 30
Interest Receivable ........................ 10,259
Other ...................................... 30 10,319
------
LIABILITIES (-0.1%)
Investment Advisory Fees Payable ........... (1,829)
Administrative Fees Payable ................ (358)
Dividends Payable .......................... (144)
Directors' Fees and Expenses Payable ....... (119)
Custodian Fees Payable ..................... (44)
Other Liabilities .......................... (265) (2,759)
------ ----------
NET ASSETS (100%) ................................................. $2,931,316
----------
----------
NET ASSETS CONSIST OF:
Paid in Capital ................................................... $2,931,607
Undistributed Net Investment Income ............................... 4
Accumulated Net Realized Loss ..................................... (295)
----------
NET ASSETS ........................................................ $2,931,316
----------
----------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,931,802,567 outstanding $0.001 par
value shares (authorized 4,000,000,000 shares) ................ $ 1.00
----------
----------
</TABLE>
- --------------------------------------------------------------------------------
Floating Rate Security--The interest rate changes on these instruments are based
on changes in a designated base rate. The rates shown are those in effect
at December 31, 1999.
Maturity dates disclosed for Floating Rate Instruments are the ultimate maturity
dates. The effective maturity dates for such securities are the next
interest reset dates which are seven days or less.
Interest rates disclosed for Commercial Paper and Agency Discount Notes
represent effective yields at December 31, 1999.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Money Market Portfolio
140
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Commercial Paper (34.7%)
Daily Variable Rate Bonds (20.3%)
Notes (7.3%)
Other (0.5%)
Weekly Variable Rate Bonds (37.2%)
</TABLE>
COMPARATIVE MONTHLY AVERAGE YIELDS
- ------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
IBC Municipal
Money Fund Municipal Money
Comparable Market Portfolio
Yields 30 day yields
------------- -----------------
<S> <C> <C>
Jan 2.8% 3.0%
Feb _____ _____
Mar _____ _____
Apr _____ _____
May _____ _____
Jun _____ _____
Jul _____ _____
Aug _____ _____
Sep _____ _____
Oct _____ _____
Nov _____ _____
Dec 3.11% 3.17%
</TABLE>
- -----------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDANT ACCOUNTATNS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. INVESTMENTS IN SHARES OF THE
PORTFOLIO ARE NEITHER INSURED NOR GUARUNTEED BY THE U.S. GOVERNMENT AND THERE
IS NO ASSURANCE THAT THE PORTFOLIO WILL MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The Municipal Money Market Portfolio 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
maturity of 397 days or less. Typically, the Portfolio will invest at least 80%
of its assets in tax-exempt municipal securities. The Portfolio will not invest
in municipal obligations that pay 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 December 31, 1999 were 3.84% and 3.91%, respectively. The seven day
taxable equivalent yield and seven day taxable equivalent effective yield for
the Portfolio at December 31, 1999, assuming Federal income tax rate of 39.6%
(maximum rate) were 6.36% and 6.47%, respectively. As with all money market
portfolios, the seven day yields are not necessarily indicative of future
performance.
Tax-free money market yields moved higher throughout the course of 1999,
following the trend in the taxable money market. Although the year began amid
fears of a global recession, the economic problems overseas abated as the year
progressed. At the same time the U.S. economy, led by consumer demand, continued
to experience robust growth. The stage was set for the Federal Reserve Board to
change monetary policy and remove the liquidity it had provided during the 1998
international economic crisis. Between June and November, the Fed raised the
federal funds rate target a total of 75 basis points, from 4.75% to 5.50%.
Within the municipal money market, the upward course of interest rates was most
obvious among longer fixed rate instruments. One year yields fell modestly at
the outset of the year helped by heavy seasonal cash inflows. The Bond Buyer One
Year Note Index, a benchmark indicator for the longest maturities in the
tax-free money market sector, registered its low for the year of 2.88% in
February. For the balance of the year, one-year yields trended upward. At the
end of December 1999 the Index stood at 3.97%, 94 basis points above the level
at the end of 1998. The ratio of the One Year Note Index to the yield for
one-year U.S. Treasury bills was 67 percent at year end, just slightly above the
level of 66 percent one year earlier. A stable ratio means that performance of
securities in this sector of the municipal
- --------------------------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. INVESTMENTS IN SHARES OF THE
PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS
NO ASSURANCE THAT THE PORTFOLIO WILL REMAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
141
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
market has tracked the performance of Treasuries with comparable maturities.
Yields also moved higher for daily and weekly variable rate demand obligations
(VRDOs) but within widely fluctuating bands. Yields for these instruments are
driven for the most part by changing cash flows and are subject to much larger
swings than yields for longer fixed-rate investments. Weekly VRDO yields moved
over a range of nearly 300 basis points during the year. The low of 2.20% was
set in early February when cash inflows were strong. The high of 5.00% came in
late December amid Y2K uncertainty and expectations for the usual seasonal
redemptions. Reflecting the overall rise in interest rates, however, the average
yield for weekly VRDOs was 4.15% for the month of December 1999, up 70 basis
points from an average of 3.45% in December 1998.
Assets of the Portfolio increased more than 41% during 1999. At the end of the
year net assets totaled $1,403 million. During the fourth quarter, asset
allocation leaned toward investments in highly liquid daily and weekly VRDOs.
The emphasis on liquidity was prompted by anticipated seasonal cash outflows as
well as the uncertainty arising from the Y2K changeover. At the end of December,
the weighted average maturity of the Portfolio stood at 27 days, down moderately
from 33 days six months earlier. We anticipate additional increases in the
federal funds rate target in the period ahead. Average portfolio maturity will
be monitored with an eye toward the Fed's stance on monetary policy.
January 2000
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
142
<PAGE>
<TABLE>
<CAPTION>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
FACE AMORTIZED
AMOUNT COST
(000) (000)
- --------------------------------------------------------------------------------
<S> <C>
TAX-EXEMPT INSTRUMENTS (99.5%)
FIXED RATE INSTRUMENTS (42.0%)
NOTES (7.3%)
$ 10,000 Arizona School District Tax Anticipating
Notes, 4.05%, 7/31/00 .............................. $ 10,026
8,765 Dallas, Texas, Refg & Impr, 4.00%, 2/15/00 ........... 8,778
15,000 Harris County, Texas, 4.00%, 2/29/00 ................. 15,013
10,000 Idaho, Series 1999 TANS, 4.25%, 6/30/00 .............. 10,041
6,050 Indianapolis Local Public Improvement Bond
Bank, Indiana, Series 1999 D Notes,
4.00%, 1/10/00 ..................................... 6,075
10,000 Iowa School Corporations, Warrant
Certificates Series 1999-00 A (FSA),
4.00%, 6/23/00 ..................................... 10,074
10,000 Kentucky Asset/Liability Commission,
Series 1999 A TRANS, 4.25%, 6/28/00 ................ 10,041
10,000 Massachusetts Bay Transportation
Authority, 3.50%, 2/25/00 ......................... 10,000
10,000 New Mexico, Series 1999-2000 TRANS,
4.00%, 6/30/00 ..................................... 10,037
10,000 Texas State Tax & Revenue,
4.50%, 8/31/00 ..................................... 10,051
3,100 Wake County, North Carolina,
Public Improvement Bond, 4.50%, 3/01/00 ............ 3,108
----------
103,244
----------
COMMERCIAL PAPER (34.7%)
Baltimore County, Maryland, Cons Series 1995,
4,000 3.85%, 1/14/00 ..................................... 4,000
15,000 3.85%, 2/03/00 ..................................... 15,000
8,900 Cuyahoga County, Ohio, Cleveland Clinic
Foundation Series 1997 D, 4.70%, 1/01/16 ........... 8,900
7,400 Honolulu City & County, Hawaii,
Series 1998 BANS, 3.80%, 1/18/00 ................... 7,400
4,100 Honolulu City & County, Hawaii,
Series 1998 BANS, 3.65%, 3/07/00 ................... 4,100
Houston, Texas,
13,000 Series 1996 B, 3.70%, 1/19/00 ...................... 13,000
12,600 Series 1996 B, 3.80%, 1/27/00 ...................... 12,600
12,000 Series 1996 B, 3.75%, 2/22/00 ...................... 12,000
2,000 Series 1996 B, 3.85%, 2/22/00 ...................... 2,000
10,000 Houston, Texas, Water & Sewer,
Series A, 3.85%, 2/16/00 .......................... 10,000
9,000 Illinois Educational Facility Authority,
Pooled Financing, 3.75%, 1/25/00 ................... 9,000
Intermountain Power Agency, Utah,
10,000 3.625%, 3/15/00 .................................... 10,000
8,500 3.75%, 7/01/14 ..................................... 8,500
8,200 Jefferson County, Kentucky, Louisville
Gas & Electric Co., Series A, 3.80%, 1/12/00 ....... 8,200
Kentucky Asset/Liability Commission,
11,400 3.65%, 3/02/00 ..................................... 11,400
13,900 3.75%, 3/08/00 ..................................... 13,900
10,000 King County, Washington, Sewer
Series A, 3.85%, 1/26/00 .......................... 10,000
Las Vegas Valley Water District, Nevada,
$ 6,000 3.80%, 2/07/00 ..................................... 6,000
10,000 3.80%, 2/09/00 ..................................... 10,000
4,000 Lincoln County, Wyoming, Series 1991,
3.80%, 1/19/00 ..................................... 4,000
6,000 Lincoln, Nebraska, Lincoln Electric,
Series 1995, 3.80%, 1/13/00 ......................... 6,000
10,000 Louisiana Pubic Finance Authority,
Series B, 3.80%, 2/24/00 ........................... 10,000
Louisiana, Series 1991 A,
11,000 3.80%, 2/07/00 ..................................... 11,000
7,500 3.75%, 2/09/00 ..................................... 7,500
15,000 Massachusetts Industrial Finance Agency,
Series 1993 B, 3.80%, 2/17/00 ...................... 15,000
15,000 Montgomery County, Maryland, Series
1995 BANS, 3.65%, 1/13/00 .......................... 15,000
10,000 Montgomery County, Maryland, Series 1995,
3.80%, 1/18/00 ..................................... 10,000
9,400 Montgomery County, Pennsylvania,
Series 1994 A, 3.80%, 1/25/00 ...................... 9,400
13,000 Nebraska Public Power District, Series A,
3.75%, 2/16/00 ..................................... 13,000
New Jersey Fiscal 2000, Series A,
15,000 3.90%, 2/09/00 ..................................... 15,000
15,600 3.75%, 2/17/00 ..................................... 15,600
8,000 New York City Municipal Water Finance, Series #5,
3.85%, 1/11/00 ..................................... 8,000
12,250 New York State Power Authority, Series #2,
3.70%, 2/10/00 ..................................... 12,250
5,600 North Central Texas Health Facilities Development
Corp., Series C, 4.55%, 12/01/15 ................... 5,600
5,000 Oklahoma City Industrial & Cultural Facilities
Trust, SSM Healthcare Series 1998 B (MBIA),
3.60%, 1/02/00 ..................................... 5,000
8,000 Orlando, Florida Water & Electric Utilities
Commission, Series A, 3.80%, 2/22/00 ............... 8,000
6,000 Petersburg, Indiana, Indianapolis Power & Light
Co. Series 1991, 3.75%, 2/08/00 .................... 6,000
10,000 Platte River Power Authority, Colorado, Electric
Sub Lien S-1, 3.75%, 2/14/00 ....................... 10,000
19,750 Port Authority New York & New Jersey, Revenue
Bonds 4.35%, 5/01/19 ............................... 19,750
12,245 Port of Seattle, Washington, Series A,
3.75%, 3/09/00 ..................................... 12,245
9,550 Rochester, Minnesota, Mayo Foundation/Mayo
Medical Center, 3.80%, 2/23/00 ..................... 9,550
6,750 Seattle, Washington, Municipal Light & Power,
Series 1996, 3.90%, 2/14/00 ........................ 6,750
South Carolina Public Service Authority,
Santee Cooper, Series 1998,
5,900 3.70%, 2/23/00 ..................................... 5,900
15,000 3.80%, 2/15/00 ..................................... 15,000
4,900 St. Lucie County, Florida, Florida Power & Light
Co., Series 1992, 3.75%, 1/12/00 ................... 4,900
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
143
<PAGE>
<CAPTION>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
FACE AMORTIZED
AMOUNT COST
(000) (000)
- --------------------------------------------------------------------------------
<S> <C>
FIXED RATE INSTRUMENTS (CONT.)
COMMERCIAL PAPER (CONT.)
Sunshine State Governmental Financing Commission, Florida,
$ 4,125 Series A, 3.80%, 2/08/00 ........................... $4,125
10,000 Series B, 3.85%, 2/08/00 ........................... 10,000
9,100 Sweetwater County, Wyoming, Pacificorp,
3.80%, 2/10/00 ..................................... 9,100
14,000 Tennessee School Board Authority, Series A,
3.80%, 1/26/00 ..................................... 14,000
7,000 Texas Public Finance Authority, Series 1993 A,
3.85%, 2/17/00 ..................................... 7,000
1,095 Washington Suburban Sanitation District, Maryland,
Second Series, 8.00%, 1/01/00 ...................... 1,095
5,310 Wisconsin Transportation Notes, 3.80%, 2/10/00 ....... 5,310
----------
487,075
----------
TOTAL FIXED RATE INSTRUMENTS (COST $590,319) ..................... 590,319
VARIABLE/FLOATING RATE INSTRUMENTS (57.5%) ----------
DAILY VARIABLE RATE BONDS (20.3%)
4,400 California Pollution Control Financing Authority,
4.25%, 11/01/26 .................................... 4,400
600 California Statewide Communities Development
Authority, 4.25%, 8/15/27 .......................... 600
5,300 Collier County Health Facilities Authority, Florida,
Authority Revenue Bonds, 4.70%, 1/01/33 ............ 5,300
Cuyahoga County, Ohio, Cleveland Clinic Foundation,
Series 1997 D,
14,175 4.80%, 1/01/26 ..................................... 14,175
7,000 5.65%, 1/15/29 ..................................... 7,000
2,100 Delaware County Industrial Development Authority,
4.80%, 10/01/19 .................................... 2,100
2,600 Delta County Economic Development Corporation,
Michigan, Mead-Escanaba Paper Co.,
Series 1985 C, 4.95%, 12/01/23 ..................... 2,600
6,950 East Baton Rouge Parish, Louisiana, Exxon Corp.,
4.80%, 3/01/22 ..................................... 6,950
700 Farmington, New Mexico, Pollution Control,
Series A, 4.70%, 5/01/24 ........................... 700
7,000 Forsyth, Montana, Pacificorp, 4.50%, 1/01/18 .......... 7,000
2,600 Hapeville Development Authority, Georgia,
Hapeville Ltd., Series 85, 5.00%, 11/01/15 ......... 2,600
13,745 Harris County, Texas, Health Facilities
Development Corp., 4.80%, 2/15/27 .................. 13,745
7,485 Idaho Health Facilities Authority, 4.70%, 5/01/22 ..... 7,485
Illinois Health Facilities Authority
4,665 4.75%, 11/01/20 .................................... 4,665
17,700 4.75%, 8/15/25 ..................................... 17,700
16,500 5.00%, 5/15/29 ..................................... 16,500
2,000 Irvine Ranch Water District, California, Cons Refg,
Series 1985 B, 4.00%, 10/01/09 ..................... 2,000
$ 10,000 Jackson County, Mississippi, Chevron USA Inc.,
Series 1993, 3.85%, 6/01/23 ........................ $10,000
9,240 Jacksonville Pollution Control Financing Authority,
Florida, Power & Light Co., Series 1995,
4.00%, 5/01/29 ..................................... 9,240
6,200 Lehigh County General Purpose Authority, Lehigh
Valley Health, Series 1999 B, 4.75%, 7/01/28 ....... 6,200
600 Lehigh County, Pennsylvania, 4.75%, 7/01/29 ........... 600
2,100 Lincoln County, Wyoming, Exxon Corp. Series 1984
B & D, 4.70%, 11/01/14 ............................. 2,100
3,000 Long Island Power Authority, New York, Electric
System Sub-series 6, 4.70%, 5/01/33 ................ 3,000
6,400 Louisiana Public Facilities Authority, Kenner
Hotel, Series 85, 5.00%, 12/01/15 .................. 6,400
1,800 Maricopa County, Arizona, Arizona Public Service
Co., Series 1994 F, 4.80%, 5/1/29 .................. 1,800
Massachusetts Health & Educational Facilities Authority,
18,000 Capital Asset, Series D, 4.90%, 1/01/35 ............... 18,000
1,900 Harvard University, Series 1985 L, 5.40%, 2/01/16 ..... 1,900
1,500 Metropolitan Nashville Airport Authority, Series B,
4.80%, 10/01/12 .................................... 1,500
Missouri Health & Educational Facilities Authority,
10,800 4.70%, 6/01/15 ..................................... 10,800
2,200 5.65%, 9/01/30 ..................................... 2,200
3,900 New Jersey Economic Development Authority,
4.70%, 11/01/26 .................................... 3,900
2,020 New York City Cultural Resources Trust, New York,
Revenue Bonds, Series B, 4.75%, 12/01/15 ........... 2,020
New York State, Electric & Gas,
2,800 Series 1994 D, 4.65%, 10/01/29 ..................... 2,800
1,900 Series 1995, 4.65%, 6/01/29 ........................ 1,900
Ohio Air Quality Development Authority, Cincinnatti
Gas & Electric Co. Series 1985,
3,200 A, 4.50%, 12/01/15 ................................. 3,200
4,100 B, 4.85%, 9/01/30 .................................. 4,100
20,500 Oregon State, Series 73F, 5.65%, 12/01/17 ............. 20,500
2,400 Peninsula Ports Authority of Virginia, Dominion
Terminal Assn., Series 1987 D, 4.95%, 7/01/16 ...... 2,400
3,045 Pennsylvania State Higher Education Facilities
Authority, Colleges & Universities,
4.85%, 10/01/09 .................................... 3,045
3,200 St. Charles Parish, Louisiana, Pollution Control,
4.80%, 10/01/25 .................................... 3,200
16,100 St. Lucie County, Florida, Pollution Control,
4.50%, 1/01/26 ..................................... 16,100
3,600 Tempe, Arizona, Excise Tax Series 1998,
4.90%, 7/01/23 ..................................... 3,600
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
144
<PAGE>
<CAPTION>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
FACE AMORTIZED
AMOUNT COST
(000) (000)
- --------------------------------------------------------------------------------
<S> <C>
VARIABLE/FLOATING RATE INSTRUMENTS (CONT.)
DAILY VARIABLE RATE BONDS (CONT.)
$ 300 Texas Water Development Board, Revolving Fund,
Series 1992 A, 4.80%, 3/01/15 ...................... $ 300
10,000 Utah County, Utah Environmental Improvement,
3.85%, 11/01/17 .................................... 10,000
19,715 Washington State Health Care Facilities
Authority, 4.80%, 2/15/27 .......................... 19,715
----------
286,040
----------
WEEKLY VARIABLE RATE BONDS (37.2%)
3,500 Ascension Parish, Louisiana, Borden Inc.,
Series 1992, 5.55%, 12/01/09 ....................... 3,500
10,200 Birmingham, Alabama, Special Care Health Facilities
Authority, 0.00%, 9/01/18 .......................... 10,200
Burke County Development Authority, Georgia,
10,380 Oglethorpe Power Co., Series 1993 A, 5.40%, 1/01/16 10,380
8,900 Pollution Control, 4.75%, 7/01/24 .................. 8,900
5,300 Charlotte, North Carolina, Airport Series 1993 A
(MBIA) 5.15%, 7/01/16 .............................. 5,300
Clark County, Nevada, Airport Impr Refg,
17,700 Series 1993 A, 5.20%, 7/01/12 ...................... 17,700
6,100 Series B-2, 3.70%, 7/01/29 ......................... 6,100
13,400 Clarksville, Tennessee, Public Building Authority,
0.00%, 10/01/25 .................................... 13,400
2,500 Columbia, Missouri, Special Series 1988,
5.25%, 6/01/08 ..................................... 2,500
Connecticut Health & Educational Facilities Authority,
Yale University,
20,000 Series T-1, 5.10%, 7/01/29 ......................... 20,000
20,000 Series T-2, 5.10%, 7/01/27 ......................... 20,000
Connecticut,
18,275 Series 1, 5.70%, 12/01/10 .......................... 18,275
7,315 Series 1997 B, 5.10%, 5/15/14 ...................... 7,315
1,800 Dade County Health Facilities Authority, Florida,
Miami Children's Hospital, Series 1995,
5.35%, 1/01/16 ..................................... 1,800
10,500 Dade County, Florida, Water & Sewer System,
Series 1994 (FGIC), 4.75%, 10/05/22 ................ 10,500
4,000 Fulton County Development Authority, Georgia,
4.75%, 8/01/17 ..................................... 4,000
2,400 Glynn Brunswick Memorial Hospital Authority, Georgia,
Series 1996, 5.15, 8/01/16 ......................... 2,400
Harris County, Texas,
18,600 Industrial Development Corp., 5.80%, 2/01/20 ....... 18,600
5,000 Toll Road Unlimited Tax Sub Lien, Series 1994 G,
5.65%, 8/01/20, .................................... 5,000
5,000 Toll Road Unlimited Tax Sub Lien, Series 1994 H,
5.65%, 8/01/20 ..................................... 5,000
Illinois Development Finance Authority,
$ 3,500 Chicago Symphony, Revenue Bonds, 5.35%, 6/01/31 .... 3,500
5,000 Con Edison Co., Series C, 5.65%, 3/01/09 ........... 5,000
5,000 Museum of Contemporary Art, 5.35%, 2/01/29 ......... 5,000
13,110 Jacksonville Health Facilities Authority, Florida,
Charity Obligated Group,
Series 1997 C (MBIA), 4.75%, 8/15/19 ............... 13,110
4,000 Jefferson Parish, Louisiana, Hospital Service
District No. 001, West Jefferson Medical Center,
Series 1986, 3.70%, 1/01/26 ........................ 4,000
5,790 Louisiana Public Facilities Authority, College & ......
University Equipment, Series A, 5.50%, 9/01/10 5,790
8,600 Maryland Health & Educational Facilities, John Hopkins
Hospital, Series 1997 A, 5.40%, 7/01/27 ............ 8,600
2,400 Massachusetts Health & Educational Facilities
Authority Capital Asset Series G-1, 4.90%, 1/01/19 . 2,400
19,400 Massachusetts State Water Authority, Series B,
5.50%, 8/01/28 ..................................... 19,400
19,000 Massachusetts State, 5.50%, 9/01/16 ................... 19,000
18,900 Massachusetts, Series 1997 B, 5.25%, 8/01/15 .......... 18,900
2,400 Meckenburg County, North Carolina, Series C,
5.30%, 3/01/15 ..................................... 2,400
2,600 Midlothian Industrial Development Corporation,
Texas, Box-Crow Cement Co., 5.50%, 12/01/09 ........ 2,600
13,400 Minneapolis, Minnesota, 4.65%, 12/01/18 ............... 13,400
1,000 Minnetonka, Minnesota, Multifamily Cliffs
Ridgedale, Series 1995, 5.50%, 9/15/25 ............. 1,000
Missouri Health & Educational Facilities Authority
12,300 Sisters of Mercy Health System, Series 1995 B,
5.65%, 12/01/16 .................................... 12,300
2,000 Washington University, Series 1984, 5.65%, 9/01/09 . 2,000
Municipal Electric Authority, Georgia,
4,000 5.55%, 1/01/26 ..................................... 4,000
3,000 Series 1985 C, 5.80%, 3/01/20 3,000
25,000 New Jersey Educational Facilities Authority,
College of New Jersey, Series 1999 A (AMBAC),
5.35%, 7/01/29 ..................................... 25,000
19,100 New Jersey State Turnpike Authority, Series D,
5.00%, 1/01/18 ..................................... 19,100
2,100 New York City Transitional Finance Authority,
New York, Fiscal Series 1999 A, Sub-series
A-1, 5.50%, 11/15/28 ............................... 2,100
2,900 New York City, New York, Fiscal Series 1993 A,
Sub-series A-1, 5.45%, 8/01/19 ..................... 2,900
5,000 New York State Housing Finance Agency,
Series 1998 A, 5.70%, 3/15/28 ...................... 5,000
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
145
<PAGE>
<CAPTION>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
FACE AMORTIZED
AMOUNT COST
(000) (000)
- --------------------------------------------------------------------------------
<S> <C>
VARIABLE/FLOATING RATE INSTRUMENTS (CONT.)
WEEKLY VARIABLE RATE BONDS (CONT.)
New York State Local Government Assistance Corporation,
Series 1995,
$ 25,000 G, 5.00%, 4/01/25 ..................................... $ 25,000
2,900 D, 5.20%, 4/01/25 ..................................... 2,900
9,650 North Carolina Medical Care, Commission Pooled
Financing, Series 1985, 5.10%, 12/01/25 ............ 9,650
3,900 Nueces County Health Facilities Developmental
Corporation, Texas, Driscoll Childrens'
Foundation, Series 1985, 5.55%, 7/01/15 ............ 3,900
3,700 Ohio State University, General Receipts,
Series 1997, 4.90%, 12/01/07 ....................... 3,700
4,500 Oklahoma State Water Reserve Board Program,
3.80%, 9/01/24 ..................................... 4,500
4,300 Port of Corpus Christi Authority, Texas, Marine
Terminal Reynolds Metals Co.,
Series 1985, 5.00%, 9/01/14 ........................ 4,300
9,000 Putnam County Development Authority, Florida,
Seminole Electric Co-op Inc.,
Series 1984 H1 (NRU-CFC-GTD), 3.70%, 3/15/14 ....... 9,000
6,600 Tennessee, Series 1998 C BANS, 5.15%, 7/02/01 ......... 6,600
7,705 Texas State Veterans Housing Assistance - Fund I,
Series 1995, 5.15%, 12/01/16 ....................... 7,705
8,300 University of Alabama, Hospital, Series 1997 B,
5.15%, 10/01/07 .................................... 8,300
3,000 University of Delaware, Series 1998, 5.80%, 11/01/23 .. 3,000
4,000 University of Minnesota Regents, Series 1999 A,
5.50%, 1/01/34 ..................................... 4,000
1,440 University of Utah, Auxiliary & Campus Facilities,
Series A, 5.50%, 4/01/27 ........................... 1,440
2,200 University of Wisconsin, Hospitals & Clinics,
Series 1997, 5.65%, 4/01/26 ........................ 2,200
23,800 Washington, Series 1996 B, 5.40%, 6/01/20 ............. 23,800
4,400 West Basin, California, Municipal Water District,
4.80%, 8/01/27 ..................................... 4,400
8,000 York County, South Carolina, Pollution Control,
3.60%, 9/15/14 ..................................... 8,000
------------
522,765
------------
TOTAL VARIABLE/FLOATING RATE INSTRUMENTS
(Cost $808,805) ............................................... 808,805
------------
TOTAL TAX-EXEMPT INSTRUMENTS (Cost $1,399,124) ................... 1,399,124
------------
TOTAL INVESTMENTS (99.5%) (Cost $1,399,124) ...................... $1,399,124
------------
OTHER ASSETS (0.6%)
Cash ................................. $24
Interest Receivable .................. 7,908
Other ................................ 21 7,953
-----
LIABILITIES (-0.1%)
Investment Advisory Fees Payable ..... (978)
Administrative Fees Payable .......... (190)
Directors' Fees and Expenses Payable . (72)
Custodian Fees Payable ............... (21)
Dividends Declared ................... (6)
Other Liabilities .................... (164) (1431)
----- ------------
NET ASSETS (100%) ................................................ $1,405,646
------------
------------
NET ASSETS CONSIST OF:
Paid in Capital .................................................. $1,405,743
Accumulated Net Realized Loss .................................... (97)
------------
NET ASSETS ....................................................... $1,405,646
------------
------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 1,405,729,134 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.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
146
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SUMMARY OF TAX-EXEMPT INSTRUMENTS BY STATE
AMORTIZED
COST PERCENT OF
STATE (000) NET ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Alabama ................................ $ 18,500 1.3%
Arizona ................................ 15,426 1.1
California ............................. 11,400 0.8
Colorado ............................... 10,000 0.7
Connecticut ............................ 65,590 4.7
Delaware ............................... 3,000 0.2
Florida ................................ 92,075 6.6
Georgia ................................ 35,280 2.5
Hawaii ................................. 11,500 0.8
Idaho .................................. 17,526 1.2
Illinois ............................... 61,365 4.4
Indiana ................................ 12,075 0.9
Iowa ................................... 10,074 0.7
Kentucky ............................... 43,541 3.1
Louisiana .............................. 58,340 4.2
Maryland ............................... 53,695 3.8
Massachusetts .......................... 104,600 7.4
Michigan ............................... 2,600 0.2
Minnesota .............................. 27,950 2.0
Mississippi ............................ 10,000 0.7
Missouri ............................... 29,800 2.1
Montana ................................ 7,000 0.5
Nebraska ............................... 19,000 1.4
Nevada ................................. 39,800 2.8
New Jersey ............................. 78,600 5.6
New Mexico ............................. 10,737 0.8
New York ............................... 87,620 6.2
North Carolina ......................... 20,458 1.4
Ohio ................................... 41,075 2.9
Oklahoma ............................... 9,500 0.7
Oregon ................................. 20,500 1.5
Pennsylvania ........................... 21,345 1.5
South Carolina ......................... 28,900 2.1
Tennessee .............................. 35,500 2.5
Texas .................................. 157,192 11.1
Utah ................................... 29,940 2.1
Virginia ............................... 2,400 0.2
Washington ............................. 72,510 5.2
Wisconsin .............................. 7,510 0.5
Wyoming ................................ 15,200 1.1
-------- -----
$1,399,124 99.5%
---------- -----
---------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
147
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<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 $ 6,891 $ 1,242 $ 91 $ 14,694+ $ 3,591 $ 749 $ 4,902
Interest 4,482 47 19 5 159 1 469
Less: Foreign Taxes Withheld (758) (67) (4) (744) (428) (66) (428)
------------- --------- --------- --------- --------- --------- ---------
Total Income 10,615 1,222 106 13,955 3,322 684 4,943
------------- --------- --------- --------- --------- --------- ---------
EXPENSES:
Investment Advisory Fees:
Basic Fees--Adviser 2,763 591 32 12,672 1,042 153 1,710
Less: Fees Waived (501) (400) (32) -- (170) (90) (118)
------------- --------- --------- --------- --------- --------- ---------
Investment Advisory Fees--Net 2,262 191 -- 12,672 872 63 1,592
Administrative Fees 728 127 16 1,581 222 40 346
Custodian Fees 138 313 23 1,237 46 34 110
Directors' Fees and Expenses 12 4 1 41 9 2 9
Filing and Registration Fees 87 30 23 56 33 27 34
Foreign Tax Expense -- 1 -- 453 -- -- --
Insurance 12 2 -- 37 8 1 6
Interest Expense 2 45 -- 281 119 44 1
Professional Fees 51 50 17 191 31 18 39
Shareholder Reports 18 14 10 44 4 2 12
Distribution Fees on Class B Shares 7 5 3 24 9 5 60
Other Expenses 8 12 2 51 75 3 6
Expenses Reimbursed by Adviser -- -- (52) -- -- -- --
------------- --------- --------- --------- --------- --------- ---------
Total Expenses 3,325 794 43 16,668 1,428 239 2,215
------------- --------- --------- --------- --------- --------- ---------
NET INVESTMENT INCOME (LOSS) 7,290 428 63 (2,713) 1,894 445 2,728
------------- --------- --------- --------- --------- --------- ---------
NET REALIZED GAIN (LOSS):
Investments Sold 28,884 22,374 358 139,854*** 10,599 (298) 28,288
Foreign Currency Transactions (4,516) 41 1 (3,148) (147) (18) (49)
Futures Contracts 12,024 -- -- -- -- -- --
Swaps -- -- -- (768) -- -- --
------------- --------- --------- --------- --------- --------- ---------
Total Net Realized Gain (Loss) 36,392 22,415 359 135,938 10,452 (316) 28,239
------------- --------- --------- --------- --------- --------- ---------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments 72,559 24,457* 370** 658,677**** (4,125) (479) (26,850)
Foreign Currency Translations (1,200) 2 -- (9,514) (37) (20) 1,007
Futures 7,524 -- -- -- -- -- --
Swaps -- -- -- (9) -- -- --
------------- --------- --------- --------- --------- --------- ---------
Total Net Change in Unrealized
Appreciation (Depreciation) 78,883 24,459 370 649,154 (4,162) (499) (25,843)
------------- --------- --------- --------- --------- --------- ---------
TOTAL NET REALIZED GAIN (LOSS) AND
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 115,275 46,874 729 785,092 6,290 (815) 2,396
------------- --------- --------- --------- --------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Operations $122,565 $47,302 $792 $782,379 $8,184 $(370) $5,124
------------- --------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- --------- ---------
</TABLE>
* Net of foreign tax of $7,000 on unrealized appreciation.
** Net of foreign tax of $1,000 on unrealized appreciation.
*** Net of foreign tax expense of $5,676,000.
**** Net of foreign tax of $9,142,000 on unrealized appreciation.
+ Includes dividend income from affiliated parties of $446,000.
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
148
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL INTERNATIONAL JAPANESE LATIN
EQUITY MAGNUM SMALL CAP EQUITY AMERICAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 92,340 $ 4,638 $ 7,461 $ 403 $ 579
Interest 9,646 747 337 105 21
Less: Foreign Taxes Withheld (9,823) (482) (788) (62) (2)
------------- ------------- ------------- --------- ----------
Total Income 92,163 4,903 7,010 446 598
------------- ------------- ------------- --------- ----------
EXPENSES:
Investment Advisory Fees:
Basic Fees--Adviser 32,455 1,805 2,717 489 207
Less: Fees Waived (238) (213) (146) (77) (63)
------------- ------------- ------------- --------- ----------
Investment Advisory Fees--Net 32,217 1,592 2,571 412 144
Administrative Fees 6,300 376 460 107 39
Custodian Fees 900 155 121 16 65
Directors' Fees and Expenses 138 10 12 3 2
Filing and Registration Fees 243 30 28 28 27
Foreign Tax Expense -- 52 -- -- 12
Insurance 133 8 9 2 2
Professional Fees 205 32 51 28 38
Interest Expense 10 5 7 9 4
Shareholder Reports 186 25 16 6 --
Distribution Fees on Class B Shares 70 64 -- 5 3
Other Expenses 35 10 8 10 3
Expenses Reimbursed by Advisor -- -- -- -- --
------------- ------------- ------------- --------- ----------
Total Expenses 40,437 2,359 3,283 626 339
------------- ------------- ------------- --------- ----------
NET INVESTMENT INCOME (LOSS) 51,726 2,544 3,727 (180) 259
------------- ------------- ------------- --------- ----------
NET REALIZED GAIN (LOSS):
Investments Sold 390,411 10,931 28,467 1,662 1,578
Futures Contracts -- 3,292 -- -- --
Foreign Currency Transactions (35,708) (1,197) 532 (1,652) (62)
------------- ------------- ------------- --------- ----------
Total Net Realized Gain 354,703 13,026 28,999 10 1,516
------------- ------------- ------------- --------- ----------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION):
Investments 270,169 32,640 63,945 30,416 6,917
Futures Contracts -- (492) -- -- --
Foreign Currency Translations (26,333) (141) (67) 422 (14)
------------- ------------- ------------- --------- ----------
Total Net Change in Unrealized Appreciation
(Depreciation) 243,836 32,007 63,878 30,838 6,903
------------- ------------- ------------- --------- ----------
TOTAL NET REALIZED GAIN AND CHANGE IN
UNREALIZED APPRECIATION 598,539 45,033 92,877 30,848 8,419
------------- ------------- ------------- --------- ---------
Net Increase in Net Assets Resulting from Operations $650,265 $47,577 $96,604 $30,668 $8,678
------------- ------------- ------------- --------- ---------
------------- ------------- ------------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
149
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<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 $ 5,662 $ 752 $ 203 $ 27 $ 319 $ 21,361 $ 1,067
Interest 1,384 181 107 48 15 417 44
Less: Foreign Taxes Withheld -- -- -- -- -- (29) --
---------- ---------- ---------- ----------- ------------ ---------- ----------
Total Income 7,046 933 310 75 334 21,749 1,111
---------- ---------- ---------- ----------- ------------ ---------- ----------
EXPENSES:
Investment Advisory Fees:
Basic Fees-- Adviser 6,020 1,100 474 379 128 2,438 262
Less: Fees Waived (13) (83) (86) (59) (97) (47) (70)
---------- ---------- ---------- ----------- ------------ ---------- ----------
Investment Advisory Fees-- Net 6,007 1,017 388 320 31 2,391 192
Administrative Fees 1,555 217 82 67 55 478 89
Custodian Fees 88 17 42 21 42 36 18
Directors' Fees and Expenses 32 7 3 2 2 11 3
Filing and Registration Fees 79 34 32 31 27 56 29
Insurance 30 9 2 1 1 9 3
Interest Expense 9 12 1 3 9 4 16
Professional Fees 73 38 31 29 28 44 30
Shareholder Reports 149 22 7 -- 14 13 1
Distribution Fees on Class B Shares 403 46 10 6 4 35 2
Other Expenses 23 18 5 3 26 11 2
---------- ---------- ---------- ----------- ------------ ---------- ----------
Total Expenses 8,448 1,437 603 483 239 3,088 385
---------- ---------- ---------- ----------- ------------ ---------- ----------
NET INVESTMENT INCOME (LOSS) (1,402) (504) (293) (408) 95 18,661 726
---------- ---------- ---------- ----------- ------------ ---------- ----------
NET REALIZED GAIN (LOSS):
Investments Sold 125,662 47,286 21,320 19,100 9,759 1,073 9,177
Foreign Currency Translations -- -- -- -- -- 6 --
Securities Sold Short -- (1) -- (717) -- -- --
Written Options -- -- -- 225 -- -- --
---------- ---------- ---------- ----------- ------------ ---------- ----------
Total Net Realized Gain 125,662 47,285 21,320 18,608 9,759 1,079 9,177
---------- ---------- ---------- ----------- ------------ ---------- ----------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments 227,053 7,047 17,240 28,511 (5,569) (31,048) (5,310)
Written Options -- -- -- 176 -- -- --
Foreign Currency Translations -- -- -- -- -- 5 --
---------- ---------- ---------- ----------- ------------ ---------- ----------
Total Net Change in Unrealized 227,053 7,047 17,240 28,687 (5,569) (31,043) (5,310)
Appreciation (Depreciation)
---------- ---------- ---------- ----------- ------------ ---------- ----------
TOTAL NET REALIZED GAIN AND CHANGE IN
UNREALIZED APPRECIATION (DEPRECIATION) 352,715 54,332 38,560 47,295 4,190 (29,964) 3,867
---------- ---------- ---------- ----------- ------------ ---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations $351,313 $53,828 $38,267 $46,887 $4,285 $(11,303) $4,593
---------- ---------- ---------- ----------- ------------ ---------- ----------
---------- ---------- ---------- ----------- ------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
150
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL MUNICIPAL
EMERGING FIXED FIXED HIGH MUNICIPAL MONEY MONEY
MARKETS DEBT INCOME INCOME YIELD BOND MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000) (000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 19 $ -- $ -- $ 9 $ -- $ -- $ --
Interest 7,654 12,472 1,710 17,342 1,454 107,340 36,442
Less: Foreign Taxes Withheld -- -- (13) -- -- -- --
------------- ---------- ---------- ---------- ---------- ---------- ----------
Total Income 7,673 12,472 1,697 17,351 1,454 107,340 36,442
------------- ---------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Investment Advisory Fees:
Basic Fees--Adviser 492 691 151 698 99 6,153 3,349
Less: Fees Waived -- (225) (106) -- (99) -- --
------------- ---------- ---------- ---------- ---------- ---------- ----------
Investment Advisory Fees--Net 492 466 45 698 -- 6,153 3,349
Administrative Fees 88 314 68 291 60 3,201 1,756
Custodian Fees 29 16 11 30 4 214 98
Directors' Fees and Expenses 4 9 2 8 2 69 17
Filing and Registration Fees 19 27 27 29 24 256 150
Insurance 4 7 2 6 1 64 14
Professional Fees 41 36 25 41 33 104 92
Interest Expense 37 6 4 -- -- 2 --
Shareholder Reports 2 6 -- -- -- 142 59
Distribution Fees on Class B Shares 2 4 1 117 -- -- --
Other Expenses 26 7 -- -- 4 25 14
Expenses Reimbursed by Advisor -- -- -- -- (1) -- --
------------- ---------- ---------- ---------- ---------- ---------- ----------
Total Expenses 744 898 185 1,220 127 10,230 5,549
------------- ---------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME 6,929 11,574 1,512 16,131 1,327 97,110 30,893
------------- ---------- ---------- ---------- ---------- ---------- ----------
NET REALIZED GAIN (LOSS):
Investments Sold 1,468 (2,095) (58) (4,346) 50 112 (66)
Foreign Currency Transactions (1,016) 58 (472) -- -- -- --
------------- ---------- ---------- ---------- ---------- ---------- ----------
Total Net Realized Gain (Loss) 452 (2,037) (530) (4,346) 50 112 (66)
------------- ---------- ---------- ---------- ---------- ---------- ----------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments 6,234 (13,005) (3,732) 2,048 (1,814) -- --
Foreign Currency Translations (60) (13) (158) -- -- -- --
------------- ---------- ---------- ---------- ---------- ---------- ----------
Total Net Change in Unrealized
Appreciation (Depreciation) 6,174 (13,018) (3,890) 2,048 (1,814) -- --
------------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL NET REALIZED GAIN (LOSS) AND
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 6,626 (15,055) (4,420) (2,298) (1,764) 112 (66)
------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations $13,555 $ (3,481) $ (2,908) $13,833 $ (437) $97,222 $30,827
------------- ---------- ---------- ---------- ---------- ---------- ----------
------------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
151
<PAGE>
[GRAPHIC] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE INTERNATIONAL
ALLOCATION PORTFOLIO ASIAN EQUITY PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 7,290 $ 4,405 $ 428 $ 957
Net Realized Gain (Loss) 36,392 11,443 22,415 (37,634)
Change in Unrealized Appreciation 78,883 20,189 24,459 28,122
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from 122,565 36,037 47,302 (8,555)
Operations
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (2,165) (6,441) (718) (2,750)
In Excess of Net Investment Income (2,247) (899) -- --
Net Realized Gain (28,918) (4,946) -- --
CLASS B:
Net Investment Income (30) (4) (15) (54)
In Excess of Net Investment Income (31) (1) -- --
Net Realized Gain (415) (3) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (33,806) (12,294) (733) (2,804)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 306,079 161,798 133,913 252,272
Distributions Reinvested 29,221 10,598 666 2,543
Redeemed (106,381) (67,945) (127,781) (277,895)
CLASS B:
Subscribed 9,859 589 450 2,253
Distributions Reinvested 459 8 15 43
Redeemed (1,358) (544) (312) (2,007)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 237,879 104,504 6,951 (22,791)
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 326,638 128,247 53,520 (34,150)
NET ASSETS:
Beginning of Period 266,928 138,681 52,821 86,971
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 593,566 $ 266,928 $ 106,341 $ 52,821
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss) $ (2,119) $ (900) $ 91 $ (20)
included in end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 24,816 13,999 13,946 32,484
Shares Issued on Distributions Reinvested 2,218 891 49 365
Shares Redeemed (8,511) (5,822) (13,211) (35,507)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding 18,523 9,068 784 (2,658)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 757 50 40 270
Shares Issued on Distributions Reinvested 34 1 1 6
Shares Redeemed (108) (44) (30) (246)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Class B Shares Outstanding 683 7 11 30
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
152
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[GRAPHIC] Morgan Stanley Dean Witter
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASIAN REAL ESTATE
PORTFOLIO EMERGING MARKETS PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ 63 $ 107 $ (2,713) $ 13,506
Net Realized Gain (Loss) 359 (2,520) 135,938 (325,435)
Net Change in Unrealized Appreciation (Depreciation) 370 848 649,154 (93,796)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 792 (1,565) 782,379 (405,725)
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (122) (131) -- (9,772)
In Excess of Net Investment Income (10) -- -- --
CLASS B:
Net Investment Income (42) (32) -- (70)
In Excess of Net Investment Income (3) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (177) (163) -- (9,842)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 615 8,754 452,119 444,841
Distributions Reinvested 31 24 -- 7,825
Redeemed (649) (6,950) (453,915) (769,586)
CLASS B:
Subscribed 533 976 14,167 6,023
Distributions Reinvested 43 32 -- 56
Redeemed (112) (285) (12,172) (5,330)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 461 2,551 199 (316,171)
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 1,076 823 782,578 (731,738)
NET ASSETS:
Beginning of Period 3,208 2,385 779,314 1,511,052
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 4,284 $ 3,208 $ 1,561,892 $ 779,314
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss) $ (13) $ 38 $ (4,854) $ (2,499)
included in end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 82 1,147 35,173 38,129
Shares Issued on Distributions Reinvested 4 4 -- 825
Shares Redeemed (86) (1,083) (35,808) (73,920)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding -- 68 (635) (34,966)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 70 154 979 515
Shares Issued on Distributions Reinvested 6 5 -- 6
Shares Redeemed (17) (45) (848) (513)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Class B Shares Outstanding 59 114 131 8
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
153
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[GRAPHIC] Morgan Stanley Dean Witter
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STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EUROPEAN REAL ESTATE
EUROPEAN EQUITY PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,894 $ 4,028 $ 445 $ 584
Net Realized Gain (Loss) 10,452 28,924 (316) (4,748)
Net Change in Unrealized Depreciation (4,162) (17,787) (499) (63)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from 8,184 15,165 (370) (4,227)
Operations
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (2,064) (3,856) (258) (951)
In Excess of Net Investment Income (167) -- (37) (548)
Net Realized Gain (11,303) (33,843) -- --
CLASS B:
Net Investment Income (35) (98) (32) (61)
In Excess of Net Investment Income (3) -- (4) (35)
Net Realized Gain (264) (1,006) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (13,836) (38,803) (331) (1,595)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 47,476 225,179 1,987 61,829
Distributions Reinvested 12,471 35,750 286 1,356
Redeemed (118,144) (312,976) (25,147) (39,580)
CLASS B:
Subscribed 701 14,897 433 4,054
Distributions Reinvested 298 1,064 26 77
Redeemed (3,817) (13,905) (1,120) (1,927)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions (61,015) (49,991) (23,535) 25,809
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (66,667) (73,629) (24,236) 19,987
NET ASSETS:
Beginning of Period 173,893 247,522 35,953 15,966
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 107,226 $ 173,893 $ 11,717 $ 35,953
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss) $ (174) $ (125) $ (41)$ (583)
included in end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 3,069 11,087 210 5,703
Shares Issued on Distributions Reinvested 849 2,120 30 140
Shares Redeemed (7,670) (16,019) (2,644) (3,950)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding (3,752) (2,812) (2,404) 1,893
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 46 687 44 368
Shares Issued on Distributions Reinvested 20 63 3 8
Shares Redeemed (250) (680) (116) (196)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares Outstanding (184) 70 (69) 180
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
154
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[GRAPHIC] Morgan Stanley Dean Witter
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL EQUITY PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 2,728 $ 1,803 $ 51,726 $ 43,563
Net Realized Gain 28,239 8,351 354,703 325,415
Net Change in Unrealized Appreciation (Depreciation) (25,843) 4,227 243,836 153,574
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 5,124 14,381 650,265 522,552
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (2,179) (1,782) (39,249) (63,695)
In Excess of Net Investment Income (315) -- -- --
Net Realized Gain (18,311) (3,135) (322,951) (280,825)
CLASS B:
Net Investment Income (475) (78) (262) (232)
In Excess of Net Investment Income (69) -- -- --
Net Realized Gain (3,780) (173) (2,795) (1,128)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (25,129) (5,168) (365,257) (345,880)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 15,201 164,605 1,675,013 754,615
Distributions Reinvested 19,363 4,794 344,185 318,874
Redeemed (131,408) (57,202) (1,073,291) (672,650)
CLASS B:
Subscribed 22,424 10,547 25,017 19,050
Distributions Reinvested 4,325 256 2,913 1,208
Redeemed (8,036) (4,326) (5,010) (6,169)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions (78,131) 118,674 968,827 414,928
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (98,136) 127,887 1,253,835 591,600
NET ASSETS:
Beginning of Period 241,871 113,984 3,417,574 2,825,974
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 143,735 $ 241,871 $ 4,671,409 $ 3,417,574
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss) $ (365) $ (6) $ (1,460) $ (7,162)
included in end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 742 7,765 86,582 38,932
Shares Issued on Distributions Reinvested 1,029 231 17,923 17,612
Shares Redeemed (6,489) (2,801) (54,905) (34,708)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding (4,718) 5,195 49,600 21,836
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 1,066 518 1,279 1,010
Shares Issued on Distributions Reinvested 236 13 152 67
Shares Redeemed (395) (215) (255) (319)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Class B Shares Outstanding 907 316 1,176 758
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
155
<PAGE>
[GRAPHIC] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL SMALL CAP
INTERNATIONAL MAGNUM PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 2,544 $ 3,307 $ 3,727 $ 3,380
Net Realized Gain (Loss) 13,026 (2,008) 28,999 11,403
Net Change in Unrealized Appreciation (Depreciation) 32,007 4,622 63,878 (15,446)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from 47,577 5,921 96,604 (663)
Operations
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (2,072) (2,016) (4,582) (3,853)
In Excess of Net Investment Income -- -- (418) --
Net Realized Gain (8,198) -- (20,419) (12,840)
CLASS B:
Net Investment Income (257) (217) -- --
Net Realized Gain (1,323) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (11,850) (2,233) (25,419) (16,693)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 128,879 191,743 45,497 85,121
Distributions Reinvested 9,764 1,549 24,307 15,445
Redeemed (251,176) (84,923) (36,506) (61,654)
Transaction Fees -- -- 583 991
CLASS B:
Subscribed 31,085 19,773 -- --
Distributions Reinvested 1,571 216 -- --
Redeemed (32,459) (23,394) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions (112,336) 104,964 33,881 39,903
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (76,609) 108,652 105,066 22,547
NET ASSETS:
Beginning of Period 295,965 187,313 252,642 230,095
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 219,356 $ 295,965 $ 357,708 $ 252,642
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss) $ 60 $ 751 $ (419) $ 161
included in end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 10,445 15,688 2,428 4,724
Shares Issued on Distributions Reinvested 759 125 1,308 990
Shares Redeemed (20,684) (7,128) (2,111) (3,893)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding (9,480) 8,685 1,625 1,821
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 2,469 1,697 -- --
Shares Issued on Distributions Reinvested 122 17 -- --
Shares Redeemed (2,591) (2,049) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class B Shares Outstanding -- (335) -- --
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
156
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[GRAPHIC] Morgan Stanley Dean Witter
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPANESE EQUITY PORTFOLIO LATIN AMERICAN PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (180) $ 18 $ 259 $ 800
Net Realized Gain (Loss) 10 (12,255) 1,516 (20,619)
Net Change in Unrealized Appreciation (Depreciation) 30,838 16,272 6,903 (9,182)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations 30,668 4,035 8,678 (29,001)
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (2,322) (436) (212)
In Excess of Net Realized Gain -- -- -- (315)
CLASS B:
Net Investment Income -- (58) (30) --
In Excess of Net Realized Gain -- -- -- (44)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (2,380) (466) (571)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 61,773 80,573 7,989 26,531
Distributions Reinvested -- 2,130 420 512
Redeemed (75,399) (103,699) (17,160) (59,398)
CLASS B:
Subscribed 2,388 1,559 212 4,016
Distributions Reinvested -- 58 27 42
Redeemed (1,064) (2,227) (664) (5,876)
- ----------------------------------------------------------------------------------------------------------------------------
Net Decrease from Capital Share Transactions (12,302) (21,606) (9,176) (34,173)
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 18,366 (19,951) (964) (63,745)
NET ASSETS:
Beginning of Period 58,838 78,789 16,160 79,905
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 77,204 $ 58,838 $ 15,196 $ 16,160
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss) $ (376) $ 159 $ 193 $ 462
included in end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 8,179 13,223 973 2,606
Shares Issued on Distributions Reinvested -- 353 45 62
Shares Redeemed (10,247) (17,312) (2,025) (7,153)
- ----------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class A Shares Outstanding (2,068) (3,736) (1,007) (4,485)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 304 253 24 400
Shares Issued on Distributions Reinvested -- 10 3 4
Shares Redeemed (128) (376) (74) (856)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares Outstanding 176 (113) (47) (452)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
157
<PAGE>
[GRAPHIC] Morgan Stanley Dean Witter
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY GROWTH PORTFOLIO FOCUS EQUITY PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (1,402) $ 1,591 $ (504) $ (31)
Net Realized Gain (Loss) 125,662 15,027 47,285 (3,311)
Net Change in Unrealized Appreciation 227,053 104,466 7,047 17,623
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 351,313 121,084 53,828 14,281
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (23) (1,285) -- --
In Excess of Net Investment Income (35) -- -- --
Net Realized Gain (55,337) (26,081) (28,868) (4,714)
In Excess of Net Realized Gain -- (17,331) -- (4,038)
CLASS B:
Net Investment Income (6) (122) -- --
In Excess of Net Investment Income (10) -- -- --
Net Realized Gain (13,532) (2,705) (4,789) (488)
In Excess of Net Realized Gain -- (1,798) -- (417)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (68,943) (49,322) (33,657) (9,657)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 248,578 323,851 50,123 103,224
Distributions Reinvested 53,147 41,645 26,848 8,162
Redeemed (345,875) (240,110) (89,436) (139,466)
CLASS B:
Subscribed 147,967 78,567 3,277 9,123
Distributions Reinvested 12,393 4,058 4,773 910
Redeemed (42,581) (31,546) (4,876) (12,525)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 73,629 176,465 (9,291) (30,572)
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 355,999 248,227 10,880 (25,948)
NET ASSETS:
Beginning of Period 867,895 619,668 147,416 173,364
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 1,223,894 $ 867,895 $ 158,296 $ 147,416
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss) $ (45) $ 152 $ (12) $ (8)
included in end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 11,778 17,219 2,443 5,958
Shares Issued on Distributions Reinvested 2,239 2,193 1,435 468
Shares Redeemed (16,202) (13,173) (4,440) (8,784)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding (2,185) 6,239 (562) (2,358)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 6,969 4,267 160 525
Shares Issued on Distributions Reinvested 525 215 258 52
Shares Redeemed (1,971) (1,739) (239) (781)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares Outstanding 5,523 2,743 179 (204)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
158
<PAGE>
[GRAPHIC] Morgan Stanley Dean Witter
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH
PORTFOLIO TECHNOLOGY PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (293) $ 720 $ (408)$ (269)
Net Realized Gain 21,320 13,214 18,608 2,659
Net Change in Unrealized Appreciation 17,240 3,438 28,687 7,927
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 38,267 17,372 46,887 10,317
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (665) -- --
Net Realized Gain (10,210) (11,952) (11,601) (106)
CLASS B:
Net Investment Income -- (9) -- --
Net Realized Gain (1,563) (215) (629) (3)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (11,773) (12,841) (12,230) (109)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 18,995 44,542 32,611 13,187
Distributions Reinvested 9,257 12,498 9,146 84
Redeemed (47,961) (46,040) (19,510) (27,423)
CLASS B:
Subscribed 10,665 1,050 3,053 600
Distributions Reinvested 1,550 219 626 3
Redeemed (1,590) (1,332) (2,557) (2,485)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions (9,084) 10,937 23,369 (16,034)
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 17,410 15,468 58,026 (5,826)
NET ASSETS:
Beginning of Period 74,558 59,090 28,356 34,182
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 91,968 $ 74,558 $ 86,382 $ 28,356
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss) $ (7) $ (5) $ (5)$ (4)
included in end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 1,721 5,229 1,119 977
Shares Issued on Distributions Reinvested 799 1,612 265 5
Shares Redeemed (5,806) (5,237) (801) (2,162)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding (3,286) 1,604 583 (1,180)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 996 120 122 46
Shares Issued on Distributions Reinvested 133 29 19 --
Shares Redeemed (155) (160) (80) (203)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares Outstanding 974 (11) 61 (157)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
159
<PAGE>
[GRAPHIC] Morgan Stanley Dean Witter
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. EQUITY PLUS PORTFOLIO U.S. REAL ESTATE PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 95 $ 337 $ 18,661 $ 10,540
Net Realized Gain (Loss) 9,759 (1,252) 1,079 (6,534)
Change in Unrealized Appreciation (Depreciation) (5,569) 8,042 (31,043) (48,907)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from 4,285 7,127 (11,303) (44,901)
Operations
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (157) (263) (15,483) (10,426)
Net Realized Gain (3,474) -- -- (2,345)
In Excess of Net Realized Gain (134) (52) (1,019) (5,094)
CLASS B:
Net Investment Income (8) (3) (695) (578)
Net Realized Gain (170) -- -- (136)
In Excess of Net Realized Gain (79) (2) (48) (295)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (4,022) (320) (17,245) (18,874)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 8,363 59,080 197,530 137,342
Distributions Reinvested 3,722 260 12,238 15,418
Redeemed (56,559) (20,302) (131,000) (194,533)
CLASS B:
Subscribed 4 2,297 8,798 8,511
Distributions Reinvested 250 2 688 947
Redeemed (151) (1,089) (8,336) (13,578)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions (44,371) 40,248 79,918 (45,893)
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (44,108) 47,055 51,370 (109,668)
NET ASSETS:
Beginning of Period 68,071 21,016 273,112 382,780
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 23,963 $ 68,071 $ 324,482 $ 273,112
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income included in $ 4 $ 74 $ 1,437 $ 2,174
end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 624 5,038 15,344 9,934
Shares Issued on Distributions Reinvested 311 21 993 1,131
Shares Redeemed (4,479) (1,727) (10,487) (14,151)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding (3,544) 3,332 5,850 (3,086)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed --# 203 697 616
Shares Issued on Distributions Reinvested 21 --# 56 70
Shares Redeemed (12) (98) (683) (982)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares Outstanding 9 105 70 (296)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
# Amount is less than 500.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
160
<PAGE>
[GRAPHIC] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE EQUITY EMERGING MARKETS DEBT
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 726 $ 1,201 $ 6,929 $ 16,351
Net Realized Gain (Loss) 9,177 15,254 452 (98,483)
Net Change in Unrealized Appreciation (Depreciation) (5,310) (10,706) 6,174 4,411
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations 4,593 5,749 13,555 (77,721)
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (657) (1,194) (5,708) (15,290)
In Excess of Net Investment Income (66) -- (15) (265)
Net Realized Gain (8,764) (18,063) -- --
In Excess of Net Realized Gain (549) -- -- --
Return of Capital -- -- (184) --
CLASS B:
Net Investment Income (11) (25) (15) (328)
In Excess of Net Investment Income -- -- -- (6)
Net Realized Gain (150) (384) -- --
In Excess of Net Realized Gain (10) -- -- --
Return of Capital -- -- (82) --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (10,207) (19,666) (6,004) (15,889)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 24,456 42,549 28,117 124,573
Distributions Reinvested 9,517 17,591 2,466 11,412
Redeemed (39,222) (75,102) (31,594) (140,330)
CLASS B:
Subscribed 771 1,072 90 3,809
Distributions Reinvested 171 386 -- 297
Redeemed (978) (2,291) (537) (3,393)
- ----------------------------------------------------------------------------------------------------------------------------
Net Decrease from Capital Share Transactions (5,285) (15,795) (1,458) (3,632)
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (10,899) (29,712) 6,093 (97,242)
NET ASSETS:
Beginning of Period 58,588 88,300 47,421 144,663
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 47,689 $ 58,588 $ 53,514 $ 47,421
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss) $ 8 $ 15 $ (15) $ (271)
included in end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 2,024 3,097 10,256 22,907
Shares Issued on Distributions Reinvested 956 1,530 776 4,328
Shares Redeemed (3,457) (5,611) (11,178) (34,221)
- ----------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class A Shares Outstanding (477) (984) (146) (6,986)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 65 71 31 707
Shares Issued on Distributions Reinvested 18 33 -- 111
Shares Redeemed (84) (172) (194) (767)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares Outstanding (1) (68) (163) 51
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
161
<PAGE>
[GRAPHIC] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIXED INCOME GLOBAL FIXED INCOME
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 11,574 $ 11,666 $ 1,512 $ 2,739
Net Realized Gain (Loss) (2,037) 4,024 (530) 613
Change in Unrealized Appreciation (Depreciation) (13,018) 57 (3,890) 3,117
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations (3,481) 15,747 (2,908) 6,469
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (11,567) (11,256) (1,200) (904)
In Excess of Net Investment Income -- -- (90) --
Net Realized Gain -- (617) -- --
In Excess of Net Realized Gain (526) -- -- --
Return of Capital -- -- (25) --
CLASS B:
Net Investment Income (156) (226) (11) (5)
In Excess of Net Investment Income -- -- (1) --
Net Realized Gain -- (10) -- --
In Excess of Net Realized Gain (7) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (12,256) (12,109) (1,327) (909)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 20,302 97,384 1,780 8,210
Distributions Reinvested 10,601 10,600 1,153 833
Redeemed (56,628) (82,009) (10,394) (53,314)
CLASS B:
Subscribed 171 1,412 -- --
Distributions Reinvested 87 135 12 5
Redeemed (1,612) (2,819) (15) (49)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions (27,079) 24,703 (7,464) (44,315)
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (42,816) 28,341 (11,699) (38,755)
NET ASSETS:
Beginning of Period 216,367 188,026 46,246 85,001
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 173,551 $ 216,367 $ 34,547 $ 46,246
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss) $ 54 $ 80 $ (91)$ 172
included in end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 1,827 8,841 154 689
Shares Issued on Distributions Reinvested 1,005 962 101 74
Shares Redeemed (5,274) (7,440) (870) (4,687)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding (2,442) 2,363 (615) (3,924)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 16 127 -- --
Shares Issued on Distributions Reinvested 8 12 1 --
Shares Redeemed (150) (254) (1) (4)
- ----------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class B Shares Outstanding (126) (115) -- (4)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
162
<PAGE>
[GRAPHIC] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD MUNICIPAL BOND
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 16,131 $ 15,934 $ 1,327 $ 2,095
Net Realized Gain (Loss) (4,346) 1,964 50 736
Change in Unrealized Appreciation (Depreciation) 2,048 (15,658) (1,814) (372)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from 13,833 2,240 (437) 2,459
Operations
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (12,224) (12,571) (1,348) (2,107)
In Excess of Net Investment Income (132) (5) (4) --
Net Realized Gain -- (1,778) (211) (565)
In Excess of Net Realized Gain -- (523) (55) --
Return of Capital (156) (137) -- --
CLASS B:
Net Investment Income (3,969) (3,479) -- --
In Excess of Net Investment Income (41) (2) -- --
Net Realized Gain -- (741) -- --
In Excess of Net Realized Gain -- (217) -- --
Return of Capital (47) (48) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (16,569) (19,501) (1,618) (2,672)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 93,841 155,079 7,297 13,129
Distributions Reinvested 10,968 12,501 1,566 2,592
Redeemed (94,490) (140,600) (30,137) (41,242)
CLASS B:
Subscribed 40,398 80,986 -- --
Distributions Reinvested 675 883 -- --
Redeemed (48,854) (26,766) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 2,538 82,083 (21,274) (25,521)
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (198) 64,822 (23,329) (25,734)
NET ASSETS:
Beginning of Period 185,041 120,219 34,807 60,541
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 184,843 $ 185,041 $ 11,478 $ 34,807
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss) $ (173)$ (7) $ (4)$ (3)
included in end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 8,765 13,382 708 1,245
Shares Issued on Distributions Reinvested 1,030 1,119 157 247
Shares Redeemed (8,837) (12,331) (3,006) (3,907)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares Outstanding 958 2,170 (2,141) (2,415)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 3,764 7,010 -- --
Shares Issued on Distributions Reinvested 63 80 -- --
Shares Redeemed (4,532) (2,418) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares Outstanding (705) 4,672 -- --
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
163
<PAGE>
[GRAPHIC] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET MUNICIPAL MONEY MARKET
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 97,110 $ 87,544 $ 30,893 $ 28,381
Net Realized Gain (Loss) 112 3 (66) (4)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 97,222 87,547 30,827 28,377
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (97,110) (87,540) (30,898) (28,381)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 22,565,514 12,812,219 7,856,789 7,506,094
Distributions Reinvested 94,269 87,297 30,732 28,978
Redeemed (21,686,756) (12,447,556) (7,472,383) (7,349,096)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions 973,027 451,960 415,138 185,976
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 973,139 451,967 415,067 185,972
NET ASSETS:
Beginning of Period 1,958,177 1,506,210 990,579 804,607
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 2,931,316 $ 1,958,177 $1,405,646 $990,579
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment income $ 4 $ 4 $ -- $ --
(loss) included in end of period net assets
- ----------------------------------------------------------------------------------------------------------------------------
(1)CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 22,565,514 12,812,219 7,856,789 7,506,094
Shares Issued on Distributions Reinvested 94,269 87,297 30,732 28,978
Shares Redeemed (21,686,756) (12,447,556) (7,472,383) (7,349,096)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Class A Shares Outstanding 973,027 451,960 415,138 185,976
- ----------------------------------------------------------------------------------------------------------------------------
</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:
- -------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998++ 1997++ 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.90 $ 10.39 $ 11.44 $ 11.63 $ 11.65
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.22 0.22 0.18 0.24 0.17
Net Realized and Unrealized Gain on Investments 3.01 1.86 0.80 0.88 1.00
-------- -------- -------- -------- --------
Total from Investment Operations 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 $ 14.26 $ 11.90 $ 10.39 $ 11.44 $ 11.63
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 27.82% 20.12% 8.61% 9.71% 10.57%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $583,607 $266,832 $138,667 $183,193 $170,663
Ratio of Expenses to Average Net Assets (1) 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Net Investment Income to Average Net Assets (1) 1.71% 1.91% 1.47% 1.22% 1.26%
Portfolio Turnover Rate 53% 49% 49% 65% 72%
- ------------------
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $ 0.01 $ 0.02 $ 0.03 $ 0.03 $ 0.05
Ratios before expense limitation:
Expenses to Average Net Assets 0.92% 1.03% 1.10% 1.09% 1.18%
Net Investment Income to Average Net Assets 1.59% 1.70% 1.18% 0.94% 0.88%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
----------------------- DECEMBER 31,
1999 1998++ 1997++ 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.12 $ 10.48 $ 11.44 $ 11.66
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.13 0.22 0.08 0.06
Net Realized and Unrealized Gain on Investments 3.02 1.94 0.87 1.00
-------- -------- -------- --------
Total from Investment Operations 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 $ 14.41 $ 12.12 $ 10.48 $ 11.44
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN 26.63% 20.71% 8.35% 9.22%
-------- -------- -------- --------
-------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 9,959 $ 96 $ 14 $ 633
Ratio of Expenses to Average Net Assets (2) 1.05% 1.05% 1.05% 1.05%**
Ratio of Net Investment Income to Average Net Assets (2) 1.16% 1.80% 0.71% 1.09%**
Portfolio Turnover Rate 53% 49% 49% 65%
- ------------------
(2) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $ 0.01 $ 0.03 $ 0.03 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.17% 1.27% 1.32% 1.33%**
Net Investment Income to Average Net Assets 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.
165
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- -------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.01 $ 9.43 $ 18.73 $ 19.48 $ 21.54
-------- ------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.06 0.12 0.14 0.17 0.18
Net Realized and Unrealized Gain (Loss) on Investments 6.42 (1.24) (8.93) 0.50 1.11
-------- ------- -------- -------- --------
Total from Investment Operations 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 $ 14.39 $ 8.01 $ 9.43 $ 18.73 $ 19.48
-------- ------- -------- -------- --------
-------- ------- -------- -------- --------
TOTAL RETURN 81.00% (11.38)% (48.29)% 3.49% 6.87%
-------- ------- -------- -------- --------
-------- ------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $103,513 $51,334 $ 85,503 $363,498 $314,884
Ratio of Expenses to Average Net Assets (1) 1.07% 1.19% 1.12% 1.00% 1.00%
Ratio of Expenses to Average Net Assets Excluding Interest 1.00% 1.00% 1.00% N/A N/A
Expense
Ratio of Net Investment Income to Average Net Assets (1) 0.58% 1.36% 0.47% 0.74% 0.97%
Portfolio Turnover Rate 197% 151% 107% 69% 42%
- ------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.06 $ 0.05 $ 0.05 $ 0.05 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.61% 1.79% 1.31% 1.25% 1.18%
Net Investment Income to Average Net Assets 0.04% 0.76% 0.29% 0.54% 0.79%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
----------------------------------- DECEMBER 31,
1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.97 $ 9.40 $18.74 $ 19.55
------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.05 0.07 0.03 0.11
Net Realized and Unrealized Gain (Loss) on Investments 6.34 (1.20) (8.86) 0.46
------ ------ ------ -------
Total from Investment Operations 6.39 (1.13) (8.83) 0.57
------ ------ ------ -------
DISTRIBUTIONS
Net Investment Income (0.08) (0.30) (0.00)+ (0.11)
In Excess of Net Investment Income -- -- -- --
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 $14.28 $ 7.97 $ 9.40 $ 18.74
------ ------ ------ -------
------ ------ ------ -------
TOTAL RETURN 79.95% (11.53)% (48.48)% 2.92%
------ ------ ------ -------
------ ------ ------ -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,828 $1,487 $1,468 $11,002
Ratio of Expenses to Average Net Assets (2) 1.32% 1.47% 1.37% 1.25%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% 1.25% N/A
Ratio of Net Investment Income to Average Net Assets (2) 0.33% 1.06% 0.18% 0.58%**
Portfolio Turnover Rate 197% 151% 107% 69%
- ------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.08 $ 0.04 $ 0.04 $ 0.04
Ratios before expense limitation:
Expenses to Average Net Assets 1.87% 2.07% 1.56% 1.52%**
Net Investment Income (Loss) to Average Net Assets (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.
166
<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
-----------------------------------------
PERIOD FROM
OCTOBER 1,
YEAR ENDED DECEMBER 31, 1997* TO
------------------------ DECEMBER 31,
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.63 $ 7.94 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.11 0.26 0.11
Net Realized and Unrealized Gain (Loss) on Investments 1.50 (1.24) (2.10)
------ ------ ------
Total from Investment Operations 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 $ 7.90 $ 6.63 $ 7.94
------ ------ ------
------ ------ ------
TOTAL RETURN 24.27% (11.82)% (19.92)%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,912 $2,447 $2,385
Ratio of Expenses to Average Net Assets (1) 1.01% 1.05% 1.08%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% 1.00%**
Ratio of Net Investment Income to Average Net Assets (1) 1.64% 2.47% 5.21%**
Portfolio Turnover Rate 98% 261% 38%
- ------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.15 $ 0.36 $ 0.25
Ratios before expense limitation:
Expenses to Average Net Assets 3.19% 4.52% 12.95%**
Net Investment Income (Loss) to Average Net Assets (0.54)% (1.00)% (6.66)%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------
PERIOD FROM
OCTOBER 1,
YEAR ENDED DECEMBER 31, 1997* TO
------------------------ DECEMBER 31,
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.66 $ 8.03 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.13 0.12 --
Net Realized and Unrealized Gain (Loss) on Investments 1.46 (1.16) (1.97)
------ ------ ------
Total from Investment Operations 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 $ 7.93 $ 6.66 $ 8.03
------ ------ ------
------ ------ ------
TOTAL RETURN 23.88% (12.53)% (19.70)%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,372 $ 761 $ 0+
Ratio of Expenses to Average Net Assets (2) 1.25% 1.38% 1.18%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% N/A
Ratio of Net Investment Income to Average Net Assets (2) 1.39% 2.39% 4.24%**
Portfolio Turnover Rate 98% 261% 38%
- ------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $0.17 $0.18 N/A
Ratios before expense limitation:
Expenses to Average Net Assets 3.10% 5.03% N/A
Net Investment Income (Loss) to Average Net Assets (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.
167
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- -------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.55 $ 12.97 $ 14.66 $ 13.14 $ 16.30
---------- -------- ---------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (0.03) 0.16 0.07 0.09 0.08
Net Realized and Unrealized Gain (Loss) on 9.75 (3.46) (0.29) 1.51 (2.05)
Investments
---------- -------- ---------- ---------- ---------
Total from Investment Operations 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 $ 19.27 $ 9.55 $ 12.97 $ 14.66 $ 13.14
---------- -------- ---------- ---------- ---------
---------- -------- ---------- ---------- ---------
TOTAL RETURN 101.78% (25.42)% (1.03)% 12.19% (12.77)%
---------- -------- ---------- ---------- ---------
---------- -------- ---------- ---------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,544,893 $772,115 $1,501,386 $1,304,006 $876,591
Ratio of Expenses to Average Net Assets 1.64% 1.81% 1.75% 1.74% 1.72%
Ratio of Expenses to Average Net Assets Excluding 1.57% 1.70% N/A N/A N/A
Foreign Tax Expense and Interest Expense
Ratio of Net Investment Income (Loss) to Average (0.26)% 1.04% 0.40% 0.69% 0.60%
Net Assets
Portfolio Turnover Rate 133% 98% 90% 55% 54%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
------------------------------------ DECEMBER 31,
1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.56 $12.98 $14.66 $ 13.25
-------- ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (0.04) 0.10 0.02 0.04
Net Realized and Unrealized Gain (Loss) on Investments 9.72 (3.43) (0.28) 1.42
-------- ------ ------ -------
Total from Investment Operations 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 $ 19.24 $ 9.56 $12.98 $ 14.66
-------- ------ ------ -------
-------- ------ ------ -------
TOTAL RETURN 101.26% (25.65)% (1.31)% (11.04)%
-------- ------ ------ -------
-------- ------ ------ -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 16,999 $7,199 $9,666 $14,213
Ratio of Expenses to Average Net Assets 1.88% 2.06% 2.00% 1.99%**
Ratio of Expenses to Average Net Assets Excluding Foreign Tax 1.81% 1.95% N/A N/A
Expense and Interest Expense
Ratio of Net Investment Income (Loss) to Average Net Assets (0.51)% 0.80% 0.11% 0.33%**
Portfolio Turnover Rate 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.
168
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- -------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.75 $ 17.96 $ 16.70 $ 13.92 $ 13.94
-------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.29 0.43 0.39 0.24 0.14
Net Realized and Unrealized Gain on Investments 1.10 1.08 2.58 2.85 1.37
-------- -------- -------- -------- -------
Total from Investment Operations 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 $ 15.09 $ 15.75 $ 17.96 $ 16.70 $ 13.92
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
TOTAL RETURN 9.60% 8.09% 17.88% 22.29% 11.85%
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $105,030 $168,712 $242,868 $178,356 $69,583
Ratio of Expenses to Average Net Assets (1) 1.09% 1.00% 1.00% 1.00% 1.00%
Ratio of Expenses to Average Net Assets Excluding Interest 1.00% N/A N/A N/A N/A
Expense
Ratio of Net Investment Income to Average Net Assets (1) 1.46% 1.47% 1.96% 1.83% 1.37%
Portfolio Turnover Rate 74% 52% 43% 24% 13%
- ------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.03 $ 0.02 $ 0.02 $ 0.02 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.22% 1.08% 1.09% 1.16% 1.25%
Net Investment Income to Average Net Assets 1.34% 1.40% 1.87% 1.67% 1.12%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
------------------------------------ DECEMBER 31,
1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.74 $17.94 $16.67 $14.05
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.12 0.33 0.28 0.18
Net Realized and Unrealized Gain on Investments 1.23 1.13 2.66 2.73
------ ------ ------ ------
Total from Investment Operations 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 $15.11 $15.74 $17.94 $16.67
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN 9.36% 7.80% 17.73% 20.76%
------ ------ ------ ------
------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,196 $5,181 $4,654 $2,654
Ratio of Expenses to Average Net Assets (2) 1.34% 1.25% 1.25% 1.25%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% N/A N/A N/A
Ratio of Net Investment Income to Average Net Assets (2) 1.30% 1.15% 1.55% 1.67%**
Portfolio Turnover Rate 74% 52% 43% 24%
- ------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.01 $ 0.02 $ 0.02 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.48% 1.34% 1.34% 1.40%**
Net Investment Income to Average Net Assets 1.16% 1.08% 1.46% 1.52%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
The accompanying notes are an integral part of the financial statements.
169
<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
-----------------------------------------
PERIOD FROM
OCTOBER 1,
YEAR ENDED DECEMBER 31, 1997* TO
------------------------ DECEMBER 31,
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.58 $ 9.52 $ 10.00
------ ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.05) 0.12 0.05
Net Realized and Unrealized Gain (Loss) on Investments (0.17) 0.33 (0.52)
------ ------- -------
Total from Investment Operations (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 $ 9.16 $ 9.58 $ 9.52
------ ------- -------
------ ------- -------
TOTAL RETURN (2.36)% 4.75% (4.72)%
------ ------- -------
------ ------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $9,931 $33,422 $15,177
Ratio of Expenses to Average Net Assets (1) 1.23% 1.03% 1.00%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% N/A
Ratio of Net Investment Income to Average Net Assets (1) 2.33% 1.33% 2.08%**
Portfolio Turnover Rate 35% 119% 47%
- ------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.01 $ 0.03 $ 0.05
Ratios before expense limitation:
Expenses to Average Net Assets 1.71% 1.43% 3.05%**
Net Investment Income to Average Net Assets 1.85% 0.95% 0.03%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------
PERIOD FROM
OCTOBER 1,
YEAR ENDED DECEMBER 31, 1997* TO
------------------------ DECEMBER 31,
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.61 $ 9.52 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.19 0.11 0.02
Net Realized and Unrealized Gain (Loss) on Investments (0.43) 0.33 (0.50)
------ ------ ------
Total from Investment Operations (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 $ 9.19 $ 9.61 $ 9.52
------ ------ ------
------ ------ ------
TOTAL RETURN (2.61)% 4.60% (4.76)%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,786 $2,531 $ 789
Ratio of Expenses to Average Net Assets (2) 1.47% 1.28% 1.25%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% N/A
Ratio of Net Investment Income to Average Net Assets (2) 2.35% 1.15% 1.51%**
Portfolio Turnover Rate 35% 119% 47%
- ------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.04 $ 0.04 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.96% 1.68% 3.12%**
Net Investment Income (Loss) to Average Net Assets 1.91% 0.77% (0.36)%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
** Annualized
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:
- -------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.74 $ 18.52 $ 16.24 $ 14.31 $ 13.40
-------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.44 0.15 0.21 0.23 0.18
Net Realized and Unrealized Gain on Investments 0.32 2.55 3.61 3.02 2.26
-------- -------- -------- -------- -------
Total from Investment Operations 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 $ 18.32 $ 20.74 $ 18.52 $ 16.24 $ 14.31
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
TOTAL RETURN 4.01% 14.60% 23.75% 22.83% 18.66%
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $115,646 $228,748 $108,074 $80,297 $91,675
Ratio of Expenses to Average Net Assets (1) 1.01% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income to Average Net Assets (1) 1.26% 0.96% 1.07% 1.38% 1.17%
Portfolio Turnover Rate 41% 39% 30% 26% 28%
- ------------------
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $ 0.02 $ 0.01 $ 0.02 $ 0.03 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.06% 1.07% 1.11% 1.15% 1.13%
Net Investment Income to Average Net Assets 1.20% 0.90% 0.96% 1.23% 1.04%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
------------------------------------ DECEMBER 31,
1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.63 $ 18.46 $16.21 $14.36
------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.21 0.15 0.16 0.13
Net Realized and Unrealized Gain on Investments 0.50 2.46 3.60 3.02
------- ------- ------ ------
Total from Investment Operations 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 $ 18.20 $ 20.63 $18.46 $16.21
------- ------- ------ ------
------- ------- ------ ------
TOTAL RETURN 3.75% 14.15% 23.37% 22.04%
------- ------- ------ ------
------- ------- ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $28,089 $13,123 $5,910 $3,928
Ratio of Expenses to Average Net Assets (2) 1.26% 1.25% 1.25% 1.25%**
Ratio of Net Investment Income to Average Net Assets (2) 0.89% 0.68% 0.80% 1.29%**
Portfolio Turnover Rate 41% 39% 30% 26%
- ------------------
(2) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $ 0.01 $ 0.01 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.31% 1.32% 1.36% 1.39%**
Net Investment Income to Average Net Assets 0.83% 0.62% 0.69% 1.15%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
The accompanying notes are an integral part of the financial statements.
171
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- -------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.25 $ 17.16 $ 16.95 $ 15.15 $ 15.34
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.24 0.27 0.30 0.25 0.16
Net Realized and Unrealized Gain on Investments 2.80 2.86 2.01 2.71 1.55
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 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 $ 19.62 $ 18.25 $ 17.16 $ 16.95 $ 15.15
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN 16.91% 18.30% 13.91% 19.64% 11.77%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $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%
Ratio of Net Investment Income to Average Net 1.28% 1.33% 1.49% 1.64% 1.38%
Assets (1)
Portfolio Turnover Rate 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 $ 0.003
Ratios before expense limitation:
Expenses to Average Net Assets 1.01% 1.02% 1.02% 1.02% 1.03%
Net Investment Income to Average Net Assets 1.27% 1.32% 1.47% 1.61% 1.35%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
------------------------------------ DECEMBER 31,
1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.22 $ 17.13 $16.93 $15.24
------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.19 0.24 0.23 0.23
Net Realized and Unrealized Gain on Investments 2.81 2.85 2.02 2.59
------- ------- ------ ------
Total from Investment Operations 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 $ 19.58 $ 18.22 $17.13 $16.93
------- ------- ------ ------
------- ------- ------ ------
TOTAL RETURN 16.68% 18.13% 13.57% 18.58%
------- ------- ------ ------
------- ------- ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $41,374 $17,076 $3,074 $5,393
Ratio of Expenses to Average Net Assets (2) 1.25% 1.25% 1.25% 1.25%**
Ratio of Net Investment Income to Average Net 0.93% 0.96% 1.21% 1.68%**
Assets (2)
Portfolio Turnover Rate 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
Ratios before expense limitation:
Expenses to Average Net Assets 1.26% 1.28% 1.27% 1.27%**
Net Investment Income to Average Net Assets 0.92% 0.95% 1.19% 1.66%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996. Amount is
+ less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
172
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- -------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------
PERIOD FROM
MARCH 15,
YEAR ENDED DECEMBER 31, 1996* TO
------------------------------------ DECEMBER 31,
1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.57 $ 10.87 $ 10.66 $ 10.00
-------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.19 0.14 0.17 0.06
Net Realized and Unrealized Gain (Loss) on Investments 2.64 0.66 0.54 0.76
-------- -------- -------- -------
Total from Investment Operations 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 $ 13.62 $ 11.57 $ 10.87 $ 10.66
-------- -------- -------- -------
-------- -------- -------- -------
TOTAL RETURN 24.87% 7.33% 6.58% 8.25%
-------- -------- -------- -------
-------- -------- -------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $188,586 $269,814 $159,096 $85,316
Ratio of Expenses to Average Net Assets 1.01% 1.00% 1.00% 1.00%**
Ratio of Expenses to Average Net Assets Excluding Country Tax 1.00% N/A N/A N/A
and Interest Expense
Ratio of Net Investment Income to Average Net Assets (1) 0.89% 1.34% 1.44% 0.99%**
Portfolio Turnover Rate 59% 39% 41% 18%
- ------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.02 $ 0.01 $ 0.02 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.11% 1.13% 1.19% 1.54%**
Net Investment Income to Average Net Assets 0.80% 1.24% 1.25% 0.44%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------
PERIOD FROM
MARCH 15,
YEAR ENDED DECEMBER 31, 1996* TO
------------------------------------ DECEMBER 31,
1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.54 $ 10.84 $ 10.63 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.11 0.14 0.16 0.01
Net Realized and Unrealized Gain (Loss) on Investments 2.68 0.64 0.52 0.78
------- ------- ------- -------
Total from Investment Operations 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 $ 13.58 $ 11.54 $ 10.84 $ 10.63
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN 24.58% 7.13% 6.33% 7.90%
------- ------- ------- -------
------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $30,770 $26,151 $28,217 $23,173
Ratio of Expenses to Average Net Assets (2) 1.25% 1.25% 1.25% 1.25%**
Ratio of Expenses to Average Net Assets Excluding Country Tax 1.25% N/A N/A N/A
and Interest Expense
Ratio of Net Investment Income to Average Net Assets (2) 0.87% 1.24% 1.19% 0.60%**
Portfolio Turnover Rate 59% 39% 41% 18%
- ------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.01 $ 0.01 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.35% 1.37% 1.44% 1.69%**
Net Investment Income to Average Net Assets 0.54% 1.14% 1.00% 0.15%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
** Annualized
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:
- -------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.25 $ 15.61 $ 16.83 $ 14.94 $ 15.15
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.22 0.22 0.25 0.21 0.24
Net Realized and Unrealized Gain (Loss) on Investments 5.66 0.39 (0.42) 2.29* 0.15*
-------- -------- -------- -------- --------
Total from Investment Operations 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 $ 19.67 $ 15.25 $ 15.61 $ 16.83 $ 14.94
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 39.34% 4.25% (0.55)% 16.82% 2.60%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $357,708 $252,642 $230,095 $234,743 $198,669
Ratio of Expenses to Average Net Assets (1) 1.15% 1.15% 1.15% 1.15% 1.15%
Ratio of Net Investment Income to Average Net Assets (1) 1.30% 1.23% 1.37% 1.29% 1.72%
Portfolio Turnover Rate 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
Ratios before expense limitation:
Expenses to Average Net Assets 1.20% 1.21% 1.22% 1.23% 1.24%
Net Investment Income to Average Net Assets 1.25% 1.18% 1.30% 1.20% 1.63%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes a 1% transaction fee on purchases and redemptions of capital shares.
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:
- -------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999++ 1998 1997 1996++ 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.18 $ 5.89 $ 7.96 $ 9.27 $ 9.83
------- ------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.02) 0.04 0.17 -- 0.04
Net Realized and Unrealized Gain (Loss) on Investments+ 3.96 0.48 (0.94) (0.13) (0.40)
------- ------- ------- -------- --------
Total from Investment Operations 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 $ 10.12 $ 6.18 $ 5.89 $ 7.96 $ 9.27
------- ------- ------- -------- --------
------- ------- ------- -------- --------
TOTAL RETURN 63.75% 8.82% (9.23)% (1.40)% (3.64)%
------- ------- ------- -------- --------
------- ------- ------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $73,666 $57,755 $77,086 $152,229 $119,278
Ratio of Expenses to Average Net Assets (1) 1.01% 1.11% 1.06% 1.00% 1.00%
Ratio of Expenses to Average Net Assets Excluding 1.00% 1.00% 1.00% N/A N/A
Interest Expense
Ratio of Net Investment Income (Loss) to Average Net (0.28)% 0.03% (0.21)% (0.04)% 0.15%
Assets (1)
Portfolio Turnover Rate 26% 66% 40% 38% 52%
- ------------------
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income (loss) $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.06
Ratios before expense limitation:
Expenses to Average Net Assets 1.14% 1.30% 1.14% 1.07% 1.20%
Net Investment Income to Average Net Assets (0.41)% (0.14)% (0.28)% (0.11)% (0.05)%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
----------------------------------- DECEMBER 31,
1999++ 1998 1997 1996++
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.13 $ 5.87 $ 7.94 $ 9.25
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) 0.08 (0.09) 0.09 (0.02)
Net Realized and Unrealized Gain (Loss) on Investments 3.81 0.58 (0.89) (0.14)
------ ------ ------ ------
Total from Investment Operations 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 $10.02 $ 6.13 $ 5.87 $ 7.94
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN 63.46% 8.33% (9.64)% (1.67)%
------ ------ ------ ------
------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $3,538 $1,083 $1,703 $3,431
Ratio of Expenses to Average Net Assets (2) 1.26% 1.36% 1.31% 1.25%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% 1.25% N/A
Ratio of Net Investment Income (Loss) to Average Net Assets (2) (0.57)% (0.25)% (0.53)% (0.26)%**
Portfolio Turnover Rate 26% 66% 40% 38%
- ------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income (loss) $ 0.01 $ 0.02 $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.39% 1.55% 1.38% 1.31%**
Net Investment Loss to Average Net Assets (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.
175
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- -------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
----------------------------------------------------------------
PERIOD FROM
JANUARY 18,
YEAR ENDED DECEMBER 31, 1995* TO
------------------------------------------------- DECEMBER 31,
1999 1998++ 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.74 $ 10.91 $ 11.32 $ 9.06 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.18 0.13 (0.01) 0.14 0.05
Net Realized and Unrealized Gain (Loss) on Investments 4.59 (4.16) 4.32 4.27 (0.92)
------- ------- ------- ------- -------
Total from Investment Operations 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 $ 11.32 $ 6.74 $ 10.91 $ 11.32 $ 9.06
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN 71.28% (37.10)% 41.28% 48.77% (8.68)%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $13,809 $15,012 $73,196 $30,409 $15,376
Ratio of Expenses to Average Net Assets (1) 1.79% 1.81% 1.89% 1.70% 1.70%**
Ratio of Expenses to Average Net Assets Excluding Country 1.70% 1.64% 1.70% 1.70% 1.70%**
Tax and Interest Expense
Ratio of Net Investment Income to Average Net Assets (1) 1.40% 1.40% (0.14)% 1.21% 1.62%**
Portfolio Turnover Rate 124% 196% 286% 192% 137%
- ------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.04 N/A $ 0.01 $ 0.05 $ 0.09
Ratios before expense limitation:
Expenses to Average Net Assets 2.12% N/A 1.96% 2.18% 3.13%**
Net Investment Income to Average Net Assets 1.07% N/A (0.21)% 0.75% (0.48)%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
----------------------------------- DECEMBER 31,
1999 1998++ 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.78 $10.80 $11.31 $ 9.44
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.19 0.12 -- 0.09
Net Realized and Unrealized Gain (Loss) on Investments 4.58 (4.09) 4.21 3.90
------ ------ ------ ------
Total from Investment Operations 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 $11.36 $ 6.78 $10.80 $11.31
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN 70.85% (36.86)% 40.37% 42.44%
------ ------ ------ ------
------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,387 $1,148 $6,709 $1,333
Ratio of Expenses to Average Net Assets (2) 2.05% 2.01% 2.14% 1.95%**
Ratio of Expenses to Average Net Assets Excluding Country Tax and 1.95% 1.85% 1.95% 1.95%**
Interest Expense
Ratio of Net Investment Income to Average Net Assets (2) 1.04% 1.24% (0.34)% 0.89%**
Portfolio Turnover Rate 124% 196% 286% 192%
- ------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.05 N/A $ 0.00+ $ 0.05
Ratios before expense limitation:
Expenses to Average Net Assets 2.35% N/A 2.21% 2.43%**
Net Investment Income to Average Net Assets 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.
176
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- -------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.04 $ 16.93 $ 14.94 $ 14.14 $ 12.02
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.02) 0.04 0.06 0.17 0.22
Net Realized and Unrealized Gain on Investments 7.49 3.17 4.48 4.07 4.93
-------- -------- -------- -------- --------
Total from Investment Operations 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 $ 25.04 $ 19.04 $ 16.93 $ 14.94 $ 14.14
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 39.89% 19.04% 31.32% 30.97% 45.02%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $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%
Ratio of Net Investment Income (Loss) to Average Net (0.10)% 0.22% 0.35% 1.12% 1.57%
Assets (1)
Portfolio Turnover Rate 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+ $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.80% 0.80% 0.82% 0.88% 0.88%
Net Investment Income (Loss) to Average Net Assets (0.10)% 0.22% 0.33% 1.04% 1.49%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
----------------------------------- DECEMBER 31,
1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.97 $ 16.91 $ 14.92 $14.22
-------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) (0.04) 0.00+ 0.04 0.13
Net Realized and Unrealized Gain on Investments 7.44 3.15 4.46 3.99
-------- ------- ------- ------
Total from Investment Operations 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 $ 24.90 $ 18.97 $ 16.91 $14.92
-------- ------- ------- ------
-------- ------- ------- ------
TOTAL RETURN 39.61% 18.71% 31.05% 29.92%
-------- ------- ------- ------
-------- ------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $246,889 $83,330 $27,879 $5,498
Ratio of Expenses to Average Net Assets (2) 1.05% 1.05% 1.05% 1.05%**
Ratio of Net Investment Income (Loss) to Average Net Assets (2) (0.34)% (0.02)% 0.10% 0.91%**
Portfolio Turnover Rate 91% 156% 177% 186%
- ------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.00+ $ 0.00+ $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.05% 1.05% 1.07% 1.12%**
Net Investment Income (Loss) to Average Net Assets (0.34)% (0.02)% 0.08% 0.84%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
177
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FOCUS EQUITY PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
PERIOD FROM
MARCH 8,
YEAR ENDED DECEMBER 31, 1995* TO
----------------------------------------------------- DECEMBER 31,
1999++ 1998++ 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.50 $ 15.78 $ 14.43 $ 12.17 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.06) 0.00+ 0.01 0.18 0.15
Net Realized and Unrealized Gain on Investments 7.89 2.42 4.58 4.73 3.95
---------- --------- --------- -------- ------------
Total from Investment Operations 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 $ 19.70 $ 17.50 $ 15.78 $ 14.43 $ 12.17
---------- --------- --------- -------- ------------
TOTAL RETURN 46.44% 15.35% 33.31% 40.90% 41.25%
---------- --------- --------- -------- ------------
---------- --------- --------- -------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $136,128 $130,734 $155,087 $68,480 $28,548
Ratio of Expenses to Average Net Assets (1) 1.01% 1.01% 1.02% 1.00% 1.00%**
Ratio of Expenses to Average Net Assets Excluding 1.00% 1.00% 1.00% N/A N/A
Interest Expense
Ratio of Net Investment Income to Average Net Assets (1) (0.33)% 0.01% 0.08% 1.26% 1.64%**
Portfolio Turnover Rate 155% 373% 302% 380% 309%
- ----------
(1) Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.01 $ 0.01 $ 0.01 $ 0.03 $ 0.06
Ratios before expense limitation:
Expenses to Average Net Assets 1.07% 1.03% 1.08% 1.24% 1.59%**
Net Investment Income (Loss) to Average Net Assets (0.39)% (0.01)% 0.02% 1.02% 1.05%**
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
------------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
--------------------------------------- DECEMBER 31,
1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD
$ 17.40 $ 15.72 $ 14.42 $12.25
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) (0.08) (0.06) (0.01) 0.13
Net Realized and Unrealized Gain on Investments 7.81 2.44 4.55 4.67
----------- ---------- ---------- ------------
Total from Investment Operations 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 $ 19.50 $ 17.40 $ 15.72 $14.42
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
TOTAL RETURN 46.13% 15.15% 32.90% 39.72%
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $22,168 $16,682 $18,277 $8,805
Ratio of Expenses to Average Net Assets (2) 1.26% 1.26% 1.27% 1.25%**
Ratio of Expenses to Average Net Assets Excluding
Interest Expense 1.25% 1.25% 1.25% N/A
Ratio of Net Investment Income (Loss) to Average Net
Assets (2) (0.58)% (0.26)% (0.18)% 0.95%**
Portfolio Turnover Rate 155% 373% 302% 380%
- ----------
(2) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $ 0.01 $ 0.00+ $ 0.00+ $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.32% 1.28% 1.33% 1.47%**
Net Investment Income (Loss) to Average Net Assets (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.
178
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.07 $ 7.72 $ 13.50 $ 21.49 $ 16.12
---------- --------- --------- -------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.05) 0.09 (0.07) (0.19) (0.18)
Net Realized and Unrealized Gain on Investments 7.40 1.97 1.09 0.89 5.55
---------- --------- --------- -------- ------------
Total from Investment Operations 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 $ 13.32 $ 8.07 $ 7.72 $ 13.50 $ 21.49
---------- --------- --------- -------- ------------
---------- --------- --------- -------- ------------
TOTAL RETURN 96.45% 27.54% 11.36% 3.72% 33.31%
---------- --------- --------- -------- ------------
---------- --------- --------- -------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $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%
Ratio of Net Investment Income to Average Net Assets (1) (0.59)% 1.06% (0.87)% (0.88)% (0.76)%
Portfolio Turnover Rate 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 $ 0.003
Ratios before expense limitation:
Expenses to Average Net Assets 1.43% 1.35% 1.34% 1.30% 1.26%
Net Investment Income (Loss) to Average Net Assets (0.78)% 0.96% (0.95)% (0.92)% (0.77)%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
------------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
--------------------------------------- DECEMBER 31,
1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.93 $ 7.63 $13.45 $21.47
----------- ---------- ---------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.08) 0.09 (0.06) (0.15)
Net Realized and Unrealized Gain on Investments 7.26 1.90 1.04 0.82
----------- ---------- ---------- ------------
Total from Investment Operations 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 $ 13.01 $ 7.93 $ 7.63 $13.45
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
TOTAL RETURN 95.97% 26.86% 11.13% 3.58%
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $14,775 $1,282 $1,313 $3,997
Ratio of Expenses to Average Net Assets (2) 1.50% 1.50% 1.50% 1.50%**
Ratio of Net Investment Income to Average Net Assets (2) (0.87)% 0.88% (1.12)% (1.09)%**
Portfolio Turnover Rate 204% 331% 228% 33%
- -------------------
(2)Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.02 $ 0.01 $ 0.00+ $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.66% 1.60% 1.58% 1.54%**
Net Investment Income (Loss) to Average Net Assets (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.
179
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
CLASS A
----------------------------------------------------------
PERIOD FROM
SEPTEMBER 16,
YEAR ENDED DECEMBER 31, 1996* TO
------------------------------------------- DECEMBER 31,
1999++ 1998++ 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.98 $ 11.73 $ 10.71 $10.00
-------------- ------------ ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.28) (0.13) 0.07 (0.02)
Net Realized and Unrealized Gain on Investments 28.07 6.45 3.75 0.73
-------------- ------------ ------------- -------------
Total from Investment Operations 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 $ 38.91 $ 17.98 $ 11.73 $10.71
-------------- ------------ ------------- -------------
-------------- ------------ ------------- -------------
TOTAL RETURN 160.62% 53.90% 37.27% 7.10%
-------------- ------------ ------------- -------------
-------------- ------------ ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $82,190 $27,506 $31,788 $3,595
Ratio of Expenses to Average Net Assets (1) 1.26% 1.29% 1.25% 1.25%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% N/A N/A
Ratio of Net Investment Loss to Average Net Assets (1) (1.06)% (0.95)% (1.07)% (0.70)%**
Portfolio Turnover Rate 250% 265% 622% 77%
- -------------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.00+ $ 0.07 $ 0.08 $ 0.22
Ratios before expense limitation:
Expenses to Average Net Assets 1.28% 1.82% 2.47% 8.51%**
Net Investment Loss to Average Net Assets (1.09)% (1.47)% (2.30)% (7.96)%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B
----------------------------------------------------------
PERIOD FROM
SEPTEMBER 16,
YEAR ENDED DECEMBER 31, 1996* TO
------------------------------------------- DECEMBER 31,
1999++ 1998++ 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $17.92 $11.72 $10.71 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) (0.35) (0.16) 0.04 (0.02)
Net Realized and Unrealized Gain on Investments 27.98 6.43 3.74 0.73
-------------- ------------ ------------- -------------
Total from Investment Operations 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 $38.69 $17.92 $11.72 $10.71
-------------- ------------ ------------- -------------
-------------- ------------ ------------- -------------
TOTAL RETURN 160.26% 53.52% 36.90% 7.10%
-------------- ------------ ------------- -------------
-------------- ------------ ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $4,192 $ 850 $2,394 $1,487
Ratio of Expenses to Average Net Assets (2) 1.51% 1.55% 1.50% 1.50%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.50% 1.50% N/A N/A
Ratio of Net Investment Loss to Average Net Assets (2) (1.31)% (1.32)% (1.41)% (1.00)%**
Portfolio Turnover Rate 250% 265% 622% 77%
- ------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.00+ $ 0.07 $ 0.04 $ 0.19
Ratios before expense limitation:
Expenses to Average Net Assets 1.53% 2.08% 2.72% 9.14%**
Net Investment Loss to Average Net Assets (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 years ended December 31, 1999 and 1998 are based
on average shares outstanding.
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:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
------------------------------------------
PERIOD FROM
JULY 31,
YEAR ENDED DECEMBER 31, 1997* TO
------------------------- DECEMBER 31,
1999++ 1998++ 1997++
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD
$ 12.43 $ 10.31 $ 10.00
------------ ------------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.11 0.09 0.06
Net Realized and Unrealized Gain on Investments 2.30 2.10 0.33
------------ ------------- ------------
Total from Investment Operations 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 $ 12.34 $ 12.43 $ 10.31
------------ ------------- ------------
------------ ------------- ------------
TOTAL RETURN 20.25% 21.26% 3.94%
------------ ------------- ------------
------------ ------------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $22,430 $66,640 $20,914
Ratio of Expenses to Average Net Assets (1) 0.83% 0.80% 0.80%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 0.80% N/A N/A
Ratio of Net Investment Income to Average Net Assets (1) 0.35% 0.87% 1.32%**
Portfolio Turnover Rate 182% 228% 15%
- -------------------
(1)Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.10 $ 0.03 $ 0.07
Ratios before expense limitation:
Expenses to Average Net Assets 1.17% 1.05% 2.37%**
Net Investment Income (Loss) to Average Net Assets 0.00% 0.59% (0.25)%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
------------------------------------------
PERIOD FROM
JULY 31,
YEAR ENDED DECEMBER 31, 1997* TO
------------------------- DECEMBER 31,
1999++ 1998++ 1997++
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.42 $10.31 $10.00
------------ ------------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.03 0.06 0.02
Net Realized and Unrealized Gain on Investments 2.36 2.10 0.37
------------ ------------- ------------
Total from Investment Operations 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 $12.33 $12.42 $10.31
------------ ------------- ------------
------------ ------------- ------------
TOTAL RETURN 19.99% 20.95% 3.93%
------------ ------------- ------------
------------ ------------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,533 $1,431 $ 102
Ratio of Expenses to Average Net Assets (2) 1.08% 1.05% 1.05%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense (2) 1.05% N/A N/A
Ratio of Net Investment Income (Loss) to Average Net Assets (2) 0.15% 0.52% 0.48%**
Portfolio Turnover Rate 182% 228% 15%
- ----------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.08 $ 0.03 $ 0.00+
Ratios before expense limitation:
Expenses to Average Net Assets 1.42% 1.34% 2.63%**
Net Investment Income (Loss) to Average Net Assets (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 period
ended December 31, 1997 are based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
181
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
PERIOD FROM
FEBRUARY 24,
YEAR ENDED DECEMBER 31, 1995* TO
----------------------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.71 $ 15.38 $ 14.41 $ 11.42 $ 10.00
---------- --------- --------- --------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.81 0.47 0.42 0.37 0.26
Net Realized and Unrealized Gain (Loss) on
Investments (0.98) (2.32) 3.40 4.02 1.84
---------- --------- --------- --------- ------------
Total from Investment Operations (0.17) (1.85) 3.82 4.39 2.10
---------- --------- --------- --------- ------------
DISTRIBUTIONS
Net Investment Income (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 (0.70) (0.82) (2.85) (1.40) (0.68)
---------- --------- --------- --------- ------------
NET ASSET VALUE, END OF PERIOD $ 11.84 $ 12.71 $ 15.38 $ 14.41 $ 11.42
---------- --------- --------- --------- ------------
---------- --------- --------- --------- ------------
TOTAL RETURN (1.48)% (12.29)% 27.62% 39.56% 21.07%
---------- --------- --------- --------- ------------
---------- --------- --------- --------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $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%**
Ratio of Net Investment Income to Average
Net Assets (1) 6.52% 3.33% 2.72% 3.08% 4.04%**
Portfolio Turnover Rate 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+ $ 0.01 $ 0.02 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.02% 1.04% 1.04% 1.14% 1.33%**
Net Investment Income to Average Net Assets 6.51% 3.30% 2.68% 2.93% 3.71%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
------------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
--------------------------------------- DECEMBER 31,
1999 1998++ 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.67 $ 15.34 $ 14.39 $11.50
----------- ---------- ---------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.82 0.47 0.47 0.35
Net Realized and Unrealized Gain (Loss) on Investments (1.02) (2.35) 3.29 3.92
----------- ---------- ---------- ------------
Total from Investment Operations (0.20) (1.88) 3.76 4.27
----------- ---------- ---------- ------------
DISTRIBUTIONS
Net Investment Income (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 (0.67) (0.79) (2.81) (1.38)
----------- ---------- ---------- ------------
NET ASSET VALUE, END OF PERIOD $ 11.80 $ 12.67 $ 15.34 $14.39
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
TOTAL RETURN (1.73)% (12.52)% 27.21% 38.23%
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $13,418 $13,523 $21,231 $8,734
Ratio of Expenses to Average Net Assets (2) 1.25% 1.25% 1.25% 1.25%**
Ratio of Net Investment Income to Average Net Assets (2) 6.13% 3.23% 3.49% 2.91%**
Portfolio Turnover Rate 47% 117% 135% 171%
- -------------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.00+ $ 0.01 $ 0.00+ $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.27% 1.29% 1.28% 1.37%**
Net Investment Income to Average Net Assets 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 financial statements.
182
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.78 $ 13.62 $ 13.89 $ 13.94 $ 11.50
---------- --------- --------- --------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.26 0.20 0.35 0.41 0.38
Net Realized and Unrealized Gain on Investments 0.97 0.98 3.51 2.27 3.30
---------- --------- --------- --------- ------------
Total from Investment Operations 1.23 1.18 3.86 2.68 3.68
---------- --------- --------- --------- ------------
DISTRIBUTIONS
Net Investment Income (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 (2.38) (4.02) (4.13) (2.73) (1.24)
---------- --------- --------- --------- ------------
NET ASSET VALUE, END OF PERIOD $ 9.63 $ 10.78 $ 13.62 $ 13.89 $ 13.94
---------- --------- --------- --------- ------------
---------- --------- --------- --------- ------------
TOTAL RETURN 11.63% 8.79% 29.20% 19.73% 33.69%
---------- --------- --------- --------- ------------
---------- --------- --------- --------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $46,768 $57,543 $86,054 $106,128 $147,365
Ratio of Expenses to Average Net Assets (1) 0.73% 0.70% 0.70% 0.70% 0.70%
Ratio of Expenses to Average Net Assets Excluding
Interest Expense 0.70% N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net Assets (1) 1.25% 1.36% 2.15% 2.62% 3.01%
Portfolio Turnover Rate 80% 153% 36% 42% 43%
- ----------
(1) Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.03 $ 0.02 $ 0.02 $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.86% 0.82% 0.80% 0.78% 0.77%
Net Investment Income to Average Net Assets 1.12% 1.25% 2.06% 2.55% 2.94%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
------------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
--------------------------------------- DECEMBER 31,
1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.76 $13.59 $13.89 $14.06
----------- ---------- ---------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.20 0.07 0.28 0.29
Net Realized and Unrealized Gain on Investments 0.99 1.08 3.51 2.25
----------- ---------- ---------- ------------
Total from Investment Operations 1.19 1.15 3.79 2.54
----------- ---------- ---------- ------------
DISTRIBUTIONS
Net Investment Income (0.13) (0.17) (0.31) (0.39)
Net Realized Gain (2.02) (3.81) (3.78) (2.32)
In Excess of Net Realized Gain (0.20) -- -- --
----------- ---------- ---------- ------------
Total Distributions (2.35) (3.98) (4.09) (2.71)
----------- ---------- ---------- ------------
NET ASSET VALUE, END OF PERIOD $ 9.60 $10.76 $13.59 $13.89
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
TOTAL RETURN 11.22% 8.59% 28.70% 18.57%
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 921 $1,045 $2,246 $2,555
Ratio of Expenses to Average Net Assets (2) 0.98% 0.95% 0.95% 0.95%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 0.95% N/A N/A N/A
Ratio of Net Investment Income to Average Net Assets (2) 1.01% 1.12% 1.86% 2.33%**
Portfolio Turnover Rate 80% 153% 36% 42%
- ----------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.03 $ 0.02 $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.11% 1.07% 1.04% 1.03%**
Net Investment Income to Average Net Assets 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.
183
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 2.61 $ 5.77 $ 7.54 $ 8.59 $ 8.59
---------- --------- --------- --------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.43 1.13 0.74 1.54 1.36
Net Realized and Unrealized Gain (Loss)
on Investments 0.34 (3.19) 0.55 2.79 0.91
---------- --------- --------- --------- ------------
Total from Investment Operations 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 $ 3.00 $ 2.61 $ 5.77 $ 7.54 $ 8.59
---------- --------- --------- --------- ------------
---------- --------- --------- --------- ------------
TOTAL RETURN 29.22% (35.95)% 18.29% 50.52% 28.23%
---------- --------- --------- --------- ------------
---------- --------- --------- --------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $52,654 $46,234 $142,382 $152,142 $181,878
Ratio of Expenses to Average Net Assets 1.40% 2.38% 1.60% 2.70% 1.75%
Ratio of Expenses to Average Net Assets Excluding
Interest Expense 1.29% 1.34% N/A N/A N/A
Ratio of Net Investment Income to Average Net Assets 13.12% 11.61% 8.06% 11.66% 14.70%
Portfolio Turnover Rate 249% 457% 417% 560% 406%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
------------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
--------------------------------------- DECEMBER 31,
1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 2.66 $ 5.77 $ 7.53 $ 8.68
----------- ---------- ---------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.28 1.13 0.69 1.01
Net Realized and Unrealized Gain (Loss) on Investments 0.46 (3.17) 0.59 3.20
----------- ---------- ---------- ------------
Total from Investment Operations 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 $ 3.03 $ 2.66 $ 5.77 $ 7.53
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
TOTAL RETURN 28.01% (35.37)% 18.05% 48.52%
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 860 $1,187 $2,281 $4,253
Ratio of Expenses to Average Net Assets 1.65% 2.62% 1.91% 2.81%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.55% 1.60% N/A N/A
Ratio of Net Investment Income to Average Net Assets 12.85% 11.09% 7.87% 11.09%**
Portfolio Turnover Rate 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.
184
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.08 $ 10.88 $ 10.58 $ 10.81 $ 9.82
---------- --------- --------- --------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 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 (0.17) 0.84 0.98 0.47 1.78
---------- --------- --------- --------- ------------
DISTRIBUTIONS
Net Investment Income (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 (0.67) (0.64) (0.68) (0.70) (0.79)
---------- --------- --------- --------- ------------
NET ASSET VALUE, END OF PERIOD $ 10.24 $ 11.08 $ 10.88 $ 10.58 $ 10.81
---------- --------- --------- --------- ------------
---------- --------- --------- --------- ------------
TOTAL RETURN (1.56)% 7.93% 9.54% 4.61% 18.76%
---------- --------- --------- --------- ------------
---------- --------- --------- --------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $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%
Ratio of Net Investment Income to Average Net
Assets (1) 5.87% 5.63% 6.11% 6.30% 6.85%
Portfolio Turnover Rate 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 $ 0.02 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.57% 0.58% 0.60% 0.60% 0.59%
Net Investment Income to Average Net Assets 5.75% 5.51% 5.97% 6.15% 6.71%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
------------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
--------------------------------------- DECEMBER 31,
1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.10 $10.89 $10.58 $10.81
----------- ---------- ---------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.61 0.61 0.64 0.64
Net Realized and Unrealized Gain (Loss) on Investments (0.80) 0.22 0.33 (0.19)
----------- ---------- ---------- ------------
Total from Investment Operations (0.19) 0.83 0.97 0.45
----------- ---------- ---------- ------------
DISTRIBUTIONS
Net Investment Income (0.63) (0.59) (0.66) (0.68)
Net Realized Gain -- (0.03) -- --
In Excess of Net Realized Gain (0.03) -- -- --
----------- ---------- ---------- ------------
Total Distributions (0.66) (0.62) (0.66) (0.68)
----------- ---------- ---------- ------------
NET ASSET VALUE, END OF PERIOD $10.25 $11.10 $10.89 $10.58
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
TOTAL RETURN (1.76)% 7.85% 9.48% 4.35%
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,084 $3,649 $4,834 $1,462
Ratio of Expenses to Average Net Assets (2) 0.60% 0.60% 0.60% 0.60%**
Ratio of Net Investment Income to Average Net Assets (2) 5.69% 5.50% 5.93% 6.15%**
Portfolio Turnover Rate 97% 176% 163% 183%
- ----------
(2) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $ 0.01 $ 0.01 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.72% 0.72% 0.74% 0.74%**
Net Investment Income to Average Net Assets 5.58% 5.38% 5.78% 6.01%**
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
185
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999++ 1998++ 1997++ 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.51 $ 11.15 $ 11.30 $ 11.22 $ 10.29
---------- --------- --------- --------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.51 0.55 0.56 0.61 0.76
Net Realized and Unrealized Gain (Loss)
on Investments (1.37) 0.98 (0.40) 0.08 1.15
---------- --------- --------- --------- ------------
Total from Investment Operations (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 $ 11.22 $ 12.51 $ 11.15 $ 11.30 $ 11.22
---------- --------- --------- --------- ------------
---------- --------- --------- --------- ------------
TOTAL RETURN (6.84)% 13.84% 1.50% 6.44% 19.32%
---------- --------- --------- --------- ------------
---------- --------- --------- --------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $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%
Ratio of Net Investment Income to Average Net
Assets (1) 4.01% 4.76% 5.05% 5.50% 6.79%
Portfolio Turnover Rate 102% 110% 116% 258% 207%
- ----------
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $ 0.03 $ 0.03 $ 0.02 $ 0.02 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 0.76% 0.81% 0.71% 0.72% 0.71%
Net Investment Income to Average Net Assets 3.75% 4.48% 4.84% 5.29% 6.58%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
------------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
--------------------------------------- DECEMBER 31,
1999 1998++ 1997++ 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.48 $11.13 $11.29 $11.23
----------- ---------- ---------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.45 0.53 0.54 0.48
Net Realized and Unrealized Gain (Loss) on Investments (1.32) 0.98 (0.40) 0.18
----------- ---------- ---------- ------------
Total from Investment Operations (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 $11.19 $12.48 $11.13 $11.29
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
TOTAL RETURN (7.09)% 13.68% 1.29% 6.12%
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 322 $ 362 $ 366 $1,559
Ratio of Expenses to Average Net Assets (2) 0.65% 0.65% 0.65% 0.65%**
Ratio of Net Investment Income to Average Net Assets (2) 3.86% 4.54% 4.88% 5.28%**
Portfolio Turnover Rate 102% 110% 116% 258%
- ----------
(2) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $ 0.03 $ 0.03 $ 0.02 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 0.91% 0.99% 0.86% 0.86%**
Net Investment Income to Average Net Assets 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.
186
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.75 $ 11.58 $ 10.91 $ 10.46 $ 9.55
---------- --------- --------- -------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.94 1.00 1.00 1.03 1.14
Net Realized and Unrealized Gain (Loss)
on Investments (0.14) (0.66) 0.67 0.47 0.97
---------- --------- --------- -------- ------------
Total from Investment Operations 0.80 0.34 1.67 1.50 2.11
---------- --------- --------- -------- ------------
DISTRIBUTIONS
Net Investment Income (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 (0.97) (1.17) (1.00) (1.05) (1.20)
---------- --------- --------- -------- ------------
NET ASSET VALUE, END OF PERIOD $ 10.58 $ 10.75 $ 11.58 $ 10.91 $ 10.46
---------- --------- --------- -------- ------------
---------- --------- --------- -------- ------------
TOTAL RETURN 7.77% 3.03% 15.87% 15.01% 23.35%
---------- --------- --------- -------- ------------
---------- --------- --------- -------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $136,386 $128,237 $113,006 $95,663 $62,245
Ratio of Expenses to Average Net Assets (1) 0.59% 0.67% 0.69% 0.75% 0.75%
Ratio of Net Investment Income to Average Net
Assets (1) 8.72% 8.70% 8.70% 9.78% 11.09%
Portfolio Turnover Rate 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 $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets N/A N/A N/A 0.82% 0.83%
Net Investment Income to Average Net Assets N/A N/A N/A 9.71% 11.01%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
------------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
--------------------------------------- DECEMBER 31,
1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.73 $ 11.56 $10.90 $10.49
----------- ---------- ---------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.92 0.90 0.97 0.98
Net Realized and Unrealized Gain (Loss) on Investments (0.15) (0.59) 0.65 0.45
----------- ---------- ---------- ------------
Total from Investment Operations 0.77 0.31 1.62 1.43
----------- ---------- ---------- ------------
DISTRIBUTIONS
Net Investment Income (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 (0.95) (1.14) (0.96) (1.02)
----------- ---------- ---------- ------------
NET ASSET VALUE, END OF PERIOD $ 10.55 $ 10.73 $11.56 $10.90
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
TOTAL RETURN 7.44% 2.79% 15.48% 14.37%
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $48,457 $56,804 $7,213 $5,665
Ratio of Expenses to Average Net Assets (2) 0.85% 0.95% 0.93% 1.00%**
Ratio of Net Investment Income to Average Net Assets (2) 8.49% 8.73% 8.48% 9.49%**
Portfolio Turnover Rate 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 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets N/A N/A N/A 1.05%**
Net Investment Income to Average Net Assets N/A N/A N/A 9.44%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
187
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
PERIOD FROM
JANUARY 18,
YEAR ENDED DECEMBER 31, 1995* TO
----------------------------------------------------- DECEMBER 31,
1999 1998 1997++ 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.40 $ 10.51 $ 10.25 $ 10.37 $ 10.00
---------- --------- --------- -------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.53 0.50 0.47 0.49 0.44
Net Realized and Unrealized Gain (Loss)
on Investments (0.71) 0.07 0.25 (0.12) 0.42
---------- --------- --------- -------- ------------
Total from Investment Operations (0.18) 0.57 0.72 0.37 0.86
---------- --------- --------- -------- ------------
DISTRIBUTIONS
Net Investment Income (0.55) (0.51) (0.46) (0.49) (0.45)
In Excess of Net Investment Income 0.00+ -- (0.00)+ -- (0.00)+
Net Realized Gain -- (0.17) (0.00)+ -- (0.04)
In Excess of Net Realized Gain (0.15) -- (0.00)+ -- --
---------- --------- --------- -------- ------------
Total Distributions (0.70) (0.68) (0.46) (0.49) (0.49)
---------- --------- --------- -------- ------------
NET ASSET VALUE, END OF PERIOD $ 9.52 $ 10.40 $ 10.51 $ 10.25 $ 10.37
---------- --------- --------- -------- ------------
---------- --------- --------- -------- ------------
TOTAL RETURN (1.79)% 5.52% 7.25% 3.67% 8.80%
---------- --------- --------- -------- ------------
---------- --------- --------- -------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $11,478 $34,807 $60,541 $40,227 $45,869
Ratio of Expenses to Average Net Assets (1) 0.45% 0.45% 0.45% 0.45% 0.45%**
Ratio of Net Investment Income to Average
Net Assets (1) 4.71% 4.60% 4.55% 4.77% 4.61%**
Portfolio Turnover Rate 96% 44% 80% 45% 180%
- ----------
(1) Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.03 $ 0.03 $ 0.02 $ 0.03 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets 0.81% 0.69% 0.68% 0.73% 0.73%**
Net Investment Income to Average Net Assets 4.35% 4.36% 4.33% 4.50% 4.33%**
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
** Annualized
+ Amount is less than $0.01 per share.
++ Per share amounts for the year ended December 31, 1997 are based on average
shares outstanding.
The accompanying notes are an integral part of the financial statements.
188
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.047 0.051 0.051 0.049 0.054
----------- ----------- ----------- ----------- ------------
DISTRIBUTIONS
Net Investment Income (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
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
TOTAL RETURN 4.80% 5.20% 5.20% 5.03% 5.51%
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,931,316 $1,958,177 $1,506,210 $1,284,633 $836,693
Ratio of Expenses to Average Net Assets 0.50% 0.49% 0.49% 0.52% 0.51%
Ratio of Net Investment Income to Average Net Assets 4.73% 5.07% 5.12% 4.92% 5.37%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ --------- --------- --------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.027 0.030 0.031 0.030 0.034
------------ --------- --------- --------- ------------
DISTRIBUTIONS
Net Investment Income (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
------------ --------- --------- --------- ------------
------------ --------- --------- --------- ------------
TOTAL RETURN 2.77% 3.00% 3.17% 3.02% 3.44%
------------ --------- --------- --------- ------------
------------ --------- --------- --------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,405,646 $990,579 $804,607 $721,410 $451,519
Ratio of Expenses to Average Net Assets 0.50% 0.50% 0.50% 0.53% 0.52%
Ratio of Net Investment Income to Average Net Assets 2.76% 2.96% 3.14% 2.98% 3.38%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
189
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
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 December 31, 1999, the Fund comprised 26 separate,
active, diversified and non-diversified portfolios (individually referred to as
a "Portfolio", collectively as the "Portfolios"). At December 31, 1999, each
Portfolio (with the exception of the International Small Cap, Municipal Money
Market and 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. During the year ended December 31, 1999, the Aggressive Equity Portfolio
changed its name to the Focus Equity Portfolio and the Emerging Growth Portfolio
changed its name to the Small Company Growth Portfolio.
The investment objectives of each of the Portfolios are described in detail in
the Investment Overviews appearing elsewhere in this 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
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
prices of such currencies against U.S. dollars last quoted by a major bank as
follows:
- investments, other assets and liabilities-at the prevailing rates of
exchange on the valuation date;
- investment transactions, 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
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
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.
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 December 31, 1999 are as follows:
<TABLE>
<CAPTION>
VALUE OF
LOANED VALUE OF
SECURITIES COLLATERAL
PORTFOLIO (000) (000)
- --------- ---------- -----------
<S> <C> <C>
Active International Allocation ... $ 21,653 $ 22,793
International Equity .............. 196,544 206,390
</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 ... $ 9
Asian Equity ...................... 22
International Equity .............. 738
International Magnum .............. 85
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
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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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
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. Listed below are the significant
reclassifications as of December 31, 1999, with offsetting entries to paid in
capital:
<TABLE>
<CAPTION>
INCREASE INCREASE
(DECREASE) TO (DECREASE) TO
ACCUMULATED NET ACCUMULATED NET
INVESTMENT REALIZED GAIN
INCOME (LOSS) (LOSS)
- ------------------------------------------------------------
<S> <C> <C>
Asian Real Estate ...... $ 61,704 $ (61,074)
Small Company Growth ... 290,811 (3,317,426)
Emerging Markets Debt .. (1,097,230) 982,564
European Real Estate ... 431,448 (430,400)
Global Equity .......... (49,060) (8,847,750)
Global Fixed Income .... (473,446) 473,446
Japanese Equity ........ (355,502) 1,652,150
U.S. Equity Plus ....... -- (4,820,371)
Value Equity ........... 863 (1,638,197)
</TABLE>
The reasons for these reclassifications are detailed below:
ASIAN REAL ESTATE, EUROPEAN REAL ESTATE
These reclassifications are primarily due to differing book/tax treatments on
the sale of investments in Passive Foreign Investment Companies.
SMALL COMPANY GROWTH, GLOBAL EQUITY, U.S. EQUITY PLUS, VALUE EQUITY
These reclassifications are primarily due to differing book/tax treatment
related to certain types of redemptions made during the year.
EMERGING MARKETS DEBT, GLOBAL FIXED INCOME
These reclassifications are primarily due to differing book/tax treatment
related to net foreign currency losses.
JAPANESE EQUITY
These reclassifications are primarily due to net operating losses that are not
available to be carried forward for income tax purposes as well as differing
book/tax treatment and tax treatment related to foreign currency losses.
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 percent may be charged on subscriptions and redemptions
of capital shares of the International Small Cap Portfolio and are included in
paid in capital.
- -------------------------------------------------------------------------------
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INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
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
Municipal Bond ........... 0.35 0.45 0.70
Money Market ............. 0.30 0.55 0.80
Municipal Money Market ... 0.30 0.57 N/A
</TABLE>
Morgan Stanley Dean Witter Advisors Inc., ("MSDW Advisors"), became the
sub-advisor ("Sub-Advisor") of the Money Market and Municipal Money Market
Portfolios, effective April 26, 1999 and April 28, 1999, respectively. 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
December 31, 1999 totaled $414,000 and are included in Directors' Fees and
Expenses Payable for the applicable Portfolio on the Statement of Net Assets.
G. CREDIT FACILITY: During December 1999, the Fund, along with an affiliated
open-end fund (collectively, the "Funds"), entered into 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
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
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 year
ended December 31, 1999, there were no amounts drawn down on the Facility.
H. PURCHASES AND SALES: During the year ended December 31, 1999, purchases
and sales of investment securities, other than long-term U.S. Government
securities and short-term investments, were:
<TABLE>
<CAPTION>
PURCHASES SALES
PORTFOLIO (000) (000)
- --------- --------- ------
<S> <C> <C>
Active International Allocation . $ 353,896 $ 176,287
Asian Equity .................... 141,547 141,332
Asian Real Estate ............... 3,977 3,773
Emerging Markets ................ 1,331,895 1,373,887
European Equity ................. 93,703 168,896
European Real Estate ............ 6,993 37,382
Global Equity ................... 83,757 174,241
International Equity ............ 1,746,888 1,399,489
International Magnum ............ 123,752 212,049
International Small Cap ......... 138,392 131,484
Japanese Equity ................. 15,468 31,559
Latin American .................. 21,836 30,345
Focus Equity .................... 209,320 256,638
Small Company Growth ............ 96,848 119,209
Equity Growth ................... 897,530 922,958
Technology ...................... 101,538 93,742
U.S. Equity Plus ................ 53,570 101,413
U.S. Real Estate ................ 210,019 141,136
Value Equity .................... 41,168 54,807
Emerging Markets Debt ........... 122,058 127,735
Fixed Income .................... 142,807 119,327
Global Fixed Income ............. 35,513 38,753
High Yield ...................... 103,448 102,467
Municipal Bond .................. 26,595 48,250
</TABLE>
During the year ended December 31, 1999 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 ............. $49,236 $92,275
Global Fixed Income ...... 5,729 8,538
</TABLE>
During the year ended December 31, 1999, 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 ... $ 11
Asian Equity ...................... 166
</TABLE>
<TABLE>
<CAPTION>
BROKERAGE
COMMISSION
PORTFOLIO (000)
- --------- -----------
<S> <C>
Asian Real Estate ................. $ 8
Emerging Markets .................. 308
European Equity ................... 14
European Real Estate .............. 7
Global Equity ..................... 24
International Equity .............. 181
International Magnum .............. 74
International Small Cap ........... 8
Japanese Equity ................... 33
Latin American .................... 1
Equity Growth ..................... 121
Focus Equity ...................... 21
Small Company Growth .............. 17
Technology ........................ 2
Value Equity ...................... 31
</TABLE>
I. OTHER: At December 31, 1999, 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 ............ $ 513,312 $ 115,423 $ (17,257) 98,166
Asian Equity ............ 76,466 26,868 (1,759) 25,109
Asian Real Estate ....... 3,491 798 (187) 611
Emerging Markets ........ 1,136,487 566,396 (154,447) 411,949
European Equity ......... 90,993 17,326 (5,068) 12,258
European Real Estate .... 12,906 202 (1,477) (1,275)
Global Equity ........... 140,219 20,686 (16,981) 3,705
International Equity .... 3,890,434 1,121,311 (213,160) 908,151
International Magnum .... 176,671 48,797 (10,203) 38,594
International Small Cap . 300,411 86,139 (43,168) 42,971
Japanese Equity ......... 53,616 27,854 (4,677) 23,177
Latin American .......... 14,634 3,329 (2,760) 569
Equity Growth ........... 820,427 418,876 (15,231) 403,645
Focus Equity ............ 125,195 35,379 (2,062) 33,317
Small Company Growth .... 64,650 28,738 (1,310) 27,428
Technology .............. 50,427 36,587 (380) 36,207
U.S. Equity Plus ........ 21,262 3,833 (1,116) 2,717
U.S. Real Estate ........ 352,987 7,654 (39,175) (31,521)
Value Equity ............ 43,448 8,241 (4,251) 3,990
Emerging Markets Debt ... 48,397 4,739 (1,111) 3,628
Fixed Income ............ 193,317 47 (9,717) (9,670)
Global Fixed Income ..... 34,670 512 (2,070) (1,558)
High Yield .............. 190,428 3,245 (12,714) (9.469)
Municipal Bond .......... 11,041 247 (10) 237
Money Market ............ 2,923,756 -- -- --
Municipal Money Market .. 1,399,124 -- -- --
</TABLE>
- -------------------------------------------------------------------------------
196
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
At December 31, 1999, the following Portfolios had available capital loss
carryforwards to offset future net capital gains, to the extent provided by
regulations, through the indicated expiration dates:
<TABLE>
<CAPTION>
EXPIRATION DATE
DECEMBER 31,
(000)
----------------------------------------
PORTFOLIO 2003 2004 2005 2006 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>
During the year ended December 31, 1999, the Asian Equity, Asian Real Estate,
Emerging Markets, International Magnum, Focus Equity, U.S. Real Estate and Money
Market Portfolios utilized capital loss carryforwards for U.S. Federal income
tax purposes of approximately $19,978,000, $232,000, $45,119,000, $1,558,000,
$1,960,000, $1,053,000, and $112,000, respectively.
To the extent that capital loss carryovers are used to offset any future capital
gains realized during the carryover period as provided by U.S. Federal income
tax regulations, no capital gains tax liability will be incurred by a Portfolio
for gains realized and not distributed. To the extent that capital gains are
offset, such gains will not be distributed to the shareholders.
Net capital and net currency losses incurred after October 31, and within the
taxable year are deemed to arise on the first day of the Portfolio's next
taxable year. For the 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
</TABLE>
<TABLE>
<CAPTION>
CAPITAL CURRENCY
LOSSES LOSSES
PORTFOLIO (000) (000)
- --------- ------- ---------
<S> <C> <C>
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 --
Municipal Bond .............. 55 --
</TABLE>
During the year ended December 31, 1999, the following Portfolio wrote covered
call options as follows:
OPTIONS:
<TABLE>
<CAPTION>
NO. OF PREMIUM
TECHNOLOGY PORTFOLIO CONTRACTS (000)
- -------------------- --------- -------
<S> <C> <C>
Options outstanding at December 31,1998 ... $ 60 $ 225
Options expired during the period ......... (60) (225)
--- ----
Options outstanding at December 31,1999 ... $ -- $ --
==== =====
</TABLE>
At December 31, 1999, the net assets of certain Portfolios were substantially
comprised of foreign denominated securities and currency. Changes in currency
exchange rates will affect the U.S. dollar value of and investment income from
such securities. Further, at times during the year ended December 31, 1999,
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.
- -------------------------------------------------------------------------------
197
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Morgan Stanley Dean Witter Institutional Fund, Inc.
In our opinion, the accompanying statements of net assets and the related
statements of operations, of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of each of the
portfolios constituting Morgan Stanley Dean Witter Institutional Fund, Inc. (the
"Fund") at December 31, 1999, the results of each of their operations, the
changes in each of their net assets, and the financial highlights for the
periods indicated, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 18, 2000
- -------------------------------------------------------------------------------
198
<PAGE>
[GRAPHIC] MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
- -------------------------------------------------------------------------------
For the year ended December 31, 1999, the percentage of dividends paid that
qualify for the 70% dividend received deduction for corporate shareholders for
the Global Equity, Focus Equity, Small Company Growth, Equity Growth,
Technology, U.S. Equity Plus, U.S. Real Estate and Value Equity Portfolios are
25.83%, 1.80%, 2.75%, 8.85%, 0.35%, 4.43%, 1.88% and 26.56%, respectively.
For the year ended December 31, 1999, the percentage of exempt interest
dividends paid by the Municipal Bond and the Municipal Money Market Portfolios
are 98.22% and 98.15%, respectively.
For the year ended December 31, 1999, the following Portfolios intend to pass
through foreign tax credits and have derived gross income from sources within
foreign countries amounting to:
<TABLE>
<CAPTION>
FOREIGN TAX CREDIT FOREIGN SOURCE
PASS-THROUGH INCOME
FUND (000) (000)
---- ------------------ --------------
<S> <C> <C>
Active International Allocation ..................... $ 758 $ 6,820
Asian Equity ........................................ 68 1,272
European Equity ..................................... 428 3,604
European Real Estate ................................ 66 749
Global Equity ....................................... 428 3,464
International Equity* ............................... 9,779 92,708
International Magnum ................................ 534 4,552
International Small Cap ............................. 788 7,437
</TABLE>
For the year ended December 31, 1999, the following Portfolios intend to
distribute long-term capital gains totaling:
<TABLE>
<CAPTION>
LONG-TERM
CAPITAL GAINS -- 20%
FUND (000)
---- --------------------
<S> <C>
Active International Allocation ........... $ 13,092
European Equity ........................... 11,631
Global Equity ............................. 18,274
International Equity* ..................... 2,369
International Magnum ...................... 9,521
International Small Cap ................... 13,507
Focus Equity .............................. 992
Small Company Growth ...................... 841
Equity Growth ............................. 38,344
Technology ................................ 1,339
U.S. Equity Plus .......................... 301
Value Equity .............................. 2,857
Municipal Bond ............................ 266
</TABLE>
- ---------------
* Amounts based on October 31 tax year end.
- -------------------------------------------------------------------------------
199
<PAGE>
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
- -------------------------------------------------------------------------------
DIRECTORS
Barton M. Biggs
CHAIRMAN OF THE BOARD
Chairman and Director, Morgan Stanley Dean Witter
Investment Management Inc. and Morgan Stanley Dean Witter
Investment Management Limited; Managing
Director, Morgan Stanley & Co. Incorporated
Michael F. Klein
DIRECTOR AND PRESIDENT
Managing Director, Morgan Stanley Dean Witter Investment
Management Inc. and Morgan Stanley & Co.
Incorporated
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil LLP
Andrew McNally IV
River Road Partners
Samuel T. Reeves
Chairman of the Board and Chief Executive Officer,
Pinnacle Trading, L.L.C.
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw
Of Counsel, Copple, Chamberlin & Boehm, P.C.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
OFFICERS
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
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/institutional/investmentmanagement.
- -------------------------------------------------------------------------------
200
