Morgan Stanley Institutional Fund

SECURITIES AND EXCHANGE COMMISSION

FORM N-30D Initial annual and semi-annual reports mailed to investment company shareholders pursuant to Rule 30e-1 (other than those required to be submitted as part of Form NCSR)

Filing Date: 1996-09-09 | Period of Report: 1996-06-30 SEC Accession No. 0000912057-96-019873

(HTML Version on secdatabase.com)

FILER MORGAN STANLEY INSTITUTIONAL FUND INC Mailing Address Business Address 1221 AVENUE OF THE 1221 AVENUE OF THE CIK:836487| State of Incorp.:MA | Fiscal Year End: 1031 AMERICAS AMERICAS Type: N-30D | Act: 40 | File No.: 811-05624 | Film No.: 96627523 8TH FLOOR 8TH FLOOR NEW YORK NY 10020 NEW YORK NY 10020 6175578742

MORGAN STANLEY

MORGAN STANLEY INSTITUTIONAL FUND, INC. SEMI-ANNUAL REPORT JUNE 30, 1996 [LOGO]

[LOGO] Morgan Stanley Institutional Fund, Inc. ------

TABLE OF CONTENTS ------

President's Letter...... 1 Performance Summary...... 2 Managers' Reports and Statements of Net Assets by Portfolio: Global and International Equity Portfolios: Active Country Allocation...... 4 Asian Equity...... 15 Emerging Markets...... 22 European Equity ...... 31 Global Equity ...... 36 Gold...... 41 International Equity ...... 45 International Magnum ...... 52 International Small Cap...... 59 Japanese Equity...... 64 Latin American...... 68 U.S. Equity Portfolios: Aggressive Equity...... 73 Emerging Growth...... 77 Equity Growth...... 82 Small Cap Value Equity...... 87 U.S. Real Estate...... 91 Value Equity...... 96 Balanced Portfolio...... 100 Fixed Income Portfolios: Emerging Markets Debt...... 104 Fixed Income...... 109 Global Fixed Income...... 113 High Yield...... 120 Municipal Bond...... 126 Money Market Portfolios: Money Market...... 130 Municipal Money Market...... 134 Statement of Operations...... 141 Statement of Changes in Net Assets...... 145 Financial Highlights ...... 158 Notes to Financial Statements...... 182 Officers and Directors ...... 189

This report is authorized for distribution only when preceded or accompanied by prospectuses of the Morgan Stanley 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.

~~------~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~

~~PRESIDENT'S LETTER ------FELLOW SHAREHOLDERS:~~

We are pleased to present the Fund's semi-annual report for the six months ended June 30, 1996. Our Fund now offers 25 portfolios, including 11 global and international equity portfolios, 6 U.S. equity portfolios, a balanced portfolio, 5 fixed-income portfolios and 2 money market portfolios.

The performance of each of the portfolios and commentaries from the portfolio managers discussing the results of each portfolio are contained in this report. The investment performance of the portfolios relative to their

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document respective benchmarks is also presented in the performance summary on page two of this report.

For the first half of 1996, a number of the Fund's emerging markets portfolios were among its top performers on both an absolute and relative basis. Each of the Latin American Portfolio, the Emerging Markets Portfolio and the Emerging Markets Debt Portfolio had strong relative and absolute performance. Although the U.S. equity market became increasingly volatile during the period, several of our U.S. Equity portfolios registered strong performance. In particular, the Aggressive Equity and Equity Growth Portfolios performed very well. Several of our global and international portfolios turned in credible performances as well, including the Global Equity and International Equity Portfolios. Although the fixed income markets were difficult during the first six months of the year, both the Fixed Income and High Yield Portfolios continued to be top performers in their respective asset classes.

Our portfolio managers have provided their insights as to the outlook for the remainder of 1996 in their commentaries. It bears repeating, however, that each Portfolio will continue to adhere to its investment strategy and style. We remain firmly of the view that superior long-term results are best achieved by adhering to a rigorous, well conceived and consistently applied investment strategy.

Looking ahead, we expect to commence offering shares in a new Technology Portfolio in the early Fall. We hope you find the enclosed report informative. We very much appreciate your support of the Fund.

~~Sincerely,~~

~~[SIGNATURE]~~

~~Warren J. Olsen PRESIDENT~~

~~August 16, 1996~~

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~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~

~~PERFORMANCE SUMMARY (UNAUDITED) JUNE 30, 1996 ------~~

~~------~~

* Cumulative (unannualized) total return since inception of the Portfolio. ** The Portfolios began offering Class B Shares on January 2, 1996, except International Magnum, which began offering Class B Shares on March 15, 1996.

------+ The 7 day current yield and 7 day effective yield assume an annualization of the current yield at June 30, 1996 with all dividends reinvested. As with all money market portfolios, yields fluctuate as market conditions change and the 7 day yields are not necessarily indicative of future performance.

++ The current 30 day yield reflects the net investment income generated by the Portfolio over a specified 30-day period expressed as an annual percentage. Expenses accrued for the 30-day period include any fees charged to all shareholders. Yields will fluctuate as market conditions change and are not necessarily indicative of future performance.

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INDICES: (1) MSCI EAFE (Europe, Australia, and Far East) (2) MSCI Combined Far East Free ex-Japan (3) IFC Global Total Return Composite (4) MSCI Europe (5) MSCI World (6) Philadelphia Gold and Silver (7) MSCI Japan (8) MSCI Emerging Markets Global Latin America (9) Lipper Capital Appreciation (10) NASDAQ Composite
(11) S&P 500 (12) Russell 2500 (13) NAREIT ex-healthcare (14) Indata Balanced-Median (15) J.P. Morgan Emerging Markets Bond (16) Lehman Aggregate Bond (17) J.P. Morgan Traded Global Bond (18) CS First Boston High Yield (19) Lehman 7 Yr. Municipal Bond (20) Donaghue's Money Fund Report

Past performance should not be construed as a guarantee of future performance. Investment return and principal value will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost. Investments in the Money Market and Municipal Money Market Portfolios are neither insured nor guaranteed by the U.S. Government. There is no assurance that the Money Market and Municipal Money Market Portfolios will be able to maintain a stable net asset value of $1.00 per share. Please read the Portfolio's prospectus carefully before you invest or send money.

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~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~

~~OVERVIEW ------~~

~~THE ACTIVE COUNTRY ALLOCATION PORTFOLIO~~

~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~

~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~

Australia 2.1% Austria 0.5% Brazil 1.5% France 6.7% Germany 9.8% Hong Kong 6.8% Indonesia 1.8% Italy 6.9% Japan 38.2% Malaysia 0.1% Netherlands 3.2% Singapore 3.3% Spain 3.8% Switzerland 2.8% Thailand 2.2% United Kingdom 7.9% Other 2.4%

~~PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1) ------~~

~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~

~~------~~

THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY THE MSCI EAFE INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.

The Active Country Allocation Portfolio invests in international equity markets, with emphasis placed upon countries, rather than stock selection. This approach reflects our belief that a diversified selection of securities representing exposure to countries that we find attractive provides an effective way to maximize the return and minimize the risk associated with global investing.

For the six month period ended June 30, 1996, the Portfolio had a total return of 8.17% for the Class A shares and 7.80% for the Class B shares, as compared to a total return of 4.52% for the Morgan Stanley Capital International (MSCI) EAFE Index. The average annual total return for the twelve months ended June 30, 1996 and the period from inception on January 17, 1992 through June 30, 1996 was 21.81% and 9.39%, respectively, for the Class A shares, as compared to 13.28% and 9.96%, respectively, for the Index.

World equity markets continued to move higher in the second quarter, with the exception of the Pacific ex-Japan. In U.S. dollar terms, as measured by the Morgan Stanley Capital International (MSCI) indices, regional returns for the second quarter were: United States 4.3%, Europe 2.1%, Japan 0.6%, Pacific Ex- Japan -0.7%, and the Emerging Markets 3.4%.

~~In local currency terms, the second quarter regional returns were: Europe 3.2%, Japan 3.4%, Pacific Ex-Japan -0.1%, and the Emerging Markets 5.5%.~~

~~Year to date, in U.S. dollar terms, regional returns were United States 10.5%, Europe 6.4%, Japan 1.1%, Pacific Ex-Japan 9.5%, and the Emerging Markets 3.1%.~~

~~Year to date, in local currency terms, regional returns were: Europe 10.1%, Japan 7.5%, Pacific Ex-Japan 7.3%, and the Emerging Markets 7.8%.~~

For the second quarter, the Portfolio's outperformance relative to the MSCI Europe, Australia and the Far East (EAFE) benchmark was driven by our underweight (and country selection) in Europe and by our decision to maintain the Japanese Yen and Deutschemark bloc currency hedges. On the negative side, the Portfolio experienced a partial reversal of the first quarter gains attributable to our overweight position in Asia.

During the quarter we maintained our neutral stance in Japan, made a few minor adjustments to our country weights in Europe [i.e. brought the French weight to neutral (+2%) and sold our position in Austria (-1%)], and lowered our exposure to Singapore and Hong Kong, by a few percentage points

~~------Active Country Allocation Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document OVERVIEW ------THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.) each, in late April. In early July, Singapore and, to a lesser extent, Hong Kong began to look oversold in our valuation models, so we rotated out of Indonesia and Malaysia and back into Hong Kong and Singapore (by 2% each.)

~~Going forward, our regional target weights relative to the EAFE benchmark remain underweight Europe (42% vs. 50%), neutral in Japan (40%), and overweight Asia (17% versus 10%) with 1% in cash.~~

Within Europe, the Portfolio is overweight the major markets of Germany, Italy, and Spain and underweight the U.K., Switzerland, the Netherlands, and Sweden. Issues that most concern investors about Europe are short-term interest rates, economic recovery and the impact of a pullback in U.S. equities. With the exception of the high yielding markets of Italy, Spain and Sweden, we think most of the European interest rate cuts are behind us. In Germany, the economy is strengthening (recent production and orders data are trending up) and the money markets are discounting a tightening of German short rates. French rates (like the French economy) are closely tied to Germany, and both the Netherlands and Switzerland have already raised rates slightly. European monetary policy has been very loose for some time however, which, in addition to weak currencies, should have a positive lagged effect on economic growth.

With regard to U.S. equities, we believe their direction will be down, but a sharp crack would have a more negative impact on the European bourses than a slow downward grind. Historically, European markets have risen in five out of the last eleven U.S. corrections and currently these markets have several advantages vis a vis the U.S. European valuations are not as overextended as their U.S. counterparts, they have more restructuring and shareholder value potential ahead of them, and they are much earlier in the profit and economic cycles than the U.S. In addition, their economies should benefit from the stronger dollar and the stronger U.S. and Japanese economies.

For the quarter, Italy was a stellar performer (+13.4%) and it remains one of the Portfolio's major overweights. The recent compromise on the Italian supplementary budget package and the three-year budget plan was disappointing and has dampened investor enthusiasm for the Italian financial markets. We agree that the worker compensation compromise was disappointing and reduces hopes of accelerating the disinflation process, but one could not assume that the vital support of the far-left would come at no cost. Further, the government's budget accomplishments in just two months remain noteworthy. The case for lower interest rates is still intact, as are the attractiveness of Italian valuations. Hence, we remain positive on the medium-term outlook for Italian equities, although the recent budget wrangling and the bad press they've received may lead to some underperformance in the near term.

The other large European overweight in the Portfolio is Germany. We continue to like Germany based on a depreciating deutschemark boosting exports and economic growth and a very positive backdrop of corporate restructuring, stock buybacks and a new focus on shareholder value.

Asian equities cause us the most concern at this stage in the U.S. market cycle. As noted above, we believe the U.S. market is headed for a decline and historic correlations would tell us that this portends poorly for the Asian markets. On the other hand, the weak yen has dampened inflationary pressures in these markets and improving growth prospects in the U.S., Europe, and Japan are boosting corporate earnings potential. We remain overweight in Asia, albeit a few percentage points under our first quarter weight. Additionally, at the end of June we rotated our Asian country weightings, selling the more fully valued markets of Indonesia and Malaysia, and adding to Singapore -- as an oversold, high quality market (the Switzerland of Asia) -- and to Hong Kong -- as a play on an easing of the austerity program in China. In both Singapore and Hong Kong, property issues make up large proportions of the market. In Hong Kong the residential market has recovered strongly with prices rising by 10%-15% and we expect commercial property values to recover as mainland Chinese set up business locations in Hong Kong. In Singapore, government anti-speculation measures announced in May resulted in heavy selling of residential property stocks and banks, but we believe the market is oversold, and valuations of banks and office property stocks are attractive.

During the quarter the Japanese market was very sensitive to speculation that the Bank of Japan (BOJ) would raise interest rates. Over the past year, liquidity has powered both the Japanese equity market's 50% plus rise and the Japanese economic rebound. Recent focus by BOJ policy makers on a "self-sustaining recovery" indicates that they clearly realize the importance of these artificial fiscal and monetary boosts and we believe any tightening will be either fiscal or monetary, but not both. If the BOJ does not tighten by September, we doubt they will tighten until

~~------Active Country Allocation Portfolio~~

OVERVIEW ------THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.) mid-1997, as the fiscal package runs out at the end of this year and the consumption tax will rise in April 1997 from 3% to 5%. The BOJ will not want to give the economy a double punch. With regard to earnings and economic growth, on which the next market leg up depends, we think earnings will be two to three times the 6% consensus forecasts and that economic growth will be aided both by the BOJ staying off the brakes and by strong private sector demand. Imports have been up for the past six to nine months and car sales are strong. While we think the abnormally high equity returns are behind us, we foresee a moderate uptrend in the Japanese market, driven primarily by local investors.

With regard to currency hedging, we still believe in the long-term secular strength of the dollar, but we allowed one third of both our deutschemark and Japanese yen edges to roll off in early July. The dollar has made a big move in the past twelve months and U.S. stock market weakness and the relative monetary positions of the Fed, the BOJ and the Bundesbank may cloud the issues. Specifically, with a German rate cut looking less likely and sporadic rumors of a BOJ rate hike, the U.S. Fed's hesitation to raise U.S. rates in early July may dampen U.S. dollar sentiment over the near term.

Going forward, we expect greater market volatility as earnings and interest rates replace liquidity as the key market drivers and as we continue to see rotation out of the U.S. market into Japan, Asia and the Emerging Markets.

~~Francine J. Bovich PORTFOLIO MANAGER~~

~~Ann D. Thivierge PORTFOLIO MANAGER~~

~~July 1996~~

~~------Active Country Allocation Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE ACTIVE COUNTRY ALLOCATION PORTFOLIO ------~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Active Country Allocation Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.) ------~~

~~FRANCE (CONT.)~~

10,750 Union des Assurances de Paris...... $ 219 (a)9,750 Usinor Sacilor...... 141 ------11,592 ------GERMANY (9.5%) 1,900 AGIV AG...... 36 1,050 Allianz AG...... 1,828 (a)200 AMB Aachener & Muenchener Beteiligungs AG..... 145 150 Asko Deutsche Kaufhaus AG...... 111 2,850 BASF AG...... 813 32,000 Bayer AG...... 1,127 10,150 Bayerische Hypotheken Bank AG...... 247 10,950 Bayerische Vereinsbank AG...... 307 (a)200 Beiersdorf AG...... 197 (a)200 Bilfinger & Berger AG...... 84 250 Brau Und Brunnen AG...... 26 (a)800 Bremer Vulkan Verbund AG...... 3 100 CKAG Colonia Konz AG...... 80 5,000 Continental AG...... 81 (a)2,450 Daimler-Benz AG...... 1,316 450 Degussa AG...... 153 23,300 Deutsche Bank AG...... 1,105 20,650 Dresdner Bank AG...... 519 250 Heidelberger Zement AG...... 172 400 Hochtief AG...... 179 550 Karstadt AG...... 219 400 Kaufhof Holding AG...... 151 (a)2,550 Kloeckner-Humboldt-Deutz AG...... 9 500 Linde AG...... 325 (a)150 Linotype-Hell AG...... 7 1,600 Lufthansa AG...... 227 500 MAN AG...... 125 1,700 Mannesmann AG...... 586 8,350 Merck KGAA...... 316 359 Muenchener Rueck AG (Registered)...... 734 900 Preussag AG...... 227 15,500 RWE AG...... 604 2,900 SAP AG...... 428 3,500 Schering AG...... 254 28,000 Siemens AG...... 1,503 (a)100 STRABAG AG...... 9 1,650 Thyssen AG...... 302 22,850 VEBA AG...... 1,216 (a)1,306 Viag AG...... 521 1,300 Volkswagen AG...... 485 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 16,777 ------HONG KONG (6.8%) (a)48,000 Applied International Holdings...... 4 54,633 Bank of East Asia Ltd...... 200 205,000 Cathay Pacific Airways Ltd...... 376 154,000 Cheung Kong Holdings Ltd...... 1,109 138,500 China Light & Power Co., Ltd...... 628 112,000 Chinese Estates Holdings...... 100 55,000 Dickson Concepts International Ltd...... 70

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Active Country Allocation Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~

~~THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.) ------~~

~~ITALY (CONT.)~~

61,500 Istituto Bancario San Paolo...... $ 398 301,900 Istituto Nazionale delle Assicurazioni...... 451 11,300 Italcementi...... 36 20,350 Italcementi Di Risp...... 164 48,800 Italgas...... 183 33,900 Magneti Marelli S.p.A...... 48 37,500 Mediobanca S.p.A...... 238 (a)325,100 Montedison S.p.A...... 189 (a)76,900 Montedison S.p.A. Di Risp (NCS)...... 46 (a)270,750 Olivetti S.p.A...... 146 (a)64,100 Parmalat Finanziaria S.p.A...... 86 133,000 Pirelli S.p.A...... 223 22,015 R.A.S. S.p.A...... 228 19,000 Rinascente...... 136 (a)2,200 Saffa S.p.A...... 5 9,400 SAI...... 90 10,900 Sasib...... 44 21,000 Sirti S.p.A...... 135 48,000 SNIA BPD S.p.A...... 54 483,900 Telecom Italia Mobile S.p.A...... 1,083 478,000 Telecom Italia S.p.A...... 1,029 125,500 Telecom Italia S.p.A. Di Risp (NCS)...... 217 ------11,996 ------JAPAN (38.2%) 4,400 Advantest Corp...... 175 48,000 Ajinomoto Co...... 575 (a)24,000 Aoki Corp...... 89 2,000 Aoyama Trading Co...... 53 78,000 Asahi Bank Ltd...... 906 24,000 Asahi Breweries Ltd...... 281 73,000 Asahi Chemical Industry Co., Ltd...... 522 69,000 Asahi Glass Co., Ltd...... 827 (a)148,000 Bank of Tokyo-Mitsubishi...... 3,439 24,000 Bridgestone Co...... 459 36,000 Canon, Inc...... 751 15,000 Casio Computer Co...... 144 39,000 Chiba Bank...... 345 10,000 Chiyoda Corp...... 119 24,000 Chugai Pharmaceuticals Co...... 235 48,000 Dai Nippon Printing Co., Ltd...... 931 33,000 Daiei, Inc...... 398 24,000 Daikin Industries Ltd...... 263 24,000 Daiwa House Industry...... 373 48,000 Daiwa Securities Co., Ltd...... 619 16,000 Ebara Corp...... 256 10,300 Fanuc...... 411 92,000 Fuji Bank...... 1,986 24,000 Fuji Photo Film Ltd...... 760 78,000 Fujitsu Ltd...... 713 39,000 Furukawa Electric Co...... 234 (a)48,000 Hankyu Corp...... 282 24,000 Hazama Corp...... 105 121,000 Hitachi Ltd...... 1,129 38,000 Honda Motor Co...... 987 76,000 Industrial Bank of Japan...... 1,891

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Active Country Allocation Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.) ------~~

~~JAPAN (CONT.)~~

34,000 Shimizu Corp...... $ 376 10,550 Shin-Etsu Chemical Co...... 203 11,000 Shiseido Co., Ltd...... 141 33,000 Shizuoka Bank...... 426
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (a)48,000 Showa Denko...... 148 11,000 Sony Corp...... 725 114,000 Sumitomo Bank...... 2,211 25,000 Sumitomo Osaka Cement...... 122 97,000 Sumitomo Chemical Co...... 464 48,000 Sumitomo Corp...... 428 32,000 Sumitomo Electric...... 460 10,000 Sumitomo Forestry Co., Ltd...... 149 23,000 Sumitomo Metal & Mining...... 200 170,000 Sumitomo Metal Industries...... 522 48,000 Taisei Corp., Ltd...... 341 48,000 Takeda Chemical...... 852 48,000 Teijin Ltd...... 261 48,000 Tobu Railway Co...... 316 17,400 Tohoku Electric Power...... 390 75,000 Tokai Bank...... 974 73,000 Tokio Marine & Fire Insurance Co...... 975 11,000 Tokyo Dome Corp...... 222 44,900 Tokyo Electric Power Co...... 1,142 7,000 Tokyo Electron Ltd...... 204 70,000 Tokyo Gas Co...... 256 48,000 Tokyu Corp...... 367 33,000 Toppan Printing Co., Ltd...... 483 73,000 Toray Industries, Inc...... 505 24,000 Toto Ltd...... 362 48,000 Toyoba Co...... 180 112,000 Toyota Motor Corp...... 2,807 48,000 Ube Industries Ltd...... 183 48,000 Yamaichi Securities Co...... 330 48,000 Yasuda Trust & Banking Co...... 304 ------67,429 ------MALAYSIA (0.1%) 6,000 Commerce Asset Holding Bhd...... 37 4,000 Hong Leong Industries Bhd...... 19 12,000 Land & General Bhd...... 30 6,000 Malaysian Mining Corp. Bhd...... 6 3,000 Malaysian Oxygen Bhd...... 16 26,000 Metroplex Bhd...... 28 16,500 YTL Corp., Bhd...... 86 ------222 ------NETHERLANDS (3.2%) 7,648 ABN Amro Holdings N.V...... 411 1,850 Akzo Nobel N.V...... 222 15,600 Elsevier N.V...... 237 950 Heineken N.V...... 213 16,595 ING Groep N.V...... 496 2,082 KLM Royal Dutch Airlines N.V...... 67 3,135 Koninklijke Ahold N.V...... 170 750 Koninklijke Hoogovens N.V...... 28 2,500 Koninklijke KNP BT N.V...... 60

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Active Country Allocation Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.) ------~~

~~SPAIN (CONT.)~~

950 Fomento Construction y Contractas S.A...... $ 79 2,350 Gas Natural SDG S.A...... 494 2,700 General de Aguas de Barcelona S.A...... 100 58,300 Iberdrola S.A...... 599 1,700 Mapfre Corporacion...... 87 145 Mapfre Corporacion...... 6 1,400 Metro Vacesa...... 48 500 Portland Valderrivas S.A...... 33 18,800 Repsol S.A...... 655 2,300 Tabacalera S.A., Class A...... 116 58,900 Telefonica de Espana S.A...... 1,087 18,300 Union Electrica Fenosa S.A...... 118 3,250 Uralita S.A...... 30 2,700 Vallehermoso S.A...... 53 1,450 Viscofan Envolturas Celulosicas S.A...... 23 540 Zardoya Otis S.A...... 52 ------6,616 ------SWITZERLAND (2.8%) 100 Adia S.A. (Bearer)...... 25 25 Alusuisse-Lonza Holdings Ltd. (Bearer)...... 21 100 Alusuisse-Lonza Holdings Ltd. (Registered).... 83 140 BBC Brown Boveri AG (Bearer)...... 173 70 Ciba-Geigy AG (Bearer)...... 85
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 400 Ciba-Geigy AG (Registered)...... 488 2,945 CS Holding AG (Registered)...... 280 10 Georg Fischer AG (Bearer)...... 12 99 Holderbank AG (Bearer)...... 79 90 Merkur Holding AG (Registered)...... 19 653 Nestle S.A. (Registered)...... 747 26 Roche Holding AG (Bearer)...... 324 112 Roche Holding AG (Registered)...... 856 395 Sandoz AG (Registered)...... 452 31 SGS Surveillance (Bearer)...... 74 (a)60 SMH AG (Bearer)...... 42 (a)250 SMH AG (Registered)...... 39 30 Sulzer AG (Registered)...... 19 (a)50 SwissAir (Registered)...... 48 1,280 Swiss Bank Corp. (Registered)...... 253 200 Swiss Reinsurance (Registered)...... 205 340 Union Bank of Switzerland (Bearer)...... 333 362 Union Bank of Switzerland (Registered)...... 77 750 Zuerich Versicherung (Registered)...... 205 ------4,939 ------THAILAND (2.2%) 21,500 Advanced Information Services PCL (Foreign)... 318 (d)32,400 Bangchak Petroleum Co., Ltd. (Foreign)...... 42 (d)126,809 Bangkok Metropolitan Bank Ltd...... 90 11,900 Bank of Ayudhya Ltd. (Foreign)...... 66

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The accompanying notes are an integral part of the financial statements. (Pages 182-188)

~~------Active Country Allocation Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.) ------~~

~~UNITED KINGDOM (CONT.)~~

19,394 Cadbury Schweppes plc...... $ 153 13,100 Caradon plc...... 44 14,300 Coats Viyella plc...... 38 8,592 Commercial Union plc...... 77 8,300 Courtaulds plc...... 55 2,900 De La Rue Co. plc...... 27 8,400 General Accident plc...... 85 49,300 General Electric plc...... 266 54,300 Glaxo Wellcome plc...... 731 9,032 GKN plc...... 139 11,455 Granada Group plc...... 153 45,900 Grand Metropolitan plc...... 304 20,300 Great Universal Stores plc...... 206 27,600 Guardian Royal Exchange plc...... 106 34,600 Guinness plc...... 252 99,395 Hanson plc...... 279 20,300 Harrisons & Crosfields plc...... 43 33,945 HSBC Holdings plc...... 520 14,100 Imperial Chemical Industries plc...... 172 27,383 Ladbroke Group plc...... 77 12,500 Land Securities plc...... 121 12,900 Lasmo plc...... 35 87,500 Lloyds TSB Group plc...... 428 14,616 Lonrho plc...... 42 57,800 Marks and Spencer plc...... 422 9,500 MEPC plc...... 60 23,000 National Power plc...... 186 12,300 Peninsular & Oriental Steam Navigation Co..... 92 23,900 Pilkington plc...... 67 43,021 Prudential Corp. plc...... 271 15,400 Rank Organization plc...... 119 13,427 Redland plc...... 84 11,200 Reed International plc...... 187 30,300 Reuters Holdings plc...... 367 9,500 Rexam plc...... 50 5,400 RMC Group plc...... 85 8,400 Royal Bank of Scotland Group plc...... 64 14,085 Royal Insurance Holdings plc...... 87 20,299 RTZ Corp. plc...... 301 24,446 Sainsbury (J) plc...... 144 4,000 Schroders plc...... 84 15,000 Scottish Power plc...... 71 31,000 Sears plc...... 48 4,700 Sedgwick Group plc...... 10 7,100 Slough Estates plc...... 24 40,710 SmithKline Beecham plc, Class A...... 435 4,750 Southern Electric plc...... 53 22,497 Tarmac plc...... 39 11,900 Taylor Woodrow plc...... 29 32,160 Tesco plc...... 147 11,300 Thames Water plc...... 100 9,050 THORN EMI plc...... 252 8,340 TI Group plc...... 70 12,100 Unilever plc...... 241 10,700 United Utilities plc...... 90

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Active Country Allocation Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~

~~THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.) ------~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Active Country Allocation Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.) ------~~

~~------~~

~~(a) -- Non-income producing security (c) -- Security valued at cost -- See note A-1 to financial statements~~

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (d) -- Security valued at fair value -- See note A-1 to financial statements NCS -- Non Convertible Shares PCL -- Public Company Limited RFD -- Ranked for Dividend THB -- Thai Baht

~~------~~

~~SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Active Country Allocation Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~

~~OVERVIEW ------~~

~~THE ASIAN EQUITY PORTFOLIO~~

~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~

~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~

~~China 0.6% Hong Kong 27.0% India 0.6% Indonesia 7.6% Korea 3.9% Malaysia 21.4% Philippines 5.4% Singapore 13.1% Taiwan 5.0% Thailand 11.4% Other 4.0%~~

~~PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) COMBINED FAR EAST FREE EX-JAPAN INDEX(1) ------~~

~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~

~~------~~

THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY THE MSCI COMBINED FAR EAST FREE EX-JAPAN INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.

The investment objective of the Asian Equity Portfolio is to seek long-term capital appreciation by investing primarily in equity securities which are traded on recognized exchanges of Hong Kong, Singapore, Malaysia, Thailand, Indonesia and the Philippines. The Portfolio may also invest in equity securities traded on markets in Taiwan, South Korea, India, Pakistan, Sri Lanka and other Asian developing markets which are open for foreign investment. The Portfolio does not intend to invest in securities which are principally traded in Japan or in companies organized under the laws of Japan.

For the six month period ended June 30, 1996, the Portfolio had a total return of 5.75% for the Class A shares and 5.32% for the Class B shares, as compared to a total return of 8.36% for the Morgan Stanley Capital International (MSCI) combined Far East Free ex-Japan Index. The average annual total return for the twelve months ended June 30, 1996 and for the period from inception on July 1, 1991 through June 30, 1996 was 5.58% and 20.82%, respectively, for the Class A shares, as compared with 8.17% and 18.60%, respectively, for the Index.

~~REVIEW~~

Sentiment on Hong Kong continued to be weighed down by fears of rising interest rates in the U.S. and by uncertainties associated with the return of the territory to China next year. With 1997 approaching, the stepping up of Chinese interests in Hong Kong becomes increasingly evident. This was manifested in the restructuring of shareholdings in Dragonair and Cathay Pacific with China National Aviation Corporation (CNAC) becoming the single largest shareholder in Dragonair and Citic Pacific stepping up its interest in Cathay Pacific. The residential market recovered strongly with prices rising by 10-15%, helped by lower mortgage rates. Capital values and rents of office properties also appeared to have bottomed out. Hong Kong Telecom faced heavy selling pressure due to uncertainties over possible regulatory changes and a more competitive operating environment in the future.

In Malaysia, the surprise return of Tengku Razaleigh (former opposition rival to the Prime Minister) to UMNO has fortified Mahathir's stronghold on the dominant political party and reassured him of an unassailable position in the upcoming party elections at the end of the year. On the economic front, trade statistics through the year to April 1996 appear to indicate a bottoming out of the current account deficit. However, a more convincing reduction in the current account from the present 8% of GDP is only expected in 1998. Loan growth remained alarmingly

~~------Asian Equity Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~

OVERVIEW ------THE ASIAN EQUITY PORTFOLIO (CONT.) high at above 30% which prompted the Central Bank to raise the Statutory Reserve Ratio twice this year to 13.5% (+2%). In addition, rising interest rates, a crunch in margin financing for speculative shares combined with an impending dilution in weighting in the rebalanced benchmark MSCI indices caused weakness in share prices in June. In Singapore, the Government's announcement of

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document anti-speculation measures in May to cool the residential property market resulted in heavy selling of residential property stocks. Meanwhile, stocks which were recently included in the MSCI indices came under the spotlight, with Singapore Telecom and STIC rising strongly before profit-taking pared their gains. Share price performance of banks remained lackluster due to concerns over slow earnings growth, while news from the marine sector was still bleak.

The Thailand market fell 2.4% in the second quarter of 1996 and remained one of the worst performing markets in Asia. Rumors about bad debts in finance companies and banks sparked panic selling. There was also talk of property companies not being able to service their debt. On the macroeconomics front, the trade deficit improved in May but loan growth, exports and FDI continued to slow. Fears that the slowdown in the economy may accelerate, prompted the central bank to allow some commercial banks to lower lending rates. Lastly, there were major downward earnings revisions in sectors like banks, finance companies and telecommunications.

In Indonesia, political unrest coupled with a reduction in the country weighting within the rebalanced MSCI indices sparked heavy institutional selling in the Indonesian market in June. Rioting in the streets in support of the ousted Megawati Sukarno, former chairperson of PDI (effectively the only opposition party), ignited fears among investors of a potential blow-up of anti-establishment sentiment in the run-up to the Presidential elections next year. As for the market, continued weak performance in exports which led to an upward revision in the current account deficit for 1996 and a widening of the Rupiah band to accelerate the currency depreciation were factors that sapped investors' enthusiasm towards the market. This, together with increased cash calls and anticipation of a second tranche placement of PT Telkom's shares weighed down investors' sentiment in the market.

The Korean market was plagued by concerns over trade and current account deficits, which arose from lower growth of such major exports as semiconductors, textiles and automobiles. The government's planned W2.5 trillion new equity supply in the third quarter of 1996 also discouraged stock investment. The persistent weakness of the market was also attributable to the liquidation of close to W1 trillion of outstanding margin positions.

The Philippines market ended the quarter strongly with a 16.1% gain. An upward earnings revision continued in the second quarter, making it the market with the strongest earnings momentum in Asia. On the economic front, first quarter of 1996 grew at 6.2% versus 5.7% in the fourth quarter of 1996 and interest rates inched up slightly on the T-bill auction. Moreover, index-linked buying helped the market, led by Petron which rose 33% this quarter. Mid-cap and small-cap stocks took a breather from the heady rally over the last few months.

In Taiwan, the Central Bank continued to ease monetary policy. Money supply growth began to pick up after a period of contraction. The market rebounded sharply in April following the easing of cross-strait tensions and on news that MSCI was proposing to include Taiwan in its indices. The market saw moderate profit-taking in May, before another wave of buying in June sent the index up another 13% when Taiwan's weighting in the MSCI indices turned out to be higher than what most investors had expected.

~~In India, the market rallied, encouraged by Prime Minister Gowda's plans to continue with liberalization and reforms. The market was lifted further by strong corporate results.~~

In China, earnings for 1995 were below analysts' expectations and austerity measures were blamed for the earnings shortfall. Since then, the authorities have selected 300 companies which will be given priority loans in the second half of 1996, signifying a fiscal stimulus. In addition, news that the Guangdong government wanted to revive the stock market led to further buying frenzy. The MSCI China Free Index ended the quarter virtually unchanged, while the Shenzhen and Shanghai Stock Indices rose 21% and 5%, respectively.

~~OUTLOOK~~

~~Fears of rising U.S. interest rates and trade issues remain the major concerns among equity investors, but these may have already been reflected in the stock prices.~~

~~Demand for Hong Kong equities may be affected slightly by its reduced weight in the MSCI indices.~~

~~------Asian Equity Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~

~~OVERVIEW ------~~

~~A turnaround in the Hong Kong property market and the Chinese economy should help corporate earnings and provide firm support for share prices.~~

Barring any sharp downturn in the U.S. market in the medium term, the Malaysian market is expected to record its traditional August rally ahead of the interim announcement season and the October Budget. The Central Bank is expected to continue its policy of gradually tightening credit in the system to reduce the level of loan expansion. Administrative controls may also be selectively introduced in order to deter unproductive expenditures.

~~Based on the current valuation of 20x prospective 1996 price earnings ratio, which is close to the average of the last 5 years, downside risk is not substantial.~~

~~The Singapore market appears to be out of favor with institutional investors because of high foreign premia and the lack of earnings growth momentum.~~

Stocks with high exposure to the residential sector are likely to continue to mark time as sales of private leasehold residential properties will likely slow with the advent of competitively priced government executive condominiums.

~~Valuations of banks and office property stocks are attractive and should outperform the market.~~

~~The Thailand market is expected to languish at current levels for a while as investors await second quarter earnings. Reported earnings are likely to be weak and may prompt further selling.~~

The depth of the correction is masked by the fact that several blue-chip stocks are holding up the Index. In reality the prices of many sector/stocks have corrected sharply year-to-date. This presents a good opportunity for investors to start accumulating.

~~While the market may not take off from here, unless the economy or the currency goes into a tailspin, the downside risk on the market would seem limited.~~

~~Investors are expected to demand a higher risk premium on the Indonesian market in view of the recent political developments.~~

~~Further agitations on the political front are expected to undermine both direct investments and portfolio investments leading to a deterioration in economic outlook.~~

~~External accounts are not expected to show a significant improvement in the short term and monetary policy will remain tight.~~

~~Strong earnings growth and reasonable market valuation, however, are expected to limit downside risk to the market in the short term.~~

~~The Korean market is likely to recover strongly in the second half of the year on the back of improving trade and current account numbers, declining interest rates and a recovery in export earnings.~~

~~The W 1 trillion margin liquidation is expected to end in July, thereby reducing further retail selling pressure.~~

~~The recent underperformance of the export-oriented sectors and blue-chips (e.g. Samsung Electronics) may be coming to an end.~~

~~Values in the banking and non-life insurance sectors look compelling given an improving operating environment and the prospect of a turnaround in earnings.~~

~~In the Philippines, earnings growth is expected to remain strong although there are creeping signs of excessive optimism in the share prices.~~

Inflation stabilized at 10.4% in May from 11.6% in the first quarter of 1996. This would imply little room for monetary easing in the short term. This may cap the market's rise. The market should continue to hold up relatively well, although profit-taking may pare some of the gains this year.

The small but rapidly growing over-the-counter market in Taiwan has attracted strong interest from investors. The stock market rally has become more broadly base with rotational buying. Stock prices should be supported by easier monetary policy and the gradual recovery of the real estate market.

The finance sector should benefit from the recovery of the real estate market, while the eventual establishment of direct shipping links between Taiwan and China should help earnings of shipping companies.

~~Performance of electronics stocks in the near term is likely to remain lacklustre due to uncertainties over near term earnings outlook.~~

~~Plastics and textile stocks are still affected by excess supply and weak demand,~~

~~The overall market is supported by strong domestic liquidity and the continued building of portfolio positions by foreign investors.~~

~~------Asian Equity Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~

~~OVERVIEW ------THE ASIAN EQUITY PORTFOLIO (CONT.)~~

~~Investors in India are waiting for the coalition government to announce its budget which will provide concrete evidence of its intention and ability to continue with reforms.~~

~~The market could be dampened as inflation is expected to increase. In addition, many Indian companies are raising money via GDRs thus soaking liquidity from the system.~~

~~Liquidity should improve because of an expected cut in CRR and increased FDIs and FIIs.~~

Rumors about interest rate cuts, anticipated to be in July, drew more buyers into the Chinese market. Several companies announced share placements. Sizable listings of China-infrastructure related companies dampened liquidity slightly.

The interest rate cut, if it came about, could add another boost to the market. The sharp rise in the market cannot be sustained, and the market will probably stabilize over the next one or two months.

Investors will also have to contend with cash calls and dilution as more new issues in the form of IPOs and rights issues are expected over the course of the year. This may soak liquidity from the system.

~~The Australian market ended the quarter almost unchanged.~~

~~Stronger than expected GDP growth of 1.8% in the first quarter of 1996 saw economists revise upward the economic forecasts from 2.5% to 3% for the year to June 1997.~~

A mini price war on mortgages sparked selling in the banking sector. They however recovered towards the end of the month. Resource stocks fell sharply on the back of the panic over copper prices after the Sumitomo incident. Weak steel prices took its toll on BHP, a steel producer.

Strong economic growth may eventually filter through to corporate earnings. Industrials are likely to do well from here after a period of depressed performance. Fears over rising U.S. interest rates may dampen investor interest. Anticipation of rising labor costs that will hurt companies' margins may prevent the strong economic growth from filtering down to corporate earnings. Selling prices are also under pressure.

~~Selected stocks however offer good value especially in the industrial sector.~~

~~Ean Wah Chin PORTFOLIO MANAGER~~

~~July 1996~~

~~------Asian Equity Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE ASIAN EQUITY PORTFOLIO ------~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Asian Equity Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE ASIAN EQUITY PORTFOLIO (CONT.) ------~~

~~PHILIPPINES (CONT.)~~

8,288,400 SM Prime Holdings, Inc., Class B...... $ 2,151 ------24,059 ------SINGAPORE (12.8%) 84,080 City Developments Ltd...... 655 2,216,000 Comfort Group Ltd...... 2,199 966,000 CSA Holding Ltd...... 952 252,000 DBS Land Ltd...... 864 535,500 Development Bank of Singapore Ltd. (Foreign)...... 6,680 178,560 Fraser & Neave Ltd...... 1,848 2,145,000 Kay Hian James Capel Holdings Ltd. (Foreign)...... 2,265 837,000 Keppel Corp., Ltd...... 7,000 623,166 Oversea-Chinese Banking Corp. (Foreign)...... 7,287 282,000 Sembawang Corp...... 1,399 420,000 Singapore Airlines Ltd. (Foreign)...... 4,435 124,400 Singapore Press Holdings (Foreign)...... 2,442 1,486,000 Singapore Technologies Industrial Corp...... 3,939 846,000 Straits Steamship Land Ltd...... 2,830 477,000 Straits Trading Co., Ltd...... 1,251 1,275,000 Sunright Ltd...... 1,310 739,200 United Overseas Bank Ltd. (Foreign)...... 7,072 (a)903,000 Want Want Holdings...... 2,429 ------56,857 ------TAIWAN (5.0%)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 921,000 Cathay Life Insurance Co., Ltd...... 6,493 3,908,000 China Steel Corp...... 4,090 444,000 Hua Nan Commercial Bank...... 2,339 (a)1,566,600 Taiwan Semiconductor Manufacturing Co...... 3,273 905,650 United Micro Electronics Corp., Ltd...... 1,343 2,977,000 Yang Ming Marine Transport...... 4,392 ------21,930 ------THAILAND (11.4%) 120,000 Advanced Information Service PCL (Foreign)...... 1,777 677,800 Bangkok Bank Ltd. (Foreign)...... 9,185 864,000 Finance One Co., Ltd. (Foreign)...... 5,582 915,800 National Finance & Securities Co., Ltd. (Foreign)...... 4,077 266,600 Phatra Thanakit Co., Ltd. (Foreign)...... 1,859 89,100 Shinawatra Computer Co., Ltd (Foreign)...... 1,931 41,000 Siam Cement Co., Ltd. (Foreign)...... 2,012

FOREIGN CURRENCY (0.9%) HKD 3,255 Hong Kong Dollar...... 420 IDR 639,299 Indonesian Rupiah...... 275 KRW 42,451 Korean Won...... 52
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document MYR 1,783 Malaysian Ringgit...... 715 PHP 10,610 Philippine Peso...... 405 TWD 64,420 Taiwan Dollar...... 2,341 ------

~~TOTAL FOREIGN CURRENCY (Cost $4,199)...... 4,208 ------~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Asian Equity Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE ASIAN EQUITY PORTFOLIO (CONT.) ------~~

~~------~~

(a) -- Non-income producing security (d) -- Securities (totaling $48,855 or 11.0% of net assets at June 30, 1996) valued at fair value -- See note A-1 to financial statements (e) -- 144A Security -- Certain conditions for public sale may exist ADR -- American Depositary Receipt GDR -- Global Depositary Receipt PCL -- Public Company Limited RFD -- Ranked for Dividend

~~------~~

~~SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Asian Equity Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~

~~OVERVIEW ------~~

~~THE EMERGING MARKETS PORTFOLIO~~

~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~

~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~

Argentina 1.6% Brazil 14.0% Chile 0.1% China 0.5% Colombia 0.8% Egypt 0.4% Greece 1.2% Hong Kong 6.3% Hungary 0.1% India 11.4% Indonesia 5.7% Israel 2.5% Korea 2.7% Mexico 9.4% Morocco 1.3% Pakistan 2.7% Philippines 3.5% Poland 1.2% Portugal 0.1% Russia 7.2% Singapore 0.3%
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document South Africa 3.8% Taiwan 5.5% Thailand 4.3% Turkey 5.1% United Kingdom 0.2% Zimbabwe 0.2% Other 7.9%

~~PERFORMANCE COMPARED TO THE IFC GLOBAL TOTAL RETURN COMPOSITE INDEX(1) ------~~

~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~

~~------~~

THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS MEASURED BY THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS COUNTRY OR REGIONAL INDICES ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.

~~The investment objective of the Emerging Markets Portfolio is to provide long-term capital appreciation by investing in equity securities of emerging country issuers.~~

For the six month period ended June 30, 1996, the Portfolio had a total return of 20.32% for the Class A shares and 19.17% for the Class B shares, as compared to a total return of 13.45% for the IFC Global Total Return Composite Index. The average annual total return for the twelve months ended June 30, 1996 and for the period from inception on September 25, 1992 through June 30, 1996 was 13.41% and 16.93%, respectively, for the Class A shares, as compared to 8.44% and 15.99%, respectively, for the Index.

Politics have been the dominant theme of the second quarter of 1996. Within the emerging market universe major elections have been held in Russia, the Czech Republic, India, Israel and South Korea. In addition, Taiwan held presidential elections in late March which also had a marked impact on quarterly performance.

~~Overweight positions in India, Taiwan, Russia, Mexico and Brazil and underweight positions in Thailand, Malaysia and South Africa all contributed positively.~~

Arguably, the most important election for the Portfolio was held in Russia. The voters had a stark choice in their first democratic election since the fall of communism. On one side there was Boris Yeltsin and a continuation of the reform process. On the other side there was Zyuganov and a return to old style communism with the potential reversal of the reform process coupled with a mass exodus by foreign investors from the embryonic stock market. The Russian people voted decisively for Yeltsin, reform and democracy. The stock market rose over 140% during the quarter and dollar denominated Russian debt also appreciated strongly.

~~Nobody who visits Russia can miss the raw potential of the country or the~~

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document problems which have to be tackled. The economy is close to the bottom, asset values are attractive and the stock market will be underwritten by the increasing foreign access to Russian securities over the coming months. Progress has been made on inflation, which is now 60% per annum compared to 110% in 1995.

Concern remains, however, over Yeltsin's health although he is assembling a strong team around him. The return of the reform-minded Chubais as chief-of- staff is particularly positive. The well known and

~~------Emerging Markets Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~

~~OVERVIEW ------THE EMERGING MARKETS PORTFOLIO (CONT.) highly respected Prime Minister Chernomyrdin would temporarily succeed as President in the event of Yeltsin's demise.~~

Although the IMF profess satisfaction that Russia has not exceeded the ceiling on the budget deficit, tax collection has fallen dramatically and the complex tax system cries out for simplification. In sum, we believe these and other problems will be addressed and we remain enthusiastic about the potential of Russia.

The election in India was less in danger of producing a complete change of policy but nonetheless there was uncertainty due to the widely expected defeat of the ruling Congress party. The new government formed by Mr. Deve Gowda's National Front-Left Front coalition is foreign investor-friendly and has no ambition to produce changes in economic policy.

The real economy in India continues to perform well. GDP growth is 7% per annum with corporate earnings rising in excess of 25%. The July 22nd budget will be critical in determining the direction of the stock market in the short run. We anticipate that the domestic investor will return to the market as interest rates continue to fall. India is currently trading at the cheap end of its valuation range and we remain overweight.

Unlike Russia and India which had run-ups prior to their elections, Taiwan has been one of the strongest performers in the last 3 months following the election of President Lee and the easing of tensions with mainland China. The market is supported by strong domestic liquidity and will receive a boost on its inclusion in the MSCI indices in September.

The election in Israel was a breathtakingly close race between the previous Prime Minister Shimon Peres and the Likud candidate Benjamin Netanyahu. The election of Prime Minister Netanyahu has heralded a 20% decline in the local Mishtanim Index due to domestic, not foreign, selling. Netanyahu is focusing on economic reform and interest rates are moving higher to deal with above-target inflation of 14%. Time will reveal whether concerns are justified that the Middle East peace process will stall under the new leadership.

With the exception of Taiwan, Asia had a disappointing quarter. Contagion from potential interest rate rises in the U.S. have negatively impacted Hong Kong and Malaysia while Thailand has fallen on fears of earnings disappointment from the financial stocks which dominate the stock market. In Indonesia, rioting in the streets in support of President Suharto's opposition ignited fears of social unrest in the months before the 1997 Presidential election. Korean investors were concerned over trade and current account deficits and a slowdown in the textile, semiconductor and auto sectors.

Latin America had an upbeat quarter, free from any election angst. Interest rates are falling in Brazil, privatization is progressing, albeit slowly, and the monopoly Telecommunications supplier Telebras had outstanding results. Brazil continues to be the largest holding in the Portfolio. Mexico is facing growing political and business scandals on one hand and seeing economic recovery, lower interest rates and inflation and a stable currency on the other. We are marginally overweight in Mexico to take advantage of the strong earnings recovery now in evidence.

We have initiated a position in Egypt where the market sells on 8x 1996 earnings estimated and, unusual, for an emerging market, has a 9% plus yield. Economic growth is 4% in real terms and inflation is around 9%.

The second half of 1996 could prove a testing period for global financial markets as interest rates move upwards in the U.S. on stronger than expected economic growth. We are entering the third quarter with a focus on markets not highly correlated with the U.S. such as Russia, India and Taiwan, cheap markets with strong potential earnings growth such as Brazil, Mexico and Pakistan and the smaller stock markets such as Peru, Chile, Egypt, Hungary and Poland.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Whatever the path of U.S. interest rates, the emerging markets should continue to have upward momentum from here based on their relatively attractive valuations and growth prospects.

~~Madhav Dhar PORTFOLIO MANAGER~~

~~July 1996~~

~~------Emerging Markets Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE EMERGING MARKETS PORTFOLIO~~

~~------~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Emerging Markets Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE EMERGING MARKETS PORTFOLIO (CONT.) ------~~

38,800 Delta Industries Ltd...... $ 38 185,000 Esab India Ltd...... 464 50,000 Essel Packagings Ltd...... 244 (a)98,700 Federal Bank Ltd...... 568 5,950 Federal Bank Ltd. (New)...... 34 15,586 Flex Industries Ltd., Class B...... 65 4,900 Fuller Kep...... 21 200,300 Garware Plastics & Polyester...... 1,112 376,700 Garware Plastics & Polyester, Class A...... 2,090 712,500 Godrej Soaps Ltd...... 1,062 2,803,300 Great Eastern Shipping Co...... 4,018 349,900 Gujarat Ambuja Cements, Ltd...... 3,715 75,100 Gujurat Narmada Valley Fertilizers Co., Ltd..... 83 254,000 Hero Honda, Class B...... 2,028 817,500 Hindustan Development Corp. Ltd...... 566 126,206 Housing Development Finance Corp...... 10,525 122,750 ICI India Ltd...... 718 155,100 ITC Agrotech Ltd., Class B...... 194 500,913 ITC Bhadrachalam (New)...... 1,507 191,750 ITC Bhadrachalam Paperboards, Ltd...... 577 158,400 ITC Ltd...... 1,402 (a,f,g)78,000 India Magnum Fund, Ltd., (The) Class A (acquired 11/25/92-3/1/94, Cost $3,872)...... 4,056 (a,g)55,194 India Magnum Fund, Ltd., (The) Class B...... 2,870 644,625 India Organic Chemical Ltd...... 375 1,000,000 Indian Petrochemicals Corp. Ltd...... 4,421 (a)40,000 Indian Seamless Steel & Alloys...... 9 571,047 Indo Rama Synthetics...... 697 171,154 Indo Rama Synthetics (New)...... 209 911,800 Industrial Finance Corp. of India...... 1,203 100,000 Infosys Technology Ltd...... 2,030 5,292 JCT Ltd. GDR...... 21 (a)1,500,277 JK Synthetics Ltd...... 926 440,000 KEC International Ltd...... 1,642 110,200 Kirloskar Oil Engines Ltd., Class B...... 282 75 Lakme Ltd., Class B...... 1 150,000 Lakshmi Precision Screws...... 236 (a)145,000 Laser Lamp Ltd...... 136 1,760 Madras Cement Ltd...... 615 798,800 Mahanagar Telephone Nigam...... 5,753 106,484 Mahavir Spinning Mills Ltd...... 272 (a)300,700 Maikaal Fibres...... 68 26,500 Mardia Chemicals Ltd...... 30 10,000 Modi Xerox Ltd...... 41 (a,g)19,782,100 Morgan Stanley Growth Fund...... 3,875 (a,g)19,389 Morgan Stanley India Investment Fund, Inc...... 216 73,581 MRF Ltd., Class B...... 7,367 25,000 OM Sindoori Hotels Ltd...... 59

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Emerging Markets Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE EMERGING MARKETS PORTFOLIO (CONT.) ------~~

~~INDONESIA (CONT.)~~

(d)988,000 Indosat (Foreign)...... $ 3,322 (d)1,017,200 Kalbe Farma (Foreign)...... 2,273 (a,d)729,500 Semen Gresik (Foreign)...... 2,123 (d)813,000 Sorini Corp. (Foreign)...... 4,471 (d)14,781,000 Telekomunikasi Indonesia (Foreign)...... 22,386 (d)373,000 United Tractors (Foreign)...... 589 ------77,366 ------ISRAEL (2.5%) 114,145 ELBIT...... 6,801 5,250 First International Bank of Israel, Class 1..... 549 32,557 First International Bank of Israel, Class 5..... 3,632 (a)542,350 Israel Land Development Co...... 1,332 107,925 Koor Industries Ltd...... 9,147 761,177 Osem Investment Ltd...... 4,481 (a)80,000 PEC Israel Economic Corp...... 1,450 54,397 Scitex Corp...... 938 207,140 Super Sol Ltd., Class B...... 4,406 20,000 Teva Pharmaceutical Industries Ltd., ADR...... 758 ------33,494 ------KOREA (2.7%) (a,d)8,410 Chosun Brewery Co., Ltd...... 287 286,590 Housing & Commercial Bank, Korea...... 7,879 145,780 Korea Electric Power (Foreign)...... 5,887 (a)208,000 Korea Mobile Telecommunications ADR...... 3,562 (d)2,150 Korea Mobile Telecommunications (Foreign)...... 2,544 (d)7,890 Pohang Iron & Steel (Foreign)...... 644 15,170 Samsung Electronics GDS (New)...... 785 79,670 Samsung Electronics (Foreign)...... 6,688 24,011 Samsung Electronics (RFD)...... 2,016 (d)193,289 Shinhan Bank (Foreign)...... 4,514
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 63,000 Yukong Ltd. (Foreign)...... 1,848 ------36,654 ------MEXICO (9.4%) 1,112,132 Alfa S.A. de C.V., Class A...... 4,994 616,212 Apasco S.A., Class A...... 3,401 (a)5,730,000 Banacci, Class B...... 11,910 (a)966,104 Banacci, Class L...... 1,835 (a,e)922,357 Cemex S.A. de C.V. CPO ADR...... 6,377 2,871,970 Cemex S.A. de C.V., Class A...... 10,189 (a)1,398,360 Cifra S.A. de C.V., Class B...... 2,018 (a)3,588,750 Cifra S.A. de C.V., Class C...... 5,121 (a)255,019 Empresas ICA S.A. ADR...... 3,538 6,403,210 FEMSA, Class B...... 18,156 (a,e)295,750 Grupo Carso S.A. ADR...... 4,191 (a,e)1,503,890 Grupo Financiero Bancomer ADR...... 12,971 (a)13,217,475 Grupo Financiero Bancomer, Class B...... 5,752

~~------Emerging Markets Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE EMERGING MARKETS PORTFOLIO (CONT.) ------~~

~~POLAND (CONT.)~~

(a)56,500 Rafako S.A...... $ 335 11,125 Wedel S.A...... 500 22,135 Zywiec...... 1,711 ------16,000 ------PORTUGAL (0.1%) (a)120,000 Lusomundo SGPS S.A...... 745 ------RUSSIA (6.9%) 592,359 Alliance Cellulose Ltd...... 12,511 (a)400,000 Global Tele-Systems Group, Inc. (Registered).... 5,400 (a)54,315,000 Irkutskenergo...... 6,301 80,000 LUKoil Co. ADR...... 3,420 (a)710,100 LUKoil Holding...... 7,811 (a,e)275,730 LUKoil Holding GDR...... 11,787 16,490,000 Mosenergo...... 14,676 317,851 Russian Telecom Development Corp...... 3,179 (a)3,528,500 Rostelecom...... 8,468 990 Storyfirst Communications, Inc., Class C...... 660 2,640 Storyfirst Communications, Inc., Class D...... 1,980 3,250 Storyfirst Communications, Inc., Class E...... 3,250 1,331 Storyfirst Communications, Inc., Class F...... 3,328 (a)112,039,000 United Energy System...... 10,531 ------93,302 ------SINGAPORE (0.3%) (a)1,576,000 Want Want Holdings...... 4,239 ------SOUTH AFRICA (3.8%) 825,000 Amalgamated Banks of South Africa...... 4,570 81,050 Anglo American Industrial Corp...... 3,255 835,000 Barlow Rand Ltd...... 8,720 704,480 Bidvest...... 4,211 155,500 Dreifontein Consolidated Ltd...... 2,082 500,000 Gencor...... 1,846 240,000 Metro Cash and Carry...... 928 (g)224,490 Morgan Stanley Africa Investment Fund, Inc...... 2,806 800,000 Spur Holdings...... 1,662 915,000 Sage Group Ltd...... 4,392 1,584,146 Sasol Ltd...... 17,183 ------51,655 ------TAIWAN (5.5%) (a)2,622,200 Acer, Inc...... 3,907 2,170,000 Cathay Life Insurance Co., Ltd...... 15,297 10,492,000 China Steel Corp...... 10,980 109,000 Far East Textiles...... 127 2,669,000 Hua Nan Commercial Bank...... 14,063 (a)1,900,576 Mosel Vitelic Ltd...... 2,673 (a)5,007,240 Taiwan Semiconductor Manufacturing Co...... 10,462

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Emerging Markets Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE EMERGING MARKETS PORTFOLIO (CONT.) ------~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~

~~------Emerging Markets Portfolio~~

~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~

~~THE EMERGING MARKETS PORTFOLIO (CONT.) ------~~

OTHER ASSETS (1.3%) Receivable for Investments Sold...... $ 10,773 Dividends Receivable...... 5,643 Receivable for Portfolio Shares Sold...... 607 Interest Receivable...... 357 Foreign Withholding Tax Reclaim Receivable...... 79 Net Unrealized Gain on Forward Foreign Currency 1 Exchange Contracts...... Other...... 305 17,765 ------LIABILITIES (-2.3%) Payable for Investments Purchased...... (19,937) Deferred India Taxes Payable...... (4,394) Investment Advisory Fees Payable...... (3,850) Bank Overdraft...... (1,810) Custodian Fees Payable...... (743) Administrative Fees Payable...... (164) Payable for Portfolio Shares Redeemed...... (121) Payable for India Stamp Duty Tax...... (65) Payable for India Taxes...... (35) Sub-Administrative Fees Payable...... (30) Directors' Fees and Expenses Payable...... (18) Distribution Fees Payable...... (8) Other Liabilities...... (372) (31,547) ------NET ASSETS (100%)...... $1,352,116 ------

AMOUNT (000) ------ NET ASSETS CONSIST OF: Paid in Capital...... $1,237,524 Undistributed Net Investment Income...... 9,679 Accumulated Net Realized Loss...... (8,774) Unrealized Appreciation on Investments and Foreign Currency 113,687 Translations (Net of accrual for India tax of $4,394 on unrealized appreciation on investments)...... ------NET ASSETS...... $1,352,116 ------
CLASS A: ------ ~~NET ASSETS...... $1,337,315 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 84,598,024 outstanding $0.001 par value $15.81 shares (authorized 500,000,000 shares)...... ------~~
CLASS B: ------ ~~NET ASSETS...... $14,801 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 937,158 outstanding $0.001 par value shares $15.79 (authorized 500,000,000 shares)...... -----~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------~~
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of forward foreign currency exchange contracts open at June 30, 1996, the Portfolio is obligated to deliver or is to receive foreign currency in exchange for U.S. dollars or foreign currency as indicated below:
NET CURRENCY TO IN EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS) (000) (000) DATE (000) (000) (000) ------ ~~U.S.$ 189 $ 189 7/01/96 ISS 608 $ 190 $ 1 U.S.$ 753 753 7/03/96 THB 19,116 753 ------$ 942 $ 943 $ 1 ------~~
------(a) -- Non-income producing security (b) -- Non-income producing security -- in default (d) -- Securities (totaling $130,802 or 9.7% of net assets at June 30, 1996) valued at fair value -- See note A-1 to financial statements (e) -- 144A Security -- Certain conditions for public sale may exist (f) -- Restricted as to public resale. Total value of restricted securities at June 30, 1996 was $4,056 or 0.30% of net assets. (Total cost $3,872) (g) -- The fund is advised by an affiliate ADR -- American Depositary Receipt GDR -- Global Depositary Receipt GDS -- Global Depositary Shares CPO -- Ordinary Participating Certificates (no voting rights) PCL -- Public Company Limited PDI -- Past Due Interest RFD -- Ranked for Dividend THB -- Thai Baht
------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Emerging Markets Portfolio~~
29
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE EMERGING MARKETS PORTFOLIO (CONT.) ------~~
~~SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION~~
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ------Capital Equipment...... $ 94,789 7.0% Consumer Goods...... 178,215 13.2 Energy...... 116,923 8.6
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Finance...... 305,545 22.6 Gold Mines...... 2,081 0.2 Loan Agreements...... 4,545 0.3 Materials...... 127,875 9.5 Multi-Industry...... 147,360 10.9 Services...... 267,629 19.8 ------$1,244,962 92.1% ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Emerging Markets Portfolio~~
30
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE EUROPEAN EQUITY PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
~~Austria 0.5% Belgium 1.9% Denmark 1.8% Finland 2.8% France 12.4% Germany 12.9% Italy 7.5% Netherlands 9.6% Norway 2.3% Spain 7.5% Sweden 4.4% Switzerland 13.6% United Kingdom 14.3% Other 8.5%~~

~~PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE ANNUAL YTD ONE YEAR SINCE INCEPTION ------ PORTFOLIO -- CLASS A...... 11.85% 12.61% 19.66% PORTFOLIO -- CLASS B(3)...... 10.75 N/A N/A INDEX...... 6.43 14.69 15.73
1. The MSCI Europe Index is an unmanaged market value weighted index of common stocks listed on the stock exchanges of countries in Europe (assumes dividends are reinvested).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE MEASURED BY THE MSCI EUROPE INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
The investment objective of the European Equity Portfolio is to seek long-term capital growth through investment in equity securities of European issuers. Equity securities for this purpose include stocks and stock equivalents such as securities convertible into common and preferred stocks and securities having equity characteristics, such as rights and warrants to purchase common stock.
The approach taken in selecting investments for the Portfolio is oriented to individual stock selection and is value driven. The initial step in identifying attractive undervalued securities is the screening of European databases. Stocks are screened for undervaluation on two primary criteria, cash flow and book value, and three secondary criteria, earnings, sales and yield. Once stocks have been selected from this screening process, they are put through detailed fundamental analysis. Important areas covered during this in-depth study include the companies' balance sheets and cash flow, franchise, products, management and the strategic value of the assets.
For the six month period ended June 30, 1996, the Portfolio had a total return of 11.85% for the Class A shares and 10.75% for the Class B shares, as compared to a total return of 6.43% for the Morgan Stanley Capital International (MSCI) Europe Index. The average annual total return for the twelve months ended June 30, 1996 and for the period from inception on April 2, 1993 through June 30, 1996 was 12.61% and 19.66%, respectively, for the Class A shares, as compared to 14.69% and 15.73%, respectively, for the Index.
In the first six months of 1996 we have witnessed a change in the European investment environment from that seen in 1995. One of the most prominent changes has been the weakness of most European currencies against the U.S. dollar following an extended period of strength. The weakest currency in Europe has been the Swiss franc losing more than 8% against the dollar. Most of the 'deutschemark bloc' currencies have lost between 5% and 6% in the first six months. There have been exceptions; the Italian lira has gained 3.5% against the dollar to make the Italian equity market one of the top performers, for U.S. investors, during the year. This currency weakness has enabled European companies to be more competitive in international markets and has led to earnings upgrades in several stocks. Another noticeable trend has been the strength in smaller cap stocks relative to large cap. Smaller companies have underperformed the index for quite some time and the better returns this year reflect a revaluation of these businesses.
~~------European Equity Portfolio~~
31
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE EUROPEAN EQUITY PORTFOLIO (CONT.)~~
In general, the European economy continues to be fairly sluggish but an environment that is positive for equity investors. Inflationary pressures continue to be subdued and although we have seen interest rate cuts in the first half of the year, further cuts are possible later in the year. Despite the economic pick up in Europe, unemployment remains a concern as companies continue to restructure and rationalize their business.
Following a disappointing year for value investors in Europe in 1995, the first half of 1996 has been far more positive. Cyclical stocks and retailers, two of last years underperformers, have recovered well. The Portfolio is overweight in both of these areas. We have benefited from our overweight positions in Spain and Italy, with utilities performing particularly well. We have substantial exposure to telecommunication stocks in both markets, as well as to the electrical utilities in Spain. Other markets in which we are overweight include the Netherlands and Germany. In both countries, exports stocks have performed particularly well, helped by the relative weakness of each currency. We have benefited from the rebound in small stocks in these and other markets. The Portfolio currently has approximately 30% of its positions with a market cap of less than one billion dollars.
~~In recent months we have added the following stocks to the Portfolio:~~
~~Lafarge Coppee is the second largest cement company in the world, and one of the most geographically diversified. As is the case for the other main European~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document producers, Lafarge is in the position of having a cash generative yet declining home market and is in the process of using its free cashflows to diversify away from this. Diversification is in two areas; namely other forms of building materials in the mature markets and cement production in growth markets, all of it by acquisition.
Sparbenken is a focused Swedish retail bank with strong savings bank roots. Although it should experience flat loan growth at best in the years ahead, in line with the rest of the Swedish banking sector, it has aggressive cost cutting targets and is well positioned in the growing market for long term personal savings in Sweden. It has the ability to generate impressive returns on equity that are not currently reflected in its price/net book value ratio.
Holderbank is the largest cement manufacturer in the world. Ninety percent (90%) of sales are outside Switzerland with the U.S. being the most important market accounting for 40% of turnover. Other products include concrete, lime, aggregates and clinker. The group is currently restructuring and has acquired lower cost plants including Ideals Basic's new plant in Mexico. They have also taken management control (with an option to buy) of the Box Crow plant in Dallas. We believe Holderbank will emerge from the current economic slowdown well positioned to compete in the global market.
Railtrack is the monopoly owner of the U.K.'s rail infrastructure, which comprises track, signaling, bridges and, selected stations which it rents out to Train Operating Companies (TOCs) who provide the train service. An added attraction is its high dividend yield.
BAT Industries is a leading international tobacco and financial services conglomerate. Its tobacco business has over 10% of the global market, with principal brands including Benson and Hedges, Players, Lucky Strike and Kent. Its financial services operations include Farmers' Group, the fourth largest U.S. property and casualty insurer; Eagle Star, a major U.K. composite; and Allied Dunbar, selling unit linked policies. BAT's share price has been impacted by the periodic investor focus on U.S.-based potential tobacco liabilities, crystalized by Liggett's proposed deal with the U.S. Attorney General. BAT is confident that they can continue their historic defensive tactics on this exposure; BAT's strong position in emerging markets has restored growth to its tobacco operations which will provide the cash flow to continue to pay a progressive dividend through the downcycle in insurance. This earnings backdrop should make BAT look cheap relative to other U.K. insurance companies at the bottom of their cycles and should reawaken investor interest, combined with periodic receding fears of U.S. tobacco exposure.
~~Robert Sargent PORTFOLIO MANAGER~~
~~July 1996~~
~~------European Equity Portfolio~~
32
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE EUROPEAN EQUITY PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------ COMMON STOCKS (87.3%) AUSTRIA (0.5%) 9,000 Boehler-Uddeholm AG...... $ 699 ------BELGIUM (1.9%) (a)12,500 Arbed S.A...... 1,432 13,000 Delhaize Freres et Cie, 'Le Lion' S.A...... 650 12,000 G.I.B. Holdings Ltd...... 539 3,055 G.I.B. Holdings Ltd. VVPR (New)...... 136 ------2,757 ------DENMARK (1.8%) 6,300 Jyske Bank A/S...... 397 45,200 Unidanmark A/S, Class A (Registered)...... 2,100 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2,497 ------FINLAND (2.8%) 90,000 Amer-Yhtymae Oy, Class A...... 1,517 50,000 Huhtamaki Oy, Series 1...... 1,674 20,000 Nokia AB Oy, Series A...... 739 ------3,930 ------FRANCE (12.4%) 44,370 Banque Nationale de Paris...... 1,560 3,074 Bongrain S.A...... 1,490 14,000 Cie de Saint Gobain...... 1,877 (a)10,000 Credit Lyonnaise CDI...... 234 33,000 Elf Aquitaine...... 2,431 10,500 Eridania Beghin-Say S.A...... 1,647 6,000 Groupe Danone...... 910 1,140 Labinal S.A...... 167 28,000 Lafarge Coppee S.A...... 1,697 (a)21,405 Legris Industries S.A...... 983 12,500 Peugeot S.A...... 1,676 45,452 Thomson CSF...... 1,280 22,100 Total S.A., Class B...... 1,642 ------17,594 ------GERMANY (8.7%) 10,000 BASF AG...... 2,852 60,000 Bayer AG...... 2,114 5,275 Gerresheimer Glas AG...... 1,126 4,500 Karstadt AG...... 1,794 2,850 Mannesmann AG...... 982 (a)5,000 Varta AG...... 1,072 25,000 Veba AG...... 1,331 3,000 Volkswagen AG...... 1,118 ------12,389 ------ITALY (7.5%) (a)518,000 Editoriale L'Expresso S.p.A...... 1,447 (a)712,996 Impregilo S.p.A...... 759 (a)2,538,000 Olivetti S.p.A...... 1,371 475,000 Sogefi S.p.A...... 987 640,000 Stet Di Risp (NCS)...... 1,683 811,000 Telecom Italia S.p.A...... 1,746 700,000 Telecom Italia S.p.A. Di Risp (NCS)...... 1,209 323,000 Unicem Di Risp (NCS)...... 1,053
VALUE SHARES (000) ------ (a)45,000 Unicem S.p.A...... $ 329 ------10,584 ------NETHERLANDS (9.6%) 30,319 ABN Amro Holdings N.V...... 1,629 14,800 Akzo Nobel N.V...... 1,776 2,950 DSM N.V...... 293 8,957 Hollandsche Beton Groep N.V...... 1,718 51,710 ING Groep N.V...... 1,544 18,200 Koninklijke Bijenkorf Beheer N.V...... 1,540 34,468 Koninklijke PTT Nederland N.V...... 1,306 40,000 Koninklijke Van Ommeren N.V...... 1,577 70,000 Philips Electronics N.V...... 2,279 ------13,662 ------NORWAY (2.3%) 568,000 Den Norske Bank A/S, Class A...... 1,725 111,600 Saga Petroleum A/S, Class B...... 1,514 ------3,239 ------SPAIN (7.5%) (a)80,905 Asturiana del Zinc S.A...... 607 11,518 Bodegas y Bebidas S.A...... 280 (a)200,000 Grupo Duro Felguera S.A...... 865 138,300 Iberdrola S.A...... 1,422 46,000 Repsol S.A. (Bearer)...... 1,602 174,000 Sevillana de Electricidad S.A...... 1,605 142,500 Telefonica Nacional de Espana S.A...... 2,629 177,700 Uralita S.A...... 1,667
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------10,677 ------SWEDEN (4.4%) 11,000 Electrolux AB, Series B...... 555 111,000 Nordbanken AS...... 2,148 48,400 Skandia Forsakrings AB...... 1,284 67,000 S.K.F. AB, Class B...... 1,595 54,900 Sparbenken Sverige AB, Class A...... 714 ------6,296 ------SWITZERLAND (13.6%) 2,150 Ascom Holdings AG (Bearer)...... 2,168 1,000 Bobst AG (Bearer)...... 1,445 700 Ciba-Geigy AG (Bearer)...... 850 950 Ciba-Geigy AG (Registered)...... 1,159 5,560 Forbo Holding AG (Registered)...... 2,358 1,030 Hero Lenzburg AG (Bearer)...... 453 1,800 Holderbank Financiere Glarus AG, Class B (Bearer)...... 1,441 4,000 Magazine Globus (Participating Certificates)...... 2,337 2,000 Nestle S.A. (Registered)...... 2,287 (a)18,300 Oerlikon-Buehrle Holding AG (Registered)...... 1,904 1,360 Schweizerische Industrie-Gesellschaft Holdings (Registered)...... 1,578 1,800 Sulzer AG (Participating Certificates)...... 1,080
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------European Equity Portfolio~~
33
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE EUROPEAN EQUITY PORTFOLIO (CONT.) ------~~
VALUE SHARES (000) ------
~~SWITZERLAND (CONT.)~~
270 Sulzer AG (Registered)...... $ 174 ------19,234 ------UNITED KINGDOM (14.3%) 207,000 Associated British Foods plc...... 1,244 20,000 Bass plc...... 251 300,000 BAT Industries plc...... 2,335 70,000 BSM Group plc...... 201 104,600 Calor Group plc...... 395 450,000 Christian Salvesen plc...... 1,800 250,000 Courtaulds Textiles plc...... 1,406 188,491 John Mowlem & Co. plc...... 264 143,700 Kwik Save Group plc...... 1,011 (a)98,100 Railtrack Group plc, PP...... 332 202,058 Reckitt & Colman plc...... 2,122 298,566 Rolls-Royce plc...... 1,039 275,483 Royal Insurance Holdings plc...... 1,703 280,000 Tate & Lyle plc...... 1,992 162,800 Unilever plc...... 3,237 300,000 WPP Group plc...... 1,002 ------20,334 ------TOTAL COMMON STOCKS (Cost $112,066)...... 123,892 ------PREFERRED STOCKS (4.2%) GERMANY (4.2%)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 5,540 Dyckerhoff AG...... 1,450 15,430 Hornbach Holding AG...... 1,330 45,000 RWE AG...... 1,384 3,000 Spar Handels AG...... 837 3,200 Volkswagen AG...... 878 ------TOTAL PREFERRED STOCKS (Cost $4,954)...... 5,879 ------TOTAL FOREIGN SECURITIES (91.5%) (Cost $117,020)...... 129,771 ------

FACE AMOUNT (000) ------ SHORT-TERM INVESTMENT (4.1%) REPURCHASE AGREEMENT (4.1%) $ 5,842 Chase Securities, Inc. 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $5,845, collateralized by $5,740 U.S. Treasury Notes, 7.125%, due 9/30/99, valued at $5,868 (Cost $5,842)...... 5,842 ------FOREIGN CURRENCY (7.4%) GBP 2 British Pound...... 2 DEM 15,463 Deutsche Mark...... 10,173 FRF 718 French Franc...... 140 ITL 381 Italian Lira...... -- NOK 1 Norwegian Krone...... -- ESP 18,266 Spanish Peseta...... 143 ------TOTAL FOREIGN CURRENCY (Cost $10,379)...... 10,458 ------
VALUE (000) ------ ~~TOTAL INVESTMENTS (103.0%) (Cost $133,241)...... $146,071 ------~~
OTHER ASSETS (0.4%) Cash...... $ 1 Dividends Receivable...... 293 Foreign Withholding Tax Reclaim Receivable...... 174 Receivable for Investments Sold...... 92 Receivable for Portfolio Shares Sold...... 38 Net Unrealized Gain on Forward Foreign Currency Exchange Contracts...... 24 Interest Receivable...... 2 Other...... 7 631 ------LIABILITIES (-3.4%) Payable for Investments Purchased...... (4,584 ) Investment Advisory Fees Payable...... (182 ) Custodian Fees Payable...... (25 ) Administrative Fees Payable...... (19 ) Payable for Portfolio Shares Redeemed...... (2 ) Distribution Fees Payable...... (1 ) Other Liabilities...... (44 ) (4,857) ------NET ASSETS (100%)...... $141,845 ------NET ASSETS CONSIST OF: Paid in Capital...... $127,228 Undistributed Net Investment Income...... 1,683 Accumulated Net Realized Gain...... 79 Unrealized Appreciation on Investments and Foreign Currency Translations...... 12,855 ------NET ASSETS...... $141,845 ------CLASS A: NET ASSETS...... $139,785 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 8,976,407 outstanding $0.001 par value
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document shares (authorized 500,000,000 shares)...... $15.57 ------CLASS B: $2,060 NET ASSETS...... NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 132,410 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $15.56 ------

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------European Equity Portfolio~~
34
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE EUROPEAN EQUITY PORTFOLIO (CONT.) ------~~
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of forward foreign currency exchange contracts open at June 30, 1996, the Portfolio is obligated to deliver or is to receive foreign currency in exchange for U.S. dollars as indicated below:

NET CURRENCY IN EXCHANGE UNREALIZED TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS) (000) (000) DATE (000) (000) (000) ------ ~~U.S.$ 23 $ 23 7/02/96 ITL 34,617 $ 23 $ -- DEM 400 264 8/09/96 U.S.$ 288 288 24 ------$ 287 $ 311 $ 24 ------~~
~~------~~
~~(a) -- Non-income producing security NCS -- Non Convertible Shares CDI -- Certificate of Investment PP -- Partially paid~~

~~------~~
~~SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION~~
VALUE PERCENTAGE OF INDUSTRY (000) NET ASSETS ------Capital Equipment...... $ 21,443 15.1% Consumer Goods...... 25,291 17.8 Energy...... 11,904 8.4 Finance...... 15,798 11.1 Gold Mines...... 606 0.5 Materials...... 29,713 21.0 Multi-Industry...... 4,285 3.0 Services...... 20,731 14.6 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document $ 129,771 91.5% ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------European Equity Portfolio~~
35
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE GLOBAL EQUITY PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
Australia 1.7% Canada 0.4% France 4.3% Germany 7.5% Hong Kong 0.9% Ireland 3.6% Italy 3.1% Japan 11.3% Netherlands 5.6% Spain 4.0% Sweden 0.7% Switzerland 6.6% United Kingdom 6.8% United States 39.3% Other 4.2%

~~PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE ANNUAL YTD ONE YEAR SINCE INCEPTION ------ PORTFOLIO -- CLASS A...... 13.42% 20.05% 19.48% PORTFOLIO -- CLASS B(3)...... 12.88 N/A N/A INDEX...... 7.08 18.44 13.35
1. The MSCI World Index is an unmanaged index of common stocks and includes securities listed on the stock exchanges of the U.S., Europe, Canada, Australia, New Zealand and the Far East (assumes dividends reinvested).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
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
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
The Global Equity Portfolio is managed with the objective of obtaining a high total return by investing in markets worldwide, including the United States. Investments may also be made with discretion in smaller companies or emerging markets.
For the six month period ended June 30, 1996, the Portfolio had a total return of 13.42% for the Class A shares and 12.88% for the Class B shares, as compared to a total return of 7.08% for the Morgan Stanley Capital International (MSCI) World Index. The average annual total return for the twelve months ended June 30, 1996 and for the period from inception on July 15, 1992 through June 30, 1996 was 20.05% and 19.48%, respectively for the Class A shares, as compared to 18.44% and 13.35%, respectively for the Index.
The outperformance relative to the benchmark over the first half of 1996 was due primarily to the positive share price performance of individual stock holdings in the U.S., Japan, Germany and Switzerland. In addition, our overweight position in the Swiss market coupled with our underweighting of the Japanese market also proved beneficial.
Individual stocks making a positive contribution in the U.S. included Addington Resources (which was subject to a takeover bid), Comsat, Egghead, (which sold a loss making division) and GenRad. In Japan, TDK and Toyo Seikan Kaisha performed well. In Germany, BASF was a strong performer as were Telefonica in Spain, Avonmore Foods and Green Property in Ireland. In Switzerland strong performers included Ciba-Geigy (which announced a merger with Sandoz in March) and SIG.
The U.S. market's strong performance (MSCI USA Index up 10.6%) was principally due to record mutual fund inflows of $140 billion over the first six months, in itself higher than the aggregate total for 1995. Continuing merger activity and a subdued inflation outlook also provided support for equities. This advance, in the face of a 120 basis point rise in long bond rates following stronger than anticipated employment growth, suggests however that by many benchmarks, the U.S. aggregate market now appears fully priced.
In Japan, clear signals of a sustainable economic recovery helped the MSCI Japan Index to rise 7.5%, although dollar strength reduced this to 1.1% in U.S. dollar terms. Continued loose monetary policy, gradual progress in resolving the banking crisis, strong first quarter real GDP growth (12.7% on an annualized basis) and foreign investor interest all provided market impetus. Nonetheless, with cash flow valuations
~~------Global Equity Portfolio~~
36
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE GLOBAL EQUITY PORTFOLIO (CONT.) remaining high by historical standards and the budget deficit now representing 7% of GNP, the Bank of Japan will inevitably be forced to raise interest rates later this year.
European markets generally performed strongly, particularly in local currency terms, with Ireland (16.5%), Sweden (14.7%), Spain (13.9%), Italy (12.8%) and the Netherlands (11.5%) all producing strong gains in U.S. dollar terms. Despite weak domestic economies, support came from historically low short term interest rates, improving fiscal governance in the run up to European Monetary Union and a very subdued inflation outlook.
The outlook for stronger U.S. economic growth in the second half and by implication, the prospect of higher interest rates, combined with a subdued earnings outlook suggests the need to focus on stockpicking is paramount. After a decade of cost cutting, much of corporate America has already been "right sized", and this is being demonstrated by increasing pressure on margins. Subdued inflation data, which since January has led the Federal Reserve Board to leave interest rates unchanged, may now be superseded by this year's consistently above-trend non-farm payroll growth. In Japan, we expect to maintain our underweight position as value stocks remain difficult to find with many blue-chip companies already trading at historically high multiples. This underweight position remains a risk however and could prove detrimental in the short term, should the Japanese market experience a momentum-driven period of outperformance. In Europe, we remain overweight on grounds of relative value and in anticipation of an upswing in economic activity driven by a benign interest rate and inflation environment.
~~The long term return from global equities is typically 6% per annum above consumer price inflation. Given the scale of returns in 1995, and with global~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document inflation of between 2-3% likely for 1996, an increase of between 8-10% in the MSCI World Index remains a reasonable estimate.
~~Francis Campion PORTFOLIO MANAGER~~
~~July 1996~~
~~------Global Equity Portfolio~~
37
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE GLOBAL EQUITY PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------ COMMON STOCKS (94.7%) AUSTRALIA (1.7%) 50,000 Brambles Industries Ltd...... $ 695 189,160 Coles Myer Ltd...... 687 ------1,382 ------CANADA (0.4%) 22,900 Hudson's Bay Co...... 347 ------FRANCE (4.3%) 22,200 Banque Nationale de Paris...... 781 2,310 Bongrain S.A...... 1,119 (a)12,000 Credit Lyonnaise CDI...... 281 9,266 Elf Aquitaine...... 683 11,965 Valeo S.A...... 641 ------3,505 ------GERMANY (6.5%) 3,000 BASF AG...... 856 38,220 Bayer AG...... 1,346 2,500 Karstadt AG...... 997 3,000 Mannesmann AG...... 1,034 2,764 Sinn AG...... 455 (a)2,225 Varta AG...... 477 260 Volkswagen AG...... 97 ------5,262 ------HONG KONG (0.9%) 220,000 Jardine Strategic Holdings, Inc...... 704 ------IRELAND (3.5%) 757,742 Anglo Irish Bank Corp. plc...... 744 470,000 Avonmore Foods plc, Class A...... 1,276 229,312 Green Property plc...... 843 ------2,863 ------ITALY (3.1%) 500,000 Stet Di Risp (NCS)...... 1,315 700,000 Telecom Italia S.p.A. Di Risp (NCS)...... 1,209 ------2,524 ------JAPAN (11.3%) 160 East Japan Railway Co...... 842 65,000 Fuji Photo Film Ltd...... 2,057 24,000 Hitachi Ltd...... 224 110,000 Kao Corp...... 1,489 162,750 Nichido Fire & Marine Insurance Co...... 1,261 11,000 Sony Corp...... 725 100,000 Sumitomo Rubber Industries...... 868 5,000 TDK Corp...... 299 40,000 Toyo Seikan Kaisha Ltd...... 1,398
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------9,163 ------NETHERLANDS (5.6%) 23,608 ABN Amro Holdings N.V...... 1,269 2,188 Hollandsche Beton Groep N.V...... 420 40,398 ING Groep N.V...... 1,206 24,000 Koninklijke Van Ommeren N.V...... 946
VALUE SHARES (000) ------ 20,000 Philips Electronics N.V...... $ 651 ------4,492 ------SPAIN (4.0%) 59,500 Iberdrola S.A...... 612 16,000 Repsol S.A...... 557 112,300 Telefonica Nacional de Espana S.A...... 2,072 ------3,241 ------SWEDEN (0.7%) 16,600 Skandia Forsakrings AB...... 441 7,700 Sparbenken Sverige AB, Class A...... 100 (a)770 Tornet Fastighets AB...... 6 ------547 ------SWITZERLAND (6.6%) 500 Ascom Holdings AG (Bearer)...... 504 430 Bobst AG (Bearer)...... 621 1,400 Ciba-Geigy AG (Registered)...... 1,709 1,400 Forbo Holding AG (Registered)...... 594 1,400 Magazine Globus (Participating Certificates)...... 818 900 Schweizerische Industrie-Gesellschaft Holdings (Registered)...... 1,044 ------5,290 ------UNITED KINGDOM (6.8%) 28,500 Calor Group plc...... 107 298,700 Christian Salvesen plc...... 1,195 102,325 John Mowlem & Co. plc...... 143 150,000 Kwik Save Group plc...... 1,056 280,000 Matthews (Bernard) plc...... 439 (a,d)653,333 Pentos plc...... -- (a)61,700 Railtrack Group plc, PP...... 209 68,060 Reckitt & Colman plc...... 715 73,902 Rolls-Royce plc...... 257 46,400 Unilever plc...... 923 132,000 WPP Group plc...... 441 ------5,485 ------UNITED STATES (39.3%) (a)33,850 Addington Resources, Inc...... 846 20,550 Aluminum Company of America...... 1,179 12,500 American Telephone & Telegraph Corp...... 775 (a)15,400 AMR Corp...... 1,401 32,100 Bank of New York Co., Inc...... 1,645 (a)30,500 Beazer Homes USA, Inc...... 488 27,600 Browning-Ferris Industries, Inc...... 800 (a)128,000 Cadiz Land Co., Inc...... 752 (a,f)22,000 Cadiz Land Co., Inc. (acquired 1/04/94, Cost $88)...... 129 87,500 Comsat Corp...... 2,275 (a)8,802 Cray Research, Inc...... 212 (a)80,000 Data General Corp...... 1,040 (a)126,500 Egghead, Inc...... 1,407
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Global Equity Portfolio~~
38
~~[LOGO] Morgan Stanley Institutional Fund, Inc.~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE GLOBAL EQUITY PORTFOLIO (CONT.) ------~~
VALUE SHARES (000) ------
~~UNITED STATES (CONT.)~~
50,000 Enhance Financial Services Group, Inc...... $ 1,400 38,000 Finova Group, Inc...... 1,853 (a)129,200 GenRad, Inc...... 2,132 2,000 General Motors Corp...... 105 16,000 Georgia Pacific Corp...... 1,136 22,100 Houghton Mifflin Co...... 1,100 24,300 Lukens, Inc...... 580 13,000 MBIA, Inc...... 1,012 61,400 MCI Communications Corp...... 1,573 14,300 Mellon Bank Corp...... 815 (a)21,300 Nexthealth, Inc...... 51 22,600 Penncorp Financial Group, Inc...... 718 18,600 Philip Morris Cos., Inc...... 1,934 12,000 Prime Retail, Inc...... 136 11,750 Reebok International Ltd...... 395 13,100 Tecumseh Products Co., Class A...... 704 17,000 United Asset Management, Inc...... 417 27,000 UST Corp...... 402 (a)55,000 Waban, Inc...... 1,313 (a)157,000 WorldCorp., Inc...... 1,060 ------31,785 ------TOTAL COMMON STOCKS (Cost $62,887)...... 76,590 ------PREFERRED STOCKS (1.0%) GERMANY (1.0%) 3,000 Volkswagen AG (Cost $647)...... 823 ------CONVERTIBLE PREFERRED SECURITY (0.0%) HONG KONG (0.0%) 21,000 Jardine Strategic Holdings, Inc., IDR 7.50%, 5/07/97 (Cost $21)...... 23 ------
NO. OF RIGHTS ------ ~~RIGHTS (0.1%) IRELAND (0.1%) (a,d)76,437 Green Property plc, expiring 7/02/96 (Cost $0).... 37 ------TOTAL FOREIGN & U.S. SECURITIES (95.8%) (Cost $63,555)...... 77,473 ------~~

FACE AMOUNT (000) ------ SHORT-TERM INVESTMENT (3.9%) REPURCHASE AGREEMENT (3.9%) $3,166 Chase Securities, Inc. 5.15%, dated 6/28/96, due 7/01/96 to be repurchased at $3,167, collateralized by $3,115 U.S. Treasury Notes, 7.125%, 9/30/99, valued at $3,185 (Cost $3,166)...... 3,166 ------
AMOUNT VALUE (000) (000) ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document FOREIGN CURRENCY (0.0%) ITL 264 Italian Lira...... $ -- ESP 520 Spanish Peseta...... 4 ------TOTAL FOREIGN CURRENCY (Cost $4)...... 4 ------TOTAL INVESTMENTS (99.7%) (Cost $66,725)...... 80,643 ------
OTHER ASSETS (1.0%) Receivable for Investments Sold...... $ 344 Net Unrealized Gain on Forward Foreign Currency Exchange Contracts...... 219 Dividends Receivable...... 180 Foreign Withholding Tax Reclaim Receivable...... 73 Interest Receivable...... 1 Other...... 11 828 ----- LIABILITIES (-0.7%) Payable for Investments Purchased...... (430) Investment Advisory Fees Payable...... (121) Administrative Fees Payable...... (11) Custodian Fees Payable...... (11) Directors' Fees and Expenses Payable...... (1) Distribution Fees Payable...... (1) Other Liabilities...... (28) (603) ------NET ASSETS (100%)...... $80,868 ------NET ASSETS CONSIST OF: Paid in Capital...... $62,094 Undistributed Net Investment Income...... 611 Accumulated Net Realized Gain...... 4,025 Unrealized Appreciation on Investments and Foreign Currency Translations...... 14,138 ------NET ASSETS...... $80,868 ------
CLASS A: ------ ~~NET ASSETS...... $78,960 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 4,864,183 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $16.23 ------~~ CLASS B: ------ ~~NET ASSETS...... $1,908 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 117,728 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $16.21 ------~~
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Global Equity Portfolio~~
39
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE GLOBAL EQUITY PORTFOLIO (CONT.) ------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document~~
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of forward foreign currency exchange contracts open at June 30, 1996, the Portfolio is obligated to deliver or is to receive foreign currency in exchange for U.S. dollars as indicated below:

IN NET CURRENCY TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS) (000) (000) DATE (000) (000) (000) ------ ~~U.S.$ 244 $ 244 7/02/96 IEP 153 $ 244 $ -- NLG 6,900 4,065 8/23/96 U.S.$4,284 4,284 219 ------$ 4,309 $ 4,528 $ 219 ------~~
~~------~~
(a) -- Non-income producing security (d) -- Security is valued at fair value -- See note A-1 to financial statements (f) -- Restricted as to public resale. Total value of restricted securities at June 30, 1996 was $129 or 0.2% of net assets. (Total cost $88) CDI -- Certificate of Investment IDR -- International Depositary Receipt NCS -- Non Convertible Shares PP -- Partially Paid IEP -- Irish Punt NLG -- Netherland Guilder

~~------~~
~~SUMMARY OF FOREIGN & U.S. SECURITIES BY INDUSTRY CLASSIFICATION~~
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ------Capital Equipment...... $ 15,009 18.5% Consumer Goods...... 13,959 17.3 Energy...... 3,840 4.7 Finance...... 14,849 18.4 Materials...... 7,904 9.8 Multi-Industry...... 4,217 5.2 Services...... 17,695 21.9 ------$ 77,473 95.8% ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Global Equity Portfolio~~
40
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE GOLD PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
~~Africa 3.1% Australia 24.8% Canada 17.0% South Africa 30.3% United States 15.9% Other 8.9%~~

~~PERFORMANCE COMPARED TO THE PHILADELPHIA GOLD AND SILVER INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE ANNUAL YTD ONE YEAR SINCE INCEPTION ------ PORTFOLIO -- CLASS A...... 28.07% 34.92% 12.44% PORTFOLIO -- CLASS B(3)...... 24.18 N/A N/A INDEX...... 3.16 3.81 -3.77
1. The Philadelphia Gold and Silver Index is an unmanaged index comprised of the leading companies involved in the mining of gold and silver.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
~~The Gold Portfolio seeks to provide long-term capital appreciation by investing primarily in the equity securities of foreign and domestic issuers engaged in gold-related activities.~~
For the six month period ended June 30, 1996, the Portfolio had a total return of 28.07% for the Class A shares and 24.18% for the Class B shares as compared to 3.16% for the Philadelphia Gold and Silver Index. The average annual total return for the Portfolio for the twelve months ended June 30, 1996 and for the period from inception on February 1, 1994 through June 30, 1996 was 34.92% and 12.44%, respectively, for the Class A shares compared to 3.81% and -3.77%, respectively, for the Philadelphia Gold and Silver (XAU) Index.
During the first quarter, the Portfolio benefited from strong performance in the overall gold share market and large gains from Bre-X Minerals (BXM-TSE) and Greenstone Resources (GRE-TSE). At quarter end, gold shares continued to hold gains made in response to gold's January rise above $400, despite gold's correction late in the quarter. In making portfolio allocations, we continue to find value among selected Australian gold shares, in contrast to large capitalization North American gold shares which remain overvalued.
For the first time since the Portfolio's inception, a substantial allocation was directed towards South African gold shares which now constitute 30.3% of the Portfolio. As a result of weakness in the South African rand, the relative attractiveness of South African gold shares significantly increased. Rand weakness translates into a higher rand gold price and higher operating margins viewed in local currency. Although the weak rand hurts share values in the translation back to US dollars, the relationship is not 1 to 1. So far during 1996, the 20% rand devaluation has increased earnings by approximately 80% even after considering the currency conversion. These impacts on valuation have not yet been fully discounted in share pricing, affording the Portfolio an attractive investment opportunity.
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document MARKET REVIEW~~
As we indicated in the 1995 Annual Report, elevated gold lease rates signaled that high levels of producer selling were unsustainable. We also projected that once producer selling abated -- effectively removing a temporary source of supply from the market -- that gold prices would move sharply higher. January's gold rise of $19.2, or 5.0%, represented the gold market's attempt to reach a higher equilibrium on the heels of unsustainable levels of producer hedging.
~~------Gold Portfolio~~
41
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE GOLD PORTFOLIO (CONT.)~~
What we did not anticipate was that reduced temporary sources of gold supply from North American producers (which support gold's fundamentals) would be more than offset by official selling and rumored producer hedging among South African mining firms. Belgium's sale of 203 tonnes helped mute the ascent of January's rally. Once the rand currency began to stablize during the second quarter, rumors of continued hedging by South African mining firms appeared viable, as each gold rally was met by aggressive selling. Higher lease rates, which confirm the demand for borrowed gold which facilitate forward sales programs, also provided credence to the South African hedging rumors.
From a long-term investment perspective, great similarities exist between today's gold market and the state of the market at major lows in early 1993 and 1995. So far in 1996, producer and official selling have once again provided temporary sources of supply which effectively clear gold's supply/demand deficit. Also, as in January 1995, large speculators are once again short gold futures, according to the Commitment of Traders Report supplied by the Commodity Futures Trading Commission. In addition, measures of investor sentiment are consistent with levels observed at intermediate lows in the price of gold bullion.
Although these technical indicators do not guarantee a rise in the gold price, history demonstrates that gold rallies often begin when fundamental changes affecting the price of gold catch investors off-guard and out of position. In 1993, it was the combination of positive supply/demand factors and low real interest rates which generated a substantial gold rally. In early 1995, it was a plunging dollar/yen to postwar levels which caught speculators off-guard and fueled a signficant gold rally. In the current market envrionment, fundamental changes could involve any aspect of gold: (1) gold as a portfolio diversifer against financial market risk, (2) gold as a hedge against currency volatility, (3) gold as a hedge against monetary instability: inflation/deflation, (4) gold as a commodity in supply/demand deficit. Predicting which fundamental will move the gold price is not important: proper investment positioning at attractive levels is the proper area of focus for long-term investors.
Gold's hedge against the effects of unexpected inflation was recently highlighted by Barton Biggs, Morgan Stanley's Chief Global Strategist. On May 6, Biggs changed Morgan Stanley's model portfolio to include a 3% gold weighting. Reasons included the potential of inflation concerns to unseat the U.S. stock market which is "dramatically overpriced." With so much capital invested in the financial markets relative to the precious metals arena, it may take only small relative shifts among portfolio allocations for gold to react favorably.
~~We will continue to monitor changing influences on gold's fundamentals and look forward to presenting the Portfolio's results over the next six months.~~
~~Peter F. Palmedo PORTFOLIO MANAGER~~
~~July 1996~~
~~------Gold Portfolio~~
42
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document THE GOLD PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------COMMON STOCKS (91.1%) AFRICA (3.1%) 58,600 Ashanti Goldfields Co., GDR...... $ 1,157 ------AUSTRALIA (24.8%) (a)354,000 Delta Gold N.L...... 904 (a)415,000 Great Central Mines N.L...... 1,135 (a)373,000 Lihir Gold Ltd...... 598 811,899 Newcrest Mining Ltd...... 3,254 373,900 Plutonic Resources Ltd...... 1,910 358,600 Poseidon Gold Ltd...... 882 (a)500,000 Wiluna Mines Ltd...... 432 ------9,115 ------CANADA (17.0%) (a)80,000 Bema Gold Corp...... 310 (a)118,000 Bre-X Minerals Ltd...... 1,972 (a)206,000 Dakota Mining Corp...... 425 25,000 Glamis Gold Ltd...... 178 48,000 Placer Dome, Inc...... 1,146 (a)478,900 Royal Oak Mines, Inc...... 1,766 (a)58,000 TVX Gold, Inc...... 425 ------6,222 ------SOUTH AFRICA (30.3%) 47,000 Driefontein Consolidated Ltd., ADR...... 617 163,600 Free State Consolidated Gold Mines Ltd., ADR...... 1,513 24,000 Gold Fields of South Africa Ltd., ADR...... 726 120,000 Harmony Gold Mining Co., Ltd., ADR...... 1,147 162,900 JCI Co., Ltd...... 1,598 1,500 JCI Co., Ltd., ADR...... 15 100,000 Kloof Gold Mining Co., Ltd...... 946 116,200 Kloof Gold Mining Co., Ltd., ADR...... 1,126 182,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR.... 1,456 (a)82,100 Western Area Gold Mining ADR...... 1,280 19,000 Western Deep Levels Ltd., ADR...... 689 ------11,113 ------UNITED STATES (15.9%) (a)107,000 Gold Reserve Corp...... 816 103,000 Homestake Mining Co...... 1,764 (a)131,300 Pegasus Gold, Inc...... 1,608 60,300 Santa Fe Pacific Gold Corp...... 852 (a)33,800 Stillwater Mining Co...... 799 ------5,839 ------TOTAL COMMON STOCKS (Cost $35,483)...... 33,446 ------

NO. OF WARRANTS ------ ~~WARRANTS (0.0%) UNITED STATES (0.0%) (a)25,000 Gold Reserve Corp., expiring 9/15/96 (Cost $0).... 11 ------TOTAL FOREIGN & U.S. SECURITIES (91.1%) (Cost $35,483)...... 33,457 ------~~
FACE AMOUNT VALUE (000) (000) ~~------SHORT-TERM INVESTMENT (8.6%) REPURCHASE AGREEMENT (8.6%)~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document $ 3,159 Chase Securities, Inc. 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $3,160, collateralized by $3,105, U.S. Treasury Notes, 7.125%, due 9/30/99, valued at $3,174 (Cost $3,159)...... $ 3,159 ------TOTAL INVESTMENTS (99.7%) (Cost $38,642)...... 36,616 ------
OTHER ASSETS (0.5%) Cash...... $ 1 Receivable for Investments Sold...... 136 Dividends Receivable...... 26 Interest Receivable...... 1 Other...... 19 183 ------LIABILITIES (-0.2%) Investment Sub-Advisory Fees Payable...... (30) Professional Fees Payable...... (15) Filing and Registration Fees Payable...... (12) Investment Advisory Fees Payable...... (9) Custodian Fees Payable...... (7) Administrative Fees Payable...... (6) Payable for Portfolio Shares Redeemed...... (1) Other Liabilities...... (4) (84) ------NET ASSETS (100%)...... $36,715 ------NET ASSETS CONSIST OF: Paid in Capital...... $37,622 Undistributed Net Investment Income...... 27 Accumulated Net Realized Gain...... 1,092 Unrealized Depreciation on Investments and Foreign Currency Translations...... (2,026) ------NET ASSETS...... $36,715 ------CLASS A: NET ASSETS...... $35,688 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 3,258,481 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $10.95 ------CLASS B: NET ASSETS...... $1,027 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 93,856 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $10.94 ------

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Gold Portfolio~~
43
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE GOLD PORTFOLIO (CONT.) ------~~
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of forward foreign currency exchange contracts open at June 30, 1996, the Portfolio is obligated to deliver foreign currency in exchange for U.S. dollars as indicated below:

~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document~~
IN CURRENCY TO EXCHANGE NET UNREALIZED DELIVER SETTLEMENT FOR GAIN (LOSS) (000) VALUE (000) DATE (000) VALUE (000) (000) ------ ~~AUD 173 $ 136 7/03/96 U.S.$136 $ 136 $ ------~~
~~------~~
~~(a) -- Non-income producing security ADR -- American Depositary Receipt GDR -- Global Depositary Receipt AUD -- Australian Dollar~~

~~------~~
~~SUMMARY OF FOREIGN & U.S. SECURITIES BY INDUSTRY CLASSIFICATION~~
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ~~------Gold Mines...... $ 33,457 91.1% ------~~
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Gold Portfolio~~
44
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE INTERNATIONAL EQUITY PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
Australia 4.9% Belgium 0.8% Denmark 2.0% Finland 1.1% France 9.1% Germany 10.5% Hong Kong 2.8% Italy 3.0% Japan 21.9% Netherlands 9.1% New Zealand 0.3% Norway 1.2% Singapore 0.2% Spain 4.5% Sweden 4.6% Switzerland 6.7% United Kingdom 10.1% Other 7.2%

~~PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------~~
TOTAL RETURNS(2) ------AVERAGE AVERAGE ANNUAL ANNUAL SINCE YTD ONE YEAR FIVE YEARS INCEPTION ------ PORTFOLIO -- CLASS A... 11.35% 18.67% 16.39% 11.72% PORTFOLIO -- CLASS B(3)...... 10.56 N/A N/A N/A INDEX...... 4.52 13.28 9.99 3.95
1. The MSCI EAFE Index is an unmanaged index of common stocks and includes Europe, Australia and the Far East (assumes dividends reinvested 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.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
The investment objective of the International Equity Portfolio is long-term capital appreciation through investment primarily in equity securities of non-U.S. issuers. Equity securities for this purpose include common stocks and equivalents, such as securities convertible into common stocks, and securities having common stock characteristics, such as rights and warrants to purchase common stocks.
For the six month period ended June 30, 1996, the Portfolio had a total return of 11.35% for the Class A shares and 10.56% for the Class B shares, as compared to a total return of 4.52% for the Morgan Stanley Capital International (MSCI) EAFE Index. The average annual total return for the twelve month and five year periods ended June 30, 1996 and for the period from inception on August 4, 1989 through June 30, 1996 were 18.67%, 16.39% and 11.72%, respectively, for the Class A shares, as compared to 13.28%, 9.99% and 3.95%, respectively, for the Index.
The strong absolute and relative showing of the Portfolio during the first half was principally attributable to strong stock selection in the markets of Japan, Germany, Italy and Sweden, while France alone produced notably submarket returns. The Portfolio suffered from its underweighting in British sterling but this was made up for by its underweight position in yen and the substantial hedges out of the deutschmark bloc. Returns for the period were not achieved in an environment where cyclical stocks were particularly strong. Indeed growth stocks have consistently outperformed value and local indices during the first six months of the year.
Unfortunately the inevitable consequence of outperformance is that the value perceived to be within the Portfolio must have achieved some degree of recognition by the market. It must be said that this is the case across a broad range of value investments including Japanese and German blue chips, Dutch financials and Swiss cyclicals. The simultaneous upward movement in these stocks, notwithstanding investor preference for growth stocks, has left pockets of value to be investigated but no rich geographic concentration of value.
This leaves the value investor with this imponderable: Does one persevere with quality when that quality has become well recognized by the market even if the resultant pricing levels are reasonable rather than cheap, or does one seek a new set of disagreements when markets are already extended and stocks that are cheap tend to be cheap for a good reason? As ever, the correct course is the middle course: new
~~------International Equity Portfolio~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 45~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE INTERNATIONAL EQUITY PORTFOLIO (CONT.) disagreements must be sought with the market but with the caution that is required at this stage of the cycle.~~
~~Portfolio activity during the period was moderate and highly specific, reflecting our belief that no particular markets, or indeed industries, are markedly undervalued.~~
~~GERMANY~~
The Morgan Stanley Capital International Germany Index fell by 0.29% in U.S. dollar terms but increased by 2.81% in local currency terms in the second quarter of the year. As these returns illustrate, the deutschemark has continued its weaker trend against the U.S. dollar during this period. The large chemical groups have continued their strong performance from the first quarter outperforming the local market. The strongest performers this quarter have been the retail stocks and food retailers, showing particularly good returns. This is an area which has been out of favor but is now benefiting from the pick-up in consumer sentiment. The financial stocks continue to show poor relative returns. The German economy continues to be sluggish and this has led to market commentators speculating about further interest rate cuts. Inflationary pressures are still subdued and unemployment is likely to stay about 10% as German industry continues to restructure. In this environment we are seeing substantially lower wage deals with the unions. Germany continues to be an attractive market for the value investor with value being realized in large and small companies as the market continues to restructure.
~~FRANCE~~
During the second quarter of 1996 the Morgan Stanley Capital International France Index increased by 2.49% in U.S. dollar terms and by 4.79% in local currency terms. Following a poor year in 1995, France is one of the top performing markets in Europe in 1996. Like Germany the retail stocks have performed well in the first half of the year along with healthcare companies. In the second quarter, we have seen improved performance from the large integrated oil companies. The sluggish economic growth rate and relative strength of the franc encouraged the Banque de France to cut its key interest rate on April 11th to 3.7%. By the end of April a historic time was reached when French long term interest rates fell below those in Germany. The French government's restrictive budgetary policy seems to be working. There was a negative surprise in both March and April with an increase in inflation, taking the current annual rate to 2.3%. The French authorities were quick to argue that this was a temporary phenomenon. Although the French market continues to look expensive relative to some other markets it is one in which the stock picker can continue to find good quality cheap investment opportunities.
~~SWITZERLAND~~
The Morgan Stanley Capital International Switzerland Index fell by 2.53% in U.S. dollar terms but increased by 2.48% in Swiss Franc terms in the second quarter of the year. The performance of the Swiss equity market varied throughout the quarter. The return in May was poor but in June the market returned 5.0%, in U.S. dollar terms. During the quarter the industrial stocks showed strong relative performance with electronic and engineering stocks showing particularly good returns. Following a good run the pharmaceutical stocks lost some ground during the month while the financial sectors continued to underperform. Following an extended run, the Swiss franc has been the weakest major currency this year. This has helped the competitive position of many export related companies and led to consistent upgrading by the market of these companies' earnings. Economic growth in Switzerland has been slow but this has enabled inflation rates to remain low despite the introduction of VAT. Despite the weak currency, inflation levels should remain low and this could allow the authorities to keep interest rates at low levels. This is a good environment for the equity investor and it remains a market in which we are overweight.
~~NETHERLANDS~~
In the second quarter of 1996 the Morgan Stanley Capital International Netherlands Index increased by 5.33% in U.S. dollar terms and by 8.8% in local currency terms. During the quarter retail stocks have been the top performers showing particularly good returns in June. The banks also continued their good run at a time when financials have generally been weak in the European market. A sector that was particularly weak was electronics, with Philips declining over concerns for the semi-conductor industry. In 1995 the Dutch economy was one of the strongest in Europe although towards the end of the year exports started to slow down due to the strength of the guilder and weak demand from their main
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document trade partners. In the first half of this year the weaker Dutch currency has led again to a pick-up in exports. The most recent numbers show that there has been a small pick-up in inflation but on the positive side there has been a small fall in unemployment. The Netherlands remains a good market for the value investor offering good quality cheap companies.
~~------International Equity Portfolio~~
46
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE INTERNATIONAL EQUITY PORTFOLIO (CONT.)~~
~~SPAIN~~
During the second quarter of 1996 the Morgan Stanley Capital International Spain Index rose by 7.39% in U.S. dollar terms and by 10.94% in local currency terms. These returns make Spain the top performing European market during the quarter. Following the disappointment of the Spanish general election failing to produce a clear winner and the subsequent fall of the market in March this has been a strong recovery. The best performing sectors have been the utilities, with Telefonica and the electrical utilities showing particularly strong returns. The food retailers also showed good relative gains. The financial sectors, particularly the insurers, continued to underperform, however. The most recent economic data to come out of Spain has been fairly poor. Between January and March both nominal imports and exports declined by some 5% compared with rates about 20% the year before. A reduction in investment growth has led to lower GDP growth of 1.9% year-on-year in the first quarter. Unemployment remains the main problem in Spain, however, with the rate still above 22%.
~~ITALY~~
The Morgan Stanley Capital International Italy Index increased by 13.42% in U.S. dollar terms during the second quarter and by 10.77% in Italian lira terms. These make it the top performing developed market in the world during this period, in U.S. dollar terms, helped by the strength of the lira. The best performing sectors have been the utilities with both telecommunications and the electricity businesses showing strong relative returns. The food production companies also showed good returns during this period. The financials continued to underperform while media and retail stocks also showed relative poor returns. Although the Italian economy has been weaker recently it continues to offer some of the best growth in Europe. The environment for the equity investor remains good with inflation expected to soon be below 4% giving the central bank the opportunity to cut interest rates. Despite the pick-up in economic activity in recent months, the unemployment rate continues to edge up. In April it reached 12.3%, up from 12% a year ago.
~~U.K.~~
In the second quarter of 1996 the Morgan Stanley Capital International U.K. Index rose by 2.54% in U.S. dollar terms and by 0.74% in local currency terms. Quarterly economic data continued to illustrate a sluggish U.K. economy in a generally benign inflationary environment. Recent inflation figures were better than expected, with inflation rising 2.8% year-on-year in May 1996 following 3 months each with respective year-on-year increases of 2.9%. This, in conjunction with subdued producer price inflation, helped explain an unexpected base rate cut from 6.0% to 5.75% on June 6, 1996. The manufacturing output backdrop continued to be subdued, with a rise of only 0.3% year-on-year in April 1996, reflecting the slowdown in previously healthy export growth, continued sluggish domestic demand and consequent stock usage. A continuing positive trend for retail sales increasingly suggests the possible emergence of a traditional U.K. consumer boom, with the housing market continuing to strengthen.
The quarter has reflected various rotational trends in the market. Cyclicals and export-oriented stocks (in particular ICI, British Steel, Pilkington and Rexam) have been hit, driven partly by a 5% appreciation in the quarter of sterling against the DM bloc. This has been mirrored by recent interest in defensives, particularly those with global earnings and growth characteristics such as pharmaceuticals and health care. Domestically, this was expressed through sustained interest in anything consumer expenditure related, with general retailers, food retailers, breweries/pubs and leisure and hotels as some of the top performing sectors in the quarter - valuations here, bar food retailers, are looking very stretched. This was also driven by increasing political worries by U.K. institutions, in part due to perceived risks of a Labour government and partly due to recent regulatory action. Consequently, utilities was one of the worst performing sectors in the quarter, in spite of some bid interest buoying up water. In particular, gas distribution was clobbered following the swinging review by Ofgas of British Gas, the worst performing stock in the quarter. Close behind British Gas was BTR, the diverse conglomerate which plummeted on fears of
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document a possible dividend cut, making diverse industries the second worst performing U.K. sector in the quarter. Small capitalization stocks significantly outperformed large stocks in the quarter, although underperformed in the last month.
~~Value continues to be scarce in the U.K. market, despite underperformance compared to European markets. Stock selection remains of key importance.~~
~~JAPAN~~
The moderate local currency gain in the Japanese stock market during the second quarter was substantially offset by currency weakness, the Morgan Stanley Capital International Japan Index appreciating a meager 0.77% in U.S. dollars against a 3.50% gain in Japanese yen.
~~------International Equity Portfolio~~
47
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE INTERNATIONAL EQUITY PORTFOLIO (CONT.)~~
The singular event of the quarter was the GNP figure for the first quarter which implied annualized economic growth of 12% year-on-year, a stunning figure. The Bank of Japan, however, was quick to point out that within these figures were an exceptional acceleration in public spending and an upward blip in housing relating to the expiry of cheap mortgage financings. Be that as it may, the figure still confirmed that private capital expenditure and consumption are on a firm recovery trend. It is therefore a little surprising that the Bank of Japan was so careful to signal to markets that its overtly easy monetary policy will continue. This means that the Japanese stock market valuations have a somewhat promising backdrop. Short and long term interest rates are low, the weakening yen is bolstering corporate profits and the economic recovery is being driven along by government expenditure while fiscal and monetary policies remain exceptionally low. If it was possible to extrapolate this set of circumstances beyond the remainder of this year, value or no value, this market could only go upwards especially since domestic institutions are so underweight equities.
With the budget deficit, however, reaching 7% of GNP this year and wholesale price inflation already moving up towards 1.5% year-on-year, some fiscal and monetary tightening will eventuate by year end. If it does not, the bond market is likely to exhibit sufficient weakness to cap the upside of the stockmarket. In the meantime, it must be stressed that quality Japanese companies are selling at extended valuations on an absolute and relative basis. Irrespective of their impressive recovery prospects, double figure cash flow multiples for Honda and Toyota appear exceptionally demanding and the same can be said for the electrical majors except those confronting the dire consequences of a collapse in semiconductor memory prices.
Therefore, we conclude that quality beneficiaries of yen weakness already discount a full earnings recovery and that any wholesale return of domestic investors to the stock market will bring a change of leadership to sectors of little interest to the value investor.
~~HONG KONG~~
During the second quarter of 1996 the Hong Kong stock market marked time at high levels, the Morgan Stanley Capital International Hong Kong Index appreciated 0.84% in U.S. dollars and 0.95% in Hong Kong dollars. This was a creditable performance given that U.S. interest rates gave little relief to a market that was at recovery high levels at the beginning of the quarter. China has made it abundantly clear that the colony will come under its control in June 1997 in buoyant economic conditions and therefore one should be confident that political fears will be allayed in the next year. Given a gradual recovery in the mainland economy and a continued recovery of the local property market, both residential and commercial, it is easy to be optimistic as to the fundamental outlook for this market.
In our view, however, at its current level the market discounts a full-bloodied economic recovery with the exception of commercial property stocks which offer limited upside if the expected moderate improvement in rentals occurs.
~~Probably the best value in Hong Kong, however, is the Hong Kong Bank, listed in London.~~
~~AUSTRALIA~~
~~The Australian stock market was becalmed in the second quarter, the Morgan Stanley Capital International Australia Index appreciated 0.05% in Australian~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document dollars and 0.66% in U.S. dollars.~~
Though the Australian dollar remained firm during the quarter, it was a period of softening for commodity prices, and resource stocks consequently weakened. Meanwhile, in the banking sector competitive pressures and a bottoming out of the loan loss cycle led to an abrupt end to this sector's relative strength. The industrial sector was resilient but this was after a period of relative weakness.
~~We still believe the resources sector to be fundamentally overvalued with international investors tolerating high valuations out of respect for the quality of Australia's mining houses.~~
Meanwhile, we believe the banking sector's earnings cycle has peaked though takeover possibilities abound. The industrial sector is fairly valued but earnings growth will continue to disappoint, the outlook for housing being particularly weak in the short term.
~~Dominic Caldecott PORTFOLIO MANAGER~~
~~July 1996~~
~~------International Equity Portfolio~~
48
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE INTERNATIONAL EQUITY PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------ COMMON STOCKS (89.4%) AUSTRALIA (4.9%) 3,200,000 Australia & New Zealand Banking Group Ltd...... $ 15,140 3,470,000 Brambles Industries Ltd...... 48,218 4,410,000 Coles Myer Ltd...... 16,013 5,500,000 CSR Ltd...... 19,409 ------98,780 ------BELGIUM (0.8%) (a)52,500 Arbed S.A...... 6,013 243,350 G.I.B. Holdings Ltd...... 10,931 2,156 G.I.B. Holdings Ltd. VVPR (New)...... 96 ------17,040 ------DENMARK (2.0%) 120,100 Den Danske Bank...... 8,061 111,250 Novo-Nordisk A/S, Class B...... 15,769 352,500 Unidanmark A/S, Class A (Registered)...... 16,374 ------40,204 ------FINLAND (1.1%) 350,000 Huhtamaki Oy, Series 1...... 11,720 (a)168,467 Merita Ltd., Class A...... 353 280,000 Nokia AB Oy, Series A...... 10,343 ------22,416 ------FRANCE (9.1%) 204,640 Assurances Generales de France...... 5,551 576,350 Banque Nationale de Paris...... 20,266 15,510 Bongrain S.A...... 7,515 174,827 Cie de Saint Gobain...... 23,440 (a)153,050 Credit Lyonnaise CDI...... 3,589 350,000 Elf Aquitaine...... 25,785 94,400 Groupe Danone...... 14,310 240,600 Lafarge Coppee S.A...... 14,584 175,000 PSA Peugeot Citroen S.A...... 23,463 355,700 Thomson CSF S.A...... 10,015
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 255,000 Total S.A., Class B...... 18,945 346,980 Valeo S.A...... 18,601 ------186,064 ------GERMANY (7.2%) 75,000 BASF AG...... 21,390 1,050,000 Bayer AG...... 36,992 50,000 Commerzbank AG...... 10,355 287,500 Hoechst AG...... 9,722 90,500 Karstadt AG...... 36,081 36,425 Mannesmann AG...... 12,557 (a)24,900 Varta AG...... 5,340 245,700 Veba AG...... 13,077 5,250 Volkswagen AG...... 1,957 ------147,471 ------HONG KONG (2.7%) (d)90,600 China Light & Power Co., Ltd...... 410 7,000,000 Hong Kong Land Holdings Ltd...... 15,750 12,000,000 Jardine Strategic Holdings, Inc...... 38,400 ------54,560 ------
VALUE SHARES (000) ------
ITALY (3.0%) (a)14,000,000 Olivetti Di Risp...... $ 7,563 (a)2,560,500 Olivetti Di Risp (NCS)...... 1,265 11,000,000 Stet Di Risp (NCS)...... 28,922 5,300,000 Telecom Italia S.p.A...... 11,408 6,800,000 Telecom Italia S.p.A. Di Risp (NCS)...... 11,749 90,000 TIM S.p.A...... 201 ------61,108 ------JAPAN (21.9%) 1,050,000 Aisin Seiki Co., Ltd...... 15,847 1,000,000 Canon, Inc...... 20,855 123,000 Chudenko Corp...... 4,478 1,500,000 Daibiru Corp...... 20,032 1,600,000 Daicel Chemical Industry Ltd...... 9,879 660,000 Daikin Industries Ltd...... 7,244 1,037,000 Dainippon Ink & Chemical, Inc...... 5,331 4,000 East Japan Railway Co...... 21,038 2,150,000 Fuji Photo Film Ltd...... 68,045 2,700,000 Hitachi Ltd...... 25,191 2,250,000 Kao Corp...... 30,460 650,000 Kirin Brewery Co., Ltd...... 7,967 1,633,000 Matsushita Electric Industries Ltd...... 30,472 81,000 Murata Manufacturing Co., Ltd...... 3,075 3,427,200 Nichido Fire & Marine Insurance Co., Ltd...... 26,552 2,711 Nippon Telegraph & Telephone Corp...... 20,136 221,000 Ryosan Co...... 5,721 350,000 Sony Corp...... 23,082 2,100,000 Sumitomo Marine & Fire Insurance Co...... 18,344 3,000,000 Sumitomo Rubber Industries...... 26,042 350,000 TDK Corp...... 20,938 1,010,000 Toyo Seikan Kaisha Ltd...... 35,291 ------446,020 ------NETHERLANDS (9.1%) 812,517 ABN Amro Holdings N.V...... 43,665 230,000 Akzo Nobel N.V...... 27,594 84,436 Hollandsche Beton Groep N.V...... 16,199 1,425,000 ING Groep N.V...... 42,553 258,500 Koninklijke Bijenkorf Beheer N.V...... 21,869 153,050 Nedlloyd Groep N.V...... 3,529 892,300 Philips Electronics N.V...... 29,054 ------184,463 ------NEW ZEALAND (0.3%) 2,144,627 Fisher & Paykel Industries Ltd...... 6,905 (a,d)392,500 Smith City Group Ltd...... ------6,905 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document NORWAY (1.2%) 3,500,000 Den Norske Bank A/S...... 10,630 393,600 Hafslund Nycomed, Class B...... 2,488 (a)650,000 Nycomed ASA, Class A...... 9,369 (a)93,850 Nycomed ASA, Class B...... 1,302 ------23,789 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------International Equity Portfolio~~
49
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE INTERNATIONAL EQUITY PORTFOLIO (CONT.) ------~~
VALUE SHARES (000) ------ SINGAPORE (0.2%) 3,265,000 Neptune Orient Lines Ltd. (Foreign)...... $ 3,425 ------SPAIN (4.5%) (a)89,300 Grupo Duro Felguera S.A...... 386 2,745,000 Iberdrola S.A...... 28,219 590,000 Repsol S.A...... 20,548 2,261,150 Telefonica Nacional de Espana S.A...... 41,718 ------90,871 ------SWEDEN (4.6%) 198,070 Electrolux AB, Series B...... 9,986 429,300 Nordbanken AB...... 8,307 592,600 Skandia Forsakrings AB...... 15,722 1,418,500 Skandinaviska Enskilda Banken, Class A...... 11,365 899,100 S.K.F. AB, Class B...... 21,408 364,600 Sparbenken Sverige AB, Class A...... 4,740 1,014,000 Svenska Cellulosa AB, Class B...... 20,924 (a)36,460 Tornet Fastighets AB...... 298 ------92,750 ------SWITZERLAND (6.7%) 2,605 Ascom Holdings AG (Bearer)...... 2,627 160 Ciba-Geigy AG (Bearer)...... 194 35,000 Ciba-Geigy AG (Registered)...... 42,717 20,000 Forbo Holding AG (Registered)...... 8,483 10,800 Holderbank Financiere Glaris AG (Bearer)...... 8,644 36,085 Nestle S.A. (Registered)...... 41,269 9,560 Schindler Holding AG (Participating Certificates)...... 10,176 15,550 Sulzer AG (Participating Certificates)...... 9,334 18,450 Sulzer AG (Registered)...... 11,872 ------135,316 ------UNITED KINGDOM (10.1%) 1,260,000 Associated British Foods plc...... 7,575 (a)1,360,104 Automated Security Holdings plc...... 782 2,625,900 BAT Industries plc...... 20,437 4,905,000 Christian Salvesen plc...... 19,621 2,309,300 English China Clays plc...... 9,292 3,521,546 Grand Metropolitan plc...... 23,360 4,951,389 John Mowlem & Co. plc...... 6,923 2,400,000 Kwik Save Group plc...... 16,890 843,000 McAlpine (Alfred) plc...... 1,977 2,221,958 Reckitt & Colman plc...... 23,334 2,032,700 Rolls-Royce plc...... 7,073 1,982,857 Royal Insurance Holdings plc...... 12,260 258,000 Tate & Lyle plc...... 1,836 2,252,100 Unilever plc...... 44,782
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2,975,000 WPP Group plc...... 9,937 ------206,079 ------TOTAL COMMON STOCKS (Cost $1,453,696)...... 1,817,261 ------
VALUE SHARES (000) ------
PREFERRED STOCKS (3.3%) GERMANY (3.3%) 762,600 RWE AG...... $ 23,455 29,525 Spar Handels AG...... 8,236 125,000 Volkswagen AG...... 34,293 ------TOTAL PREFERRED STOCKS (Cost $46,222)...... 65,984 ------CONVERTIBLE PREFERRED STOCKS (0.1%) HONG KONG (0.1%) 1,863,000 Jardine Strategic Holdings, Inc., IDR, 7.50%, 5/07/97...... 2,026 ------NETHERLANDS (0.0%) 1,506 ABN Amro Holdings N.V...... 6 2,196 ING Groep N.V...... 11 ------17 ------TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $1,923)...... 2,043 ------
NO. OF WARRANTS ------ ~~WARRANTS (0.0%) SWITZERLAND (0.0%) (a)5,235 Schindler Holding AG, expiring 12/16/96 (Cost $0)...... 10 ------TOTAL FOREIGN SECURITIES (92.8%) (Cost $1,501,841)...... 1,885,298 ------~~
FACE AMOUNT (000) ------ SHORT-TERM INVESTMENT (1.6%) REPURCHASE AGREEMENT (1.6%) $ 32,796 Chase Securities, Inc. 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $32,810, collateralized by $32,220 U.S. Treasury Notes, 7.125%, due 9/30/99, valued at $32,940 (Cost $32,796)...... 32,796 ------FOREIGN CURRENCY (6.5%) BEF 7,030 Belgian Franc...... 225 GBP 31,709 British Pound...... 49,260 DKK 20 Danish Krone...... 3 DEM 66,567 Deutsche Mark...... 43,794 ITL 9,779 Italian Lira...... 6 JPY 3,985,925 Japanese Yen...... 36,459 NLG 20 Netherlands Guilder...... 12 NOK 4 Norwegian Krone...... 1 SGD 1,670 Singapore Dollar...... 1,184 ESP 10,542 Spanish Peseta...... 82 SEK 1,376 Swedish Krona...... 208 CHF 705 Swiss Franc...... 564 ------TOTAL FOREIGN CURRENCY (Cost $131,550)...... 131,798 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------International Equity Portfolio~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 50~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE INTERNATIONAL EQUITY PORTFOLIO (CONT.) ------~~
VALUE (000) ------TOTAL INVESTMENTS (100.9%) (Cost $1,666,187)...... $2,049,892 ------OTHER ASSETS (15.6%) Securities, at Value, Held as Collateral for Securities Loaned...... $ 286,019 Net Unrealized Gain on Forward Foreign Currency Exchange Contracts...... 22,149 Dividends Receivable...... 6,142 Foreign Withholding Tax Reclaim Receivable...... 1,581 Receivable for Investments Sold...... 854 Receivable for Portfolio Shares Sold...... 346 Security Lending Income Receivable...... 57 Interest Receivable...... 14 Other...... 82 317,244 ------LIABILITIES (-16.5%) Collateral on Securities Loaned, at Value...... (286,019) Payable for Investments Purchased...... (34,453) Bank Overdraft...... (9,140) Investment Advisory Fees Payable...... (3,755) Payable for Portfolio Shares Redeemed...... (1,053) Administrative Fees Payable...... (252) Custodian Fees Payable...... (154) Security Lending Fees Payable...... (37) Directors' Fees and Expenses Payable...... (31) Net Receivable for Closed Forward Foreign Currency Exchange Contracts...... (16) Dividends Payable...... (4) Distribution Fees Payable...... (3) Other Liabilities...... (222) (335,139) ------NET ASSETS (100%)...... $2,031,997 ------NET ASSETS CONSIST OF: Paid in Capital...... $1,545,435 Undistributed Net Investment Income...... 35,264 Accumulated Net Realized Gain...... 45,541 Unrealized Appreciation on Investments and Foreign Currency Translations...... 405,757 ------NET ASSETS...... $2,031,997 ------CLASS A: NET ASSETS...... $2,027,199
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 120,136,109 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $16.87 ------CLASS B: NET ASSETS...... $4,798 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 284,733 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $16.85 ------
------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of forward foreign currency exchange contracts open at June 30, 1996, the Portfolio is obligated to deliver or is to receive foreign currency in exchange for U.S. dollars or foreign currency as indicated below:

NET CURRENCY TO IN EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS) (000) (000) DATE (000) (000) (000) ------ DEM 391 $ 257 7/01/96 NOK 1,667 $ 257 $ -- DEM 4,600 3,027 7/02/96 AUD 3,830 3,010 (17) DEM 905 595 7/02/96 ITL 910,984 595 -- DEM 153,000 100,919 8/09/96 U.S.$106,895 106,895 5,976 SEK 240,000 36,266 9/16/96 U.S.$ 35,021 35,021 (1,245) FRF 153,000 29,919 10/11/96 U.S.$ 30,551 30,551 632 JPY 5,801,100 53,871 10/11/96 U.S.$ 61,000 61,000 7,129 NLG 118,000 69,923 11/14/96 U.S.$ 76,106 76,106 6,183 ESP 5,400,000 41,937 12/02/96 U.S.$ 42,584 42,584 647 JPY 3,100,000 29,106 12/24/96 U.S.$ 31,950 31,950 2,844 ------$365,820 $387,969 $22,149 ------
~~------~~
(a) -- Non-income producing security (d) -- Security is valued at fair value -- See note A-1 to financial statements CDI -- Certificate of Investment IDR -- International Depositary Receipt NCS -- Non Convertible Shares AUD -- Australian Dollar FRF -- French Franc

~~------~~
~~SUMMARY OF FOREIGN SECURITES BY INDUSTRY CLASSIFICATION~~
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ------Capital Equipment...... $ 335,888 16.5% Consumer Goods...... 498,094 24.5 Energy...... 109,891 5.4 Finance...... 307,535 15.2 Materials...... 314,967 15.5 Multi-Industry...... 80,563 4.0 Services...... 238,360 11.7 ------$1,885,298 92.8% ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------International Equity Portfolio~~
51
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE INTERNATIONAL MAGNUM PORTFOLIO~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
Australia 2.9% Austria 0.5% Belgium 0.9% Denmark 0.6% Finland 1.4% France 5.0% Germany 4.8% Hong Kong 6.8% Italy 3.0% Japan 38.3% Malaysia 2.7% Netherlands 5.0% Norway 0.9% Singapore 2.0% Spain 3.2% Sweden 1.8% Switzerland 5.8% United Kingdom 6.0% Other 8.4%

~~PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1) ------~~
TOTAL RETURNS(2) ------YTD ------ PORTFOLIO -- CLASS A(3)...... 4.40% PORTFOLIO -- CLASS B(3)...... 4.20 INDEX...... 3.73
1. The MSCI EAFE Index is an unmanaged index of common stocks and includes Europe, Australia and the Far East (assumes dividends reinvested 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.
3. Commencement of operations March 15, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
The investment objective of the International Magnum Portfolio is long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers in accordance with the EAFE country weightings determined by the Adviser. The EAFE countries in which the Portfolio will invest are those comprising the Morgan Stanley Capital International (MSCI) EAFE Index, which includes Australia, Japan, New Zealand, most nations located in Western Europe, and certain developed countries in Asia.
For the period from inception on March 15, 1996 through June 30, 1996, the Portfolio had a total return of 4.40% for the Class A shares and 4.20% for the Class B shares, as compared to a total return of 3.73% for the MSCI EAFE Index.
The International Magnum Portfolio was launched on March 15, 1996 at a NAV of $10.00 per share. Launched into a rallying international equity market, the Portfolio got off to a strong start. Although cash was invested quickly, securities could not be bought fast enough to catch up to the surging Index. With a mere two weeks of performance before quarter-end, it is not meaningful to
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document provide much more in terms of analysis of first quarter results. As a result, the balance of this report will focus on the second quarter of 1996.
During the second quarter of 1996, world markets were volatile as investors' concerns about inflation and rising interest rates waxed and waned. The EAFE markets performed well overall in April (+2.9%), with Japan, Italy and Malaysia all putting in strong performances in U.S. dollar terms. Several key markets including Japan and southeast Asia declined during May as signs of inflation grew threatening and investors feared tightening monetary policy. However, during June, economic data suggested that moderate growth and low inflation were, in fact, more dominant than previously thought, helping the equity markets to recover somewhat. Europe is still struggling with Maastricht criteria, while Japan, which had seemed to be depressed, surprised the market with strong GDP data for the first quarter. Asia continues to grow, but remains at risk from rising U.S. interest rates.
For the period ended March 31, 1996, the Portfolio had a total return of 0.90% for the Class A shares and 0.90% for the Class B shares as compared with 2.11% for the Index. Performance was enhanced by strong stock selection in Europe and Japan as well as by our currency hedges, which helped us to capture much of the strength of the local markets.
~~During the quarter, the U.S. dollar continued to strengthen following the trends of the first quarter.~~
~~------International Magnum Portfolio~~
52
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE INTERNATIONAL MAGNUM PORTFOLIO (CONT.) The yen, despite some mid-quarter volatility, depreciated over 2.5% to nearly 110 Y/$, while the Deutschemark fell over 3.0% to 1.52 DM/$. Our long-standing policy of hedging the yen 75% and the Deutschemark block currencies by 95% helped the portfolio's performance as these currencies continued to weaken versus the dollar during the quarter. Looking ahead, we have reduced our hedges to 50% of our yen exposure and 65% of the Deutschemark block. We still believe in the secular strength of the U.S. dollar, but the dollar has made a big move in the past twelve months and U.S. stock market weakness as well as the relative monetary policy stance of the Fed, the Bank of Japan and the Bundesbank may cloud the issues in the near term. Specifically, with a German rate cut looking less likely and sporadic rumors of a BoJ rate hike, the U.S. Fed's hesitation to raise U.S. interest rates in early July may dampen U.S. dollar sentiment over the near term.
Despite economic stagnation in much of Europe, several European markets were among the strongest performers (in U.S. dollar terms) within EAFE for the quarter. Specifically, Italy's market appreciated by 13%, Ireland's by 8% and Norway's by 7.1% to lead the EAFE countries. Overall, the MSCI Europe Index rose 2.6% for the quarter in dollar terms and 3.8% in local currency terms. European economies appear to be reaching a bottom, with the potential for future monetary easing coming to an end. We expect to see growth pick up in the second half of this year. Restructurings of many companies have been a drag on earnings growth in the short term, but should benefit earnings in the long run as these companies become more competitive -- just as we have seen in the U.S. The European sector of our portfolio continues to be positioned approximately 25% in small capitalization stocks, which have performed well this year. It has become increasingly difficult to find value in the stocks of larger European companies. In terms of markets, we see opportunity in Germany and Italy, and to a lesser extent in Spain, Switzerland and France. We have started to purchase retailing stocks in anticipation of an improvement in consumer sentiment, as well as banks, which have responded well to the low interest rate environment.
The Asian region performed relatively poorly during the quarter (down 0.25%), with Singapore (down 8%) the weakest performer in EAFE for the quarter. The Singapore market, which includes a number of large companies with exposure to property development, was hurt by the implementation of surprisingly severe government regulations to curb residential property speculation. Hong Kong was also volatile in response to fluctuations in U.S. interest rates. Property prices in Hong Kong rebounded in June, after several months in a slump, thereby helping property stocks and the market overall. In Malaysia, following strong performance during the first four months of 1996 (+20.2%) due to surging foreign investment and corporate earnings growth, the market fell 4.1% during May on profit-taking, rising interest rates and political discord in the ruling political party. The market recovered a bit in June to end the first half of the year up 16.3%, the strongest performer in developed Asia year-to-date. The government's fiscal and monetary tightening policies have finally begun to show signs of slowing down the economy, although inflation remains a risk. We have increased our exposure to Australia as the market there is prime for a recovery.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document GDP growth is strong and should trickle through to corporate earnings, especially if U.S. interest rates do not spike.
Following consolidation in May, the Japanese market improved in June as the Nikkei closed the quarter at the highest levels since 1992. The MSCI Japan index was up 3.5% in yen terms, but only 0.8% in U.S. dollar terms due to continued depreciation of the yen. The weak yen is greatly benefiting Japan's recovery, boosting both corporate profits and GDP. In addition, indications from the Bank of Japan that interest rates will remain at current low levels to help the recovery become "self sustaining" has also helped the market. Domestic sentiment appears to be improving, and we expect to see increased domestic investment as underfunded public and private pension funds increase their allocation to the equity market in search of higher returns. As long as the yen and interest rates remain at or near current levels, the outlook for the Japanese economy and the Japanese market is promising. Despite recent volatility in U.S. technology stocks, we continue to be positioned in the Japanese electronics sector, as valuations are very attractive, fundamentals solid, and the probability for upside earnings surprises is good. We also have purchased some cyclical stocks including chemicals and own several real estate-related companies as Japan continues to build due to increased demand for prime commercial real estate, ramifications of the Kobe earthquake, and government spending on infrastructure projects.
The lofty valuations of the U.S. markets combined with the threat of rising domestic interest rates have increased the risk of a correction in the U.S. markets. If the U.S. markets were to decline quickly and sharply, we would expect to see major repercussions and increased volatility around the world. On the
~~------International Magnum Portfolio~~
53
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE INTERNATIONAL MAGNUM PORTFOLIO (CONT.) other hand, a slow, steady decline would enable the international markets to decouple from the U.S. markets. Nonetheless, we believe that any reaction in the international markets would likely be temporary, as many other countries are currently experiencing a combination of economic expansion, declining interest rates and depreciating currencies, which combined create a favorable environment for stock market performance. Under these circumstances, we would expect to see a rotation from the U.S. market to the international markets. Our target regional allocation currently stands at 42% Europe, 40% Japan and 18% Asia.
~~Francine J. Bovich PORTFOLIO MANAGER July 1996~~
~~------International Magnum Portfolio~~
54
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE INTERNATIONAL MAGNUM PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------ COMMON STOCKS (90.4%) AUSTRALIA (2.9%) 30,812 Broken Hill Proprietary Co., Ltd...... $ 425 23,800 Lend Lease Corp., Ltd...... 365 44,490 National Australia Bank Ltd...... 411 33,200 News Corp., Ltd...... 188 60,660 Western Mining Corp. Holdings Ltd...... 434 ------1,823 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AUSTRIA (0.5%) 4,400 Boehler-Uddeholm AG...... 341 ------BELGIUM (0.9%) (a)2,980 Arbed S.A...... 341 2,260 Delhaize Freres et Cie, 'Le Lion' S.A...... 113 2,420 G.I.B. Holdings Ltd. NPV...... 109 480 G.I.B. Holdings Ltd. VVPR (New)...... 22 ------585 ------DENMARK (0.6%) 1,200 Jyske Bank A/S (Registered)...... 76 6,700 Unidanmark A/S, Class A (Registered)...... 311 ------387 ------FINLAND (1.4%) 18,000 Amer-Yhtymae Oy, Class A...... 303 8,880 Huhtamaki Oy, Series 1...... 298 7,390 Nokia AB Oy, Series A...... 273 ------874 ------FRANCE (5.0%) 11,000 Banque Nationale de Paris...... 387 667 Bongrain S.A...... 323 2,550 Cie de Saint Gobain...... 342 6,140 Elf Aquitaine S.A...... 452 2,300 Eridania Beghin-Say S.A...... 361 (a)5,980 Legris Industries S.A...... 275 3,120 Peugeot S.A...... 418 10,090 Thomson CSF...... 284 4,370 Total S.A., Class B...... 325 ------3,167 ------GERMANY (3.6%) 1,730 BASF AG...... 494 12,000 Bayer AG...... 423 1,040 Gerresheimer Glas AG...... 222 690 Karstadt AG...... 275 650 Mannesmann AG...... 224 4,710 Veba AG...... 251 1,130 Volkswagen AG...... 421 ------2,310 ------HONG KONG (6.8%) (a)5,000 Asia Satellite Telecommunications Holdings Ltd.... 15 113,000 Cheung Kong Holdings Ltd...... 814 22,000 China Light & Power Co., Ltd...... 100 28,000 Citic Pacific Ltd...... 113 25,000 Hang Seng Bank Ltd...... 252
VALUE SHARES (000) ------ 15,000 Henderson Land Development Co., Ltd...... $ 112 22,000 Hong Kong Electric Holdings Ltd...... 67 36,400 Hong Kong & Shanghai Bank Holdings plc...... 550 190,800 Hong Kong Telecommunications Ltd...... 343 116,000 Hutchison Whampoa Ltd...... 730 58,000 New World Development Co., Ltd...... 269 48,000 Sun Hung Kai Properties Ltd...... 485 41,000 Swire Pacific Ltd., Class A...... 351 38,000 Wharf Holdings Ltd...... 136 ------4,337 ------ITALY (3.0%) (a)92,900 Editoriale L'Expresso S.p.A...... 260 (a)280,200 Impregilo S.p.A...... 298 (a)533,500 Olivetti...... 288 105,000 Stet Di Risp (NCS)...... 276 300,000 Telecom Italia S.p.A. Di Risp (NCS)...... 518 (a)34,100 Unicem S.p.A...... 250 ------1,890 ------JAPAN (38.3%) 44,000 Amada Co., Ltd...... 475 25,000 Asahi Tec Corp...... 181
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 26,000 Canon, Inc...... 542 17,000 Daibiru Corp...... 227 71,000 Daicel Chemical Industry Ltd...... 438 21,000 Daifuku Co., Ltd...... 323 41,000 Daikin Industries Ltd...... 450 26,000 Dai Nippon Printing Co., Ltd...... 504 45,000 Daiwa Securities Co., Ltd...... 580 12,200 FamilyMart...... 544 20,000 Fuji Machine Manufacturing Co...... 565 15,000 Fuji Photo Film Ltd...... 475 12,000 Hitachi Credit Corp...... 213 82,000 Hitachi Ltd...... 765 45,000 Inabata & Co...... 340 33,000 Kaneka Corp...... 222 17,000 Kurita Water Industries...... 415 8,000 Kyocera Ltd...... 567 29,000 Kyudenko Co., Ltd...... 390 24,000 Matsushita Communication Industries...... 626 42,000 Matsushita Electric Industries Ltd...... 784 112,000 Mitsubishi Chemical Corp...... 518 42,000 Mitsubishi Estate Co., Ltd...... 580 78,000 Mitsubishi Heavy Industries Ltd...... 680 24,000 Mitsumi Electric Co., Ltd...... 382 13,000 Murata Manufacturing Co., Ltd...... 493 70,000 NEC Corp...... 762 28,000 Nifco, Inc...... 361 6,000 Nintendo Corp., Ltd...... 448 24,000 Nippon Pillar Packing...... 270 75 Nippon Telegraph & Telephone Corp...... 557 53,000 Nissan Motor Co...... 472 31,000 Nomura Securities Co...... 607 55,000 Obayashi Corp...... 499 21,000 Okura Industrial Co., Ltd...... 151 45,000 Ricoh Co., Ltd...... 477
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188) ------International Magnum Portfolio~~
55
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE INTERNATIONAL MAGNUM PORTFOLIO (CONT.) ------~~
VALUE SHARES (000) ------
~~JAPAN (CONT.)~~
8,000 Sangetsu Co., Ltd...... $ 215 19,000 Sankyo Co., Ltd...... 494 43,000 Sanwa Shutter...... 405 7,000 Secom Co., Ltd...... 464 34,000 Sekisui Chemical Co...... 417 13,600 Sony Corp...... 897 6,700 Square Company Ltd...... 394 31,000 Stanley Electric Co...... 216 46,000 Sumitomo Marine & Fire Insurance Co...... 402 36,000 Suzuki Motor Co., Ltd...... 474 70,000 Taisei Corp., Ltd...... 498 9,000 TDK Corp...... 539 15,000 Tokyo Electron Ltd...... 438 89,000 Toshiba Corp...... 635 67,000 Tsubakimoto Chain...... 458 20,000 Yamanouchi Pharmaceutical Co...... 435 ------24,264 ------MALAYSIA (2.7%) 2,600 AMMB Holdings Bhd...... 36 30,000 Genting Bhd...... 235
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 23,000 IOI Corp. Bhd...... 32 11,000 Leader Universal Holdings Bhd...... 31 11,000 Magnum Corp. Bhd...... 19 28,000 Malayan Banking Bhd...... 269 23,000 Malaysian International Shipping Bhd (Foreign).... 71 39,000 Petronas Gas Bhd...... 167 13,000 Public Bank Bhd (Foreign)...... 36 45,000 Renong Bhd...... 72 24,000 Resorts World Bhd...... 138 13,000 Sime Darby Bhd...... 36 21,000 TA Enterprise Bhd...... 33 27,000 Telekom Malaysia Bhd...... 240 44,000 Tenaga Nasional Bhd...... 185 (a)10,000 United Engineers Ltd. (Malaysia)...... 70 ------1,670 ------NETHERLANDS (5.0%) 9,150 ABN Amro Holdings N.V...... 492 3,060 Akzo Nobel N.V...... 367 800 DSM N.V...... 80 1,512 Hollandsche Benton Groep N.V...... 290 14,750 ING Groep N.V...... 440 4,875 Konin Nijverdal -- Ten Carte N.V...... 226 9,140 Koninklijke PTT Nederland N.V...... 346 9,720 Koninklijke Van Ommeren N.V...... 383 16,660 Philips Electronics N.V...... 542 ------3,166 ------NORWAY (0.9%) 94,700 Den Norske Bank A/S...... 288 18,100 Saga Petroleum A/S, Class B...... 246 ------534 ------
VALUE SHARES (000) ------
SINGAPORE (2.0%) 29,000 DBS Land Ltd...... $ 99 11,000 Development Bank of Singapore Ltd. (Foreign)...... 137 3,000 Fraser & Neave Ltd...... 31 16,000 Keppel Corp., Ltd...... 134 17,000 Oversea-Chinese Banking Corp. (Foreign)...... 199 4,000 Singapore Airlines Ltd. (Foreign)...... 42 3,000 Singapore Press Holdings (Foreign)...... 59 82,000 Singapore Technologies Industrial Corp...... 217 31,000 Straits Steamship Land Ltd...... 104 22,000 United Overseas Bank Ltd. (Foreign)...... 210 27,000 Wing Tai Holdings Ltd...... 57 ------1,289 ------SPAIN (3.2%) (a)13,460 Asturiana de Zinc S.A...... 101 (a)57,000 Grupo Duro Felguera S.A...... 246 35,000 Iberdrola S.A...... 360 7,800 Repsol S.A...... 272 29,000 Sevillana de Electricidad S.A...... 268 27,400 Telefonica de Espana S.A...... 506 31,200 Uralita S.A...... 293 ------2,046 ------SWEDEN (1.8%) 2,370 Electrolux AB, Series B...... 119 14,390 Nordbanken AS...... 278 8,300 Skandia Forsakrings AB...... 220 14,670 S.K.F. AB, Class B...... 349 12,800 Sparbanken Sverige AB, Class A...... 166 ------1,132 ------SWITZERLAND (5.8%) 370 Ascom Holdings AG (Bearer)...... 373 200 Bobst AG (Bearer)...... 289 330 Ciba-Geigy AG (Registered)...... 403 870 Forbo Holding AG (Registered)...... 369 450 Hero AG (Bearer)...... 198 400 Holderbank Financiere Glaris AG (Bearer)...... 320 380 Magazine Globus (Participating Certificates)...... 222
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 95 Magazine Globus (Registered)...... 58 480 Nestle S.A. (Registered)...... 549 (a)2,390 Oerlikon-Buehrle Holding AG (Registered)...... 249 290 Schweizerische Industrie-Gesellschaft Holdings (Registered)...... 336 450 Sulzer AG (Registered)...... 290 ------3,656 ------UNITED KINGDOM (6.0%) 27,200 Associated British Foods plc...... 164 16,900 Bass plc...... 212 75,000 BAT Industries plc...... 584 35,000 Calor Group plc...... 132
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188) ------International Magnum Portfolio~~
56
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE INTERNATIONAL MAGNUM PORTFOLIO (CONT.) ------~~
VALUE SHARES (000) ------
~~UNITED KINGDOM (CONT.)~~
117,500 Christian Salvesen plc...... $ 470 60,000 Courtaulds Textiles plc...... 337 95,800 John Mowlem & Co. plc...... 134 28,100 Kwik Save Group plc...... 198 (a)18,700 Railtrack Group plc, PP...... 63 40,037 Reckitt & Colman plc...... 420 28,200 Royal Insurance Holdings plc...... 174 43,000 Tate & Lyle plc...... 306 31,700 Unilever plc...... 630 ------3,824 ------TOTAL COMMON STOCKS (Cost $56,421)...... 57,295 ------PREFERRED STOCKS (1.2%) GERMANY (1.2%) 1,060 Dyckerhoff AG...... 278 2,570 Hornbach Holding AG...... 221 8,200 RWE AG...... 252 ------TOTAL PREFERRED STOCKS (Cost $679)...... 751 ------
NO. OF RIGHTS ------ ~~RIGHTS (0.0%) SINGAPORE (0.0%) (a)1,700 Oversea-Chinese Banking Corp., expiring 7/12/96 (Cost $0)...... 14 ------TOTAL FOREIGN SECURITIES (91.6%) (Cost $57,100)...... 58,060 ------~~ FACE AMOUNT (000) ------ SHORT-TERM INVESTMENT (9.4%) REPURCHASE AGREEMENT (9.4%) $ 5,925 Chase Securities, Inc. 5.15%, dated 6/28/96, due
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 7/01/96, to be repurchased at $5,928, collateralized by $5,825 U.S. Treasury Notes, 7.125%, due 9/30/99, valued at $5,955 (Cost $5,925)...... 5,925 ------FOREIGN CURRENCY (0.4%) DEM 5 Deutsche Mark...... 3 FIM 247 Finnish Markka...... 53 HKD 31 Hong Kong Dollar...... 4 ITL 30 Italian Lira...... -- JPY 72 Japanese Yen...... 1 MYR 122 Malaysian Ringgit...... 49 NOK 161 Norwegian Krone...... 25 SGD 65 Singapore Dollar...... 46 ESP 7,276 Spanish Peseta...... 57 CHF 3 Swiss Franc...... 2 ------TOTAL FOREIGN CURRENCY (Cost $240)...... 240 ------
VALUE (000) ------ TOTAL INVESTMENTS (101.4%) (Cost $63,265)...... $64,225 ------OTHER ASSETS (0.9%) Cash...... $ 1 Net Unrealized Gain on Forward Foreign Currency Exchange Contracts...... 241 Receivable for Investments Sold...... 199 Dividends Receivable...... 57 Receivable due from Investment Adviser...... 18 Foreign Withholding Tax Reclaim Receivable...... 14 Interest Receivable...... 3 Other...... 80 613 ------LIABILITIES (-2.3%) Payable for Investments Purchased...... (1,398) Custodian Fees Payable...... (28) Administrative Fees Payable...... (8) Distribution Fees Payable...... (1) Other Liabilities...... (35) (1,470) ------NET ASSETS (100%)...... $63,368 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 62,032 Undistributed Net Investment Income...... 151 Accumulated Net Realized Loss...... (15) Unrealized Appreciation on Investments and Foreign Currency Translations...... 1,200 ------NET ASSETS...... $ 63,368 ------CLASS A: NET ASSETS...... $61,738 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 5,916,237 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $10.44 ------CLASS B: NET ASSETS...... $1,630 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 156,421 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $10.42 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188) ------International Magnum Portfolio~~
57
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document [LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------
~~THE INTERNATIONAL MAGNUM PORTFOLIO (CONT.) ------~~
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of forward foreign currency exchange contracts open at June 30, 1996, the Portfolio is obligated to deliver or is to receive foreign currency in exchange for U.S. dollars as indicated below:

~~------~~
IN NET CURRENCY EXCHANGE UNREALIZED TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS) (000) (000) DATE (000) (000) (000) ------ U.S.$ 9 $ 9 7/02/96 ITL 13,665 $ 9 $ -- BEF 16,574 530 7/12/96 U.S.$525 525 (5) CHF 626 501 7/12/96 U.S.$510 510 9 DEM 705 464 7/12/96 U.S.$465 465 (1) FRF 2,058 401 7/12/96 U.S.$400 400 1 JPY 270,628 2,480 7/12/96 U.S.$2,530 2,530 50 NLG 710 417 7/12/96 U.S.$420 420 3 DEM 398 262 7/15/96 U.S.$261 261 (1) DEM 2,922 1,922 7/16/96 U.S.$1,898 1,898 (24) CHF 3,599 2,886 7/31/96 U.S.$2,860 2,860 (26) NLG 4,292 2,518 7/31/96 U.S.$2,499 2,499 (19) FRF 11,518 2,242 8/14/96 U.S.$2,217 2,217 (25) JPY 951,570 8,704 8/14/96 U.S.$8,923 8,923 219 JPY 489,836 4,540 9/27/96 U.S.$4,600 4,600 60 ------$ 27,876 $ 28,117 $ 241 ------
~~------~~
~~(a) -- Non-income producing security NCS -- Non Convertible Shares PP -- Partially Paid BEF -- Belgian Franc FRF -- French Franc NLG -- Netherlands Guilder~~
~~------~~
~~SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION~~
VALUE PERCENT OF INDUSTRY (000) NET ASSETS ------Capital Equipment...... $ 18,597 29.3% Consumer Goods...... 11,555 18.2 Energy...... 2,882 4.5 Finance...... 9,775 15.4 Gold Mines...... 101 0.2 Materials...... 6,134 9.7 Multi-Industry...... 1,365 2.2 Services...... 7,651 12.1 ------$ 58,060 91.6% ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188) ------International Magnum Portfolio~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 58~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE INTERNATIONAL SMALL CAP PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
Australia 9.1% Denmark 1.4% Finland 4.3% France 10.7% Germany 9.5% Hong Kong 2.3% Ireland 2.4% Italy 3.9% Japan 13.5% Netherlands 7.8% New Zealand 0.9% Norway 1.5% Spain 3.7% Sweden 1.0% Switzerland 10.2% United Kingdom 15.7% Other 2.1%

~~PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE ANNUAL YTD ONE YEAR SINCE INCEPTION ------ PORTFOLIO...... 15.66% 16.31% 18.63% INDEX...... 4.52 13.28 15.33
1. The MSCI EAFE Index is an unmanaged index of common stocks and includes Europe, Australia and the Far East (assumes dividends reinvested 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 COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY THE MSCI EAFE INDEX AND ARE FOR INFOMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
The International Small Cap Portfolio seeks long-term capital appreciation by investing primarily in the equity securities of non-U.S. issuers. The Portfolio applies a disciplined bottom-up value approach to identify and invest in small capitalization companies which are both attractive businesses and available at cheap prices. A market capitalization cut-off of U.S. $1 billion is used as our definition of "small."
For the six month period ended June 30, 1996, the Portfolio had a total return of 15.66%, as compared to a total return of 4.52% for the Morgan Stanley Capital International (MSCI) EAFE Index. The average annual total return for the twelve
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document months ended June 30, 1996 and for the period from inception on December 15, 1992 through June 30, 1996 was 16.31% and 18.63%, respectively, as compared to 13.28% and 15.33%, respectively, for the Index.
The Portfolio's significant outperformance during the first six months of the year reflected a strong recovery in the relative performance of small caps versus large caps together with the Portfolio's underweighting of the relatively weak Japanese market and currency. Stock selection proved particularly strong in Japan, the U.K., France, Germany, Finland and Australia. Although the major European currencies were weak relative to the U.S. dollar, the Portfolio's hedges alleviated the pain while the strong Australian dollar contributed positively to performance.
Given the very strong performances of a number of the Portfolio's holdings over the first half, portfolio activity was high. Turnover in the first six months reached 16.8%. Profits were top sliced in the U.K., Switzerland, Germany, Finland and Australia and proceeds from these sales were invested in building a number of positions in Germany, Spain, Sweden, Norway and Finland. The most recent additions to the Portfolio have been Ricardo (U.K.) and Europeenne d'Extincteurs (France).
Tamro is the leading pharmaceutical wholesaler in Finland, Sweden, and the Baltic states with dominant market positions and high rates of organic growth. Acquired on 9x cash flow and 11x free cash flow this valuation does not fully reflect the strength of its franchise, or its growth prospects.
Ricardo is a global automotive consulting company providing highly valued engineering services to virtually all the world's major car companies. On 7x cash flow and a yield of 6.2%, the stock represents attractive value.
~~Europeenne d'Extincteurs is France's second largest manufacturer and distributor of fire extinguishers and~~
~~------International Small Cap Portfolio~~
59
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE INTERNATIONAL SMALL CAP PORTFOLIO (CONT.) is also the market leader in Italy and Portugal. Purchased on 12x earnings and 11x free cash flow these valuations do not reflect the high level of recurrent income nor a number of initiatives which are likely to drive strong growth.
Looking forward we do not anticipate any major change in the Portfolio's geographic mix. The more cautious tone to the markets in recent weeks has reflected patchy economic news and, in particular, a focus on the next likely move in interest rates. In Japan corporate results were mixed and accompanied by generally cautious comments although a surprisingly strong GNP number suggests private capital expenditure and consumption are recovering. We remain cautious on the speed and magnitude of economic recovery in Japan and certainly believe that share prices more than discount our own expectations. Signs of bubble-style market shenanigans do concern us, however, and the risk that the local Japanese investor becomes increasingly active is worrysome.
In Europe weaker currencies, with the exception of the Italian lira, have been positive for the export sector but high unemployment levels have kept consumption severely depressed in Germany, Switzerland and France. The U.K. and the Netherlands, in contrast, provide more positive signs of consumer recovery. The recent actions of the Bank of Japan and Fed to maintain rather than raise rates are likely to provide a short term reprieve but the spectre of higher rates in these economies by the end of the year is unlikely to vanish. Our own perspective remains one of a slow but gradual recovery in Europe and Japan dampened by structurally high levels of unemployment and poor public sector finances. We see no real danger of a pick up in inflation in the international markets outside Japan and corporate profitability in general will continue to be driven by restructuring rather than top line growth.
Despite this cautious outlook we continue to find attractive value in the small cap sector given the relatively poor coverage of these companies. Increasing interest in the sector is continuing to drive small cap outperformance but the sheer number of companies in our universe leaves no shortage of inefficiently priced, high quality businesses still to be discovered. Given our earlier comments regarding Japan, we do not anticipate any change in our underweight position in this market while we continue to find attractive value in Continental Europe and Australia.
~~Margaret Naylor PORTFOLIO MANAGER~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document July 1996~~
~~------International Small Cap Portfolio~~
60
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE INTERNATIONAL SMALL CAP PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------COMMON STOCKS (92.2%) AUSTRALIA (9.1%) 112,001 Arnotts Ltd...... $ 749 564,678 Auspine Ltd...... 1,420 (a)990,079 Bains Harding Ltd...... 288 1,618,844 BRL Hardy Ltd...... 2,952 1,100,000 Burswood Property Trust...... 1,496 2,351,732 Country Road Ltd...... 3,068 2,576,334 E.R.G. Ltd...... 3,381 (a)763,000 E.R.G. Ltd. (New)...... 1,001 318,100 Morgan & Banks Ltd...... 888 5,862,355 Parbury Ltd...... 2,534 70,132 Rothmans Holdings Ltd...... 391 1,721,500 Solution 6 Holdings Ltd...... 1,935 (a)546,000 W.D. & H.O. Wills Holdings Ltd...... 966 ------21,069 ------DENMARK (1.4%) 107,000 SYD-Sonderjylland Holdings...... 3,198 ------FINLAND (4.3%) 16,300 Aamulehti Yhtymae Oy, Series II...... 440 125,000 Amer-Yhtymae Oy, Class A...... 2,106 106,810 Hartwall Oy, Class A...... 2,619 (a)71,850 KCI Konecranes International...... 1,770 11,400 Kone Oy, Class B...... 1,273 308,900 OY Tamro AB...... 1,855 ------10,063 ------FRANCE (10.7%) 72,000 Dauphin O.T.A...... 4,203 (a)67,650 De Dietrich et Compagnie S.A...... 3,423 31,150 Europeenne de Propulsion S.A...... 3,607 (a)49,200 Europeenne d'Extincteurs...... 2,489 8,100 Galeries Lafayette...... 2,768 6,296 Labinal S.A...... 921 (a)79,434 Legris Industries S.A...... 3,648 91,756 Sediver S.A...... 3,749 ------24,808 ------GERMANY (4.4%) (a)8,900 Duerr Beteiligungs AG...... 3,367 440 Gerresheimer Glas AG...... 94 10,688 Sinn AG...... 1,758 (a)20,000 Varta AG...... 4,290 2,210 Vossloh AG...... 776 ------10,285 ------HONG KONG (2.3%) 1,282,000 Chen Hsong Holdings...... 687 1,097,000 Jardine International Motor Holdings Ltd...... 1,346 5,200,000 Pico Far East Holdings Ltd...... 1,209 5,862,000 Vitasoy International Holdings Ltd...... 2,140 ------5,382 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document VALUE SHARES (000) ~~------~~
IRELAND (2.4%) 1,070,000 Avonmore Foods plc, Class A...... $ 2,906 692,472 Green Property plc...... 2,544 ------5,450 ------ITALY (3.3%) (a)1,172,800 Editoriale L'Expresso S.p.A...... 3,275 506,000 Sogefi S.p.A...... 1,051 787,000 Unicem Di Risp (NCS)...... 2,565 81,000 Vincenzo Zucchi S.p.A...... 386 212,500 Vincenzo Zucchi S.p.A. (NCS)...... 486 ------7,763 ------JAPAN (13.5%) 15,000 Exedy Corp...... 277 231,000 Foster Electric Co., Ltd...... 1,376 337,000 Hankyu Realty...... 3,607 742,350 Japan Oil Transportation...... 4,482 213,000 Japan Vilene Co., Ltd...... 1,461 134,000 Kansei Corp...... 1,250 328,000 Kirin Beverage Corp...... 4,830 136,400 Nifco, Inc...... 1,759 425,000 Nissan Fire & Insurance Co...... 3,087 45,000 Sangetsu Co., Ltd...... 1,206 549,000 Toc Co...... 6,528 170,000 Toyoda Gosei Co...... 1,547 ------31,410 ------NETHERLANDS (7.8%) 64,530 Ahrend Groep N.V...... 2,896 41,900 Apothekers Cooperatie OPG C.V...... 1,123 27,916 Hollandsche Beton Groep N.V...... 5,356 28,885 Industriemij Welna N.V...... 744 141,000 Koninklijke Van Ommeren N.V...... 5,559 37,125 Konin Nijverdal -- Ten Carte N.V...... 1,718 8,802 Polynorm N.V...... 775 ------18,171 ------NEW ZEALAND (0.9%) 659,729 Fisher & Paykel Industries Ltd...... 2,124 ------NORWAY (1.5%) 73,850 Adelsten, Class B...... 1,013 65,450 Kverneland AS...... 1,614 (a)228,020 Oceanor...... 809 ------3,436 ------SPAIN (3.7%) (a)101,258 Asturiana del Zinc S.A...... 759 80,000 Bodegas y Bebidas S.A...... 1,942 47,750 Empressa Nacional Hidroelectrica del Ribagorzana S.A., Class B...... 997 87,250 Gas y Electricidad S.A...... 4,843 ------8,541 ------SWEDEN (1.0%) 94,000 Marieberg Tidnings AB...... 2,359 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------International Small Cap Portfolio~~
61
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document THE INTERNATIONAL SMALL CAP PORTFOLIO (CONT.) ------~~
VALUE SHARES (000) ------ SWITZERLAND (10.2%) 1,940 Bobst AG (Bearer)...... $ 2,802 4,965 Bucher Holdings AG (Bearer)...... 3,874 9,800 Edipresse S.A. (Bearer)...... 2,353 3,400 Hero AG (Bearer)...... 1,497 530 Kouni Reisen Holdings, Class B (Registered)...... 1,217 2,750 LEM Holdings AG...... 806 8,500 Magazine Globus (Participating Certificates)...... 4,966 5,850 Porst Holding AG (Bearer)...... 581 1,800 Schweizerische Industrie-Gesellschaft Holdings (Registered)...... 2,089 (a)910 Von Moos Holding AG (Bearer)...... 67 3,850 Zellweger Luwa AG (Bearer)...... 3,543 ------23,795 ------UNITED KINGDOM (15.7%) 4,000,000 Anglo Irish Bank Corp. plc (British Pound Shares)...... 4,039 530,000 Blagden Industries plc...... 1,301 1,094,900 Bluebird Toys plc...... 3,963 1,266,800 BSM Group plc...... 3,641 80,700 Church & Co. plc...... 602 1,080,600 Corporate Services Group plc...... 3,038 (a,d)2,540,850 Donelon Tyson plc...... -- 63,500 Eurocamp plc...... 216 1,025,000 GEI International plc...... 2,309 212,000 Hadleigh Industries Group plc...... 764 (a)282,000 Hornby Group plc...... 852 223,000 International Business Communications (Holdings) plc...... 1,088 1,030,000 John Mowlem & Co. plc...... 1,440 (a)35,365,100 Kendell plc...... 412 206,335 Mallett plc...... 244 2,682,000 Matthews (Bernard) plc...... 4,208 60,200 McBride plc...... 121 569,400 Oriflame International S.A...... 4,467 (a,d)2,659,393 Pentos plc...... -- 323,526 Perry Group plc...... 960 450,000 Ricardo Group plc...... 944 (a)1,895,000 Tandem Group plc...... 371 251,400 The 600 Group plc...... 1,078 541,700 Waterman Partnership Holdings plc...... 303 ------36,361 ------TOTAL COMMON STOCKS (Cost $196,648)...... 214,215 ------ VALUE SHARES (000) ------PREFERRED STOCKS (5.5%) GERMANY (5.1%) 40,800 Berentzen-Gruppe AG...... $ 1,694 9,100 Dyckerhoff AG...... 2,383 32,400 Hornbach Holding AG...... 2,792 10,550 Spar Handels AG...... 2,943 10,900 Wuerttembergische Metallwarenfabrik AG...... 1,972 ------11,784 ------ITALY (0.4%) 237,250 Unipol S.p.A...... 1,026 ------TOTAL PREFERRED STOCKS (Cost $11,279)...... 12,810 ------ NO. OF RIGHTS ------ RIGHTS (0.0%) IRELAND (0.0%) (a,d)230,824 Green Property plc, expiring 7/02/96 (Cost $0).... 111
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------
NO. OF WARRANTS ------ ~~WARRANTS (0.0%) SWITZERLAND (0.0%) (a)4,600 Zellweger Luwa AG, expiring 5/21/97 (Cost $0)..... 36 ------~~ FACE AMOUNT (000) ------ CONVERTIBLE DEBENTURE (0.2%) ITALY (0.2%) ITL 518,000 Mediobanca S.p.A. 5.50%, 1/01/00 (Cost $328)...... 328 ------TOTAL FOREIGN SECURITIES (97.9%) (Cost $208,255)...... 227,500 ------SHORT-TERM INVESTMENT (0.8%) REPURCHASE AGREEMENT (0.8%) $ 1,786 Chase Securities, Inc. 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $1,787, collateralized by $1,755 U.S. Treasury Notes, 7.125%, 9/30/99, valued at $1,794 (Cost $1,786)...... 1,786 ------FOREIGN CURRENCY (1.9%) GBP 325 British Pound...... 506 DKK 43 Danish Krone...... 7 DEM 5,527 Deutsche Mark...... 3,636 FIM 1 Finnish Markka...... -- ITL 143 Italian Lira...... -- JPY 33,672 Japanese Yen...... 308 ESP 12,650 Spanish Peseta...... 99 SEK 1 Swedish Krona...... ------TOTAL FOREIGN CURRENCY (Cost $4,539)...... 4,556 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------International Small Cap Portfolio~~
62
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE INTERNATIONAL SMALL CAP PORTFOLIO (CONT.) ------~~
VALUE (000) ------ ~~TOTAL INVESTMENTS (100.6%) (Cost $214,580)...... $233,842 ------~~
OTHER ASSETS (0.5%) Cash...... $ 1 Net Unrealized Gain on Forward Foreign Currency Exchange Contracts...... 343 Dividends Receivable...... 307 Receivable for Investments Sold...... 306 Foreign Withholding Tax Reclaim Receivable...... 184 Receivable for Portfolio Shares Sold...... 18 Interest Receivable...... 9 Other...... 9 1,177 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document LIABILITIES (-1.1%) Payable for Investments Purchased...... (1,972) Investment Advisory Fees Payable...... (480) Custodian Fees Payable...... (31) Administrative Fees Payable...... (30) Directors' Fees and Expenses Payable...... (4) Other Liabilities...... (39) (2,556) ------NET ASSETS (100%)...... $232,463 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 208,307 Undistributed Net Investment Income...... 2,209 Accumulated Net Realized Gain...... 2,345 Unrealized Appreciation on Investments and Foreign Currency Translations...... 19,602 ------NET ASSETS...... $ 232,463 ------NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 13,450,988 outstanding $0.001 par value shares (authorized 1,000,000,000 shares)...... $17.28 ------

------FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of forward foreign currency exchange contracts open at June 30, 1996, the Portfolio is obligated to deliver or is to receive foreign currency in exchange for U.S. dollars or foreign currency as indicated below:

IN NET CURRENCY TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS) (000) (000) DATE (000) (000) (000) ------ DEM 304 $ 200 7/01/96 FIM 927 $ 200 $ -- NLG 6 3 7/01/96 DEM 5 3 -- DEM 1,119 737 7/02/96 IEP 462 738 1 DEM 3,000 1,983 9/12/96 U.S.$ 2,049 2,049 66 FRF 20,000 3,906 9/12/96 U.S.$ 3,964 3,964 58 NLG 10,000 5,899 9/12/96 U.S.$ 6,105 6,105 206 JPY 798,840 7,418 10/11/96 U.S.$ 8,400 8,400 982 U.S.$ 8,400 8,400 10/11/96 JPY 800,100 7,430 (970) ------$ 28,546 $ 28,889 $ 343 ------
~~------~~
(a) -- Non-income producing security (d) -- Security valued at fair value -- See note A-1 to financial statements NCS -- Non Convertible Shares FRF -- French Franc IEP -- Irish Punt NLG -- Netherland Guilder

~~------~~
~~SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION~~
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Capital Equipment...... $ 46,857 20.2% Consumer Goods...... 58,324 25.1 Energy...... 6,599 2.8 Finance...... 26,977 11.6 Materials...... 23,805 10.3 Multi-Industry...... 6,554 2.8 Services...... 58,384 25.1 ------$ 227,500 97.9% ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------International Small Cap Portfolio~~
63
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE JAPANESE EQUITY PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
~~Capital Equipment 16.3% Consumer Goods 16.1% Electrical & Electronics 16.9% Finance 6.4% Machinery & Engineering 12.7% Materials 8.9% Multi-Industry 1.6% Services 9.6% Other 11.5%~~

~~PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) JAPAN INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE ANNUAL YTD ONE YEAR SINCE INCEPTION ------ PORTFOLIO -- CLASS A... 7.77% 24.63% 0.95% PORTFOLIO -- CLASS B(3)...... 7.78 N/A N/A INDEX...... 1.13 11.08 1.93
1. The MSCI Japan Index is an unmanaged index of common stocks (assumes dividends reinvested).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY THE MSCI 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
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
The investment objective of the Japanese Equity Portfolio is to seek long-term capital appreciation by investing primarily in equity securities of Japanese issuers. Equity securities are defined as common and preferred stocks, debt securities convertible into common stock and common stock purchase warrants.
For the six month period ended June 30, 1996, the Portfolio had a total return of 7.77% for the Class A shares and 7.78% for the Class B shares, as compared to a total return of 1.13% for the Morgan Stanley Capital International (MSCI) Japan Index. The average annual total return for the twelve months ended June 30, 1996 and for the period from inception on April 25, 1994 through June 30, 1996 was 24.63% and 0.95%, respectively, for the Class A shares, as compared to 11.08% and 1.93%, respectively, for the Index.
During the first half of 1996 macro conditions regarding the Japanese economy showed evidence of a meaningful recovery underway, supported by a weakening yen, economic stimulus packages and record low interest rates.
Interest rate differentials between the U.S. and Japan continued to widen while the G-7 supported further strength for the dollar stating the "dollar rise is positive and promising" during the Lyon summit. With comment, it appears unanimous support for Japan sustaining a solid economic recovery remains a top priority by G-7.
A low interest rate weaker yen environment coupled with a 14 trillion yen stimulus package announced in September 1995 had a very profound impact on GDP, corporate profits and business sentiment during the first half of 1996. In fact, GDP rose to 12.7% annualized for the quarter January to March 1996 (highest on record for the past 23 years), the BOJ May "Tankan" reported significant business confidence improvement, while corporate earnings for 1,057 listed non-financial companies rose 98% year over year on a consolidated basis. With such robust gains, concerns about monetary policy began to also rise. In February, finance minister Kubo hinted a possible rate hike to help pensioners; also BOJ Governor Matsushita commented he was also considering a rate hike "in the future." While these comments only served to cool financial markets, in reality there was no change in policy. We believe any interest rate rises in Japan will be modest. There is no evidence to date that real demand for money has yet occurred, suggesting further stimulus to the economy is necessary for a sustainable recovery. Moreover, monetary policy comments by the authorities seem to
~~------Japanese Equity Portfolio~~
64
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE JAPANESE EQUITY PORTFOLIO (CONT.) be timed with overheating markets -- and are more geared to securing a long term gradual recovery -- than slowing a fragile economy just emerging from 5 straight years of decline.
The solid fundamental improvements during the first half of 1996 propelled equities to the highest closing levels since 1992. While some profit taking and consolidation occurred during May as the market entered a transition from a macro driven environment to more earnings driven market, we believe the trend is in place for the bull market to resume. Supply and demand is improving as local pension funds have begun shifting assets from fixed income to equity, prompted by the lowering of guaranteed return by life insurance companies from 4.5 to 2.5% during the last quarter. Evidence of an earnings driven market is also suggested by the all-time highs for Honda and Canon, among others. On the other hand weak DRAM prices have put pressure on semi-conductor issues, which was also one of the best relative performance sectors over the last 12 months.
~~OUTLOOK~~
We believe we will not see drastic changes in monetary policy for the foreseeable future. During the Lyon G-7 summit, finance minister Kubo promised U.S. Treasury Secretary Rubin a continuation of economic reforms. Altough there were no official announcements we believe Mr. Kubo also promised an additional economic stimulus package to be announced in September and a continuation of flexible monetary policy, both of which will have real impact on further growth for the economy.
The cornerstone of a bull market -- low rates, economic stimulus packages, weaker yen -- are still intact. Corporate earnings will likely be revised upward again in September. However, uncertainty regarding interest rate policies will likely also continue to appear as it has during the last six months, although
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document likely already discounted. Correlation with the U.S. markets does exist but it appears the cycle in Japan is different without major impact from any minor policy changes in the U.S. Of critical importance, we believe, is not only the sustainability of the economic recovery but equally important sincerity and determination by Japan to continue implementing structural reforms including more deregulation to reduce the trade surplus. The effects of a weak yen we hope will not lull Japan into slowing structural reforms. We believe the MOF, BOJ and the Japanese authorities recognize the consequences of slowing such change and the possibility of a surging yen again should structural reforms and confirmed deregulation be abandoned.
We will maintain overweight positions in economic sensitive sectors which represent value and show earnings momentum. Although semiconductor related issues have consolidated due to DRAM pricing uncertainty, we believe these are at the bottom of the cycle and patience will be rewarded as prices firm and investors realize the business cycle for these companies significantly lag the U.S. by several years.
~~Dominic Caldecott PORTFOLIO MANAGER~~
~~Kunihiko Sugio PORTFOLIO MANAGER~~
~~July 1996~~
~~------Japanese Equity Portfolio~~
65
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE JAPANESE EQUITY PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------COMMON STOCKS (88.5%) APPLIANCES & HOUSEHOLD DURABLES (5.1%) 312,000 Matsushita Electric Industries Ltd...... $ 5,822 91,000 Sony Corp...... 6,001 ------11,823 ------BANKING (5.7%) 336,000 Daiwa Securities Co., Ltd...... 4,334 107,000 Hitachi Credit Corp...... 1,899 298,000 Inabata & Co...... 2,252 232,000 Nomura Securities Co...... 4,541 (a)35,000 Sumitomo Corp. Leasing Ltd...... 213 ------13,239 ------BUSINESS & PUBLIC SERVICES (2.7%) 218,000 Dai Nippon Printing Co., Ltd...... 4,227 76,000 Sangetsu Co., Ltd...... 2,037 ------6,264 ------CAPITAL EQUIPMENT (6.6%) 206,000 Kyudenko Co., Ltd...... 2,770 60,000 Matsui Construction...... 481 143,000 Matsushita Communication Industries...... 3,728 70,000 Murata Manufacturing Co., Ltd...... 2,657 49,600 Rinnai Corp...... 1,179 610,000 Taisei Corp., Ltd...... 4,341 ------15,156 ------CHEMICALS (1.6%) 166,000 Yamanouchi Pharmaceutical Co...... 3,614 ------CONSTRUCTION & HOUSING (1.7%) 445,000 Obayashi Corp...... 4,034 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document CONSUMER GOODS (9.9%) 122,000 Fuji Photo Film Ltd...... 3,861 164,000 Japan Vilene Co., Ltd...... 1,125 54,000 Nintendo Corp., Ltd...... 4,031 558,000 Nissan Motor Co...... 4,966 184,000 Sankyo Co., Ltd...... 4,780 317,000 Suzuki Motor Co., Ltd...... 4,175 ------22,938 ------DATA PROCESSING & REPRODUCTION (2.2%) 244,000 Canon, Inc...... 5,089 ------ELECTRICAL COMPONENTS & INSTRUMENTS (5.7%) 64,000 Kyocera Ltd...... 4,537 79,000 TDK Corp...... 4,726 132,000 Tokyo Electron Ltd...... 3,852 ------13,115 ------ELECTRICAL & ELECTRONICS (11.3%) 627,000 Hitachi Ltd...... 5,850 205,000 Mitsumi Electric Co., Ltd...... 3,263 542,000 NEC Corp...... 5,900 61,000 Square Company Ltd...... 3,588 291,000 Stanley Electric Co...... 2,023
VALUE SHARES (000) ------788,000 Toshiba Corp...... $ 5,622 ------26,246 ------FINANCE (1.6%) 52,500 Nichido Fire & Marine Insurance Co., Ltd...... 407 381,000 Sumitomo Marine & Fire Insurance Co...... 3,328 ------3,735 ------INDUSTRIAL COMPONENTS (0.2%) 50,000 Kansei Corp...... 466 ------MACHINERY & ENGINEERING (9.8%) 355,000 Amada Co., Ltd...... 3,832 280,000 Daikin Industries Ltd...... 3,073 149,000 Kurita Water Industries...... 3,639 593,000 Mitsubishi Heavy Industries Ltd...... 5,169 364,000 Ricoh Co., Ltd...... 3,862 457,000 Tsubakimoto Chain...... 3,123 ------22,698 ------MATERIALS (6.3%) 498,000 Daicel Chemical Industry Ltd...... 3,075 310,000 Kaneka Corp...... 2,090 823,000 Mitsubishi Chemical Corp...... 3,809 195,000 Okura Industrial Co., Ltd...... 1,400 347,000 Sekisui Chemical Co...... 4,253 ------14,627 ------MERCHANDISING (2.7%) 350,000 Asahi Tec Corp...... 2,542 82,200 FamilyMart...... 3,669 ------6,211 ------METALS-NON FERROUS (1.3%) 329,000 Sanwa Shutter...... 3,100 ------METALS-STEEL (4.5%) 230,000 Daifuku Co., Ltd...... 3,534 163,000 Fuji Machine Manufacturing Co...... 4,607 212,000 Nippon Pillar Packing...... 2,385 ------10,526 ------REAL ESTATE (3.3%) 150,000 Daibiru Corp...... 2,003 167,000 Keihanshin Real Estate...... 1,454 297,000 Mitsubishi Estate Co., Ltd...... 4,102 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 7,559 ------RECREATION, OTHER CONSUMER GOODS (0.9%) 159,700 Nifco, Inc...... 2,060 ------SERVICES (4.5%) 100,000 Nippon Konpo Unyu Soko...... 910 516 Nippon Telegraph & Telephone Corp...... 3,833 50,000 Nishio Rent All Co...... 1,198 66,000 Secom Co., Ltd...... 4,371 ------10,312 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Japanese Equity Portfolio~~
66
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE JAPANESE EQUITY PORTFOLIO (CONT.) ------~~
VALUE SHARES (000) ------ ~~TEXTILES & APPAREL (0.9%) 45,000 Shimamura Co., Ltd...... $ 1,984 ------TOTAL COMMON STOCKS (Cost $198,966)...... 204,796 ------~~
FACE AMOUNT (000) ------ SHORT-TERM INVESTMENT (8.9%) REPURCHASE AGREEMENT (8.9%) $ 20,553 Chase Securities, Inc. 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $20,562, collateralized by $20,190 U.S. Treasury Notes, 7.125%, 9/30/99, valued at $20,641 (Cost $20,553)...... 20,553 ------FOREIGN CURRENCY (0.5%) JPY 139,571 Japanese Yen (Cost $1,281)...... 1,277 ------TOTAL INVESTMENTS (97.9%) (Cost $220,800)...... 226,626 ------
OTHER ASSETS (3.3%) Cash...... $ 1 Net Unrealized Gain on Forward Foreign Currency Exchange Contracts...... 7,031 Dividends Receivable...... 575 Receivable for Portfolio Shares Sold...... 44 Interest Receivable...... 9 Other...... 48 7,708 ------LIABILITIES (-1.2%) Payable for Investments Purchased.... (2,347) Investment Advisory Fees Payable..... (426) Administrative Fees Payable...... (28) Custodian Fees Payable...... (14) Distribution Fees Payable...... (3) Payable for Portfolio Shares Redeemed...... (3)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Other Liabilities...... (59) (2,880) ------NET ASSETS (100%)...... $231,454 ------
AMOUNT (000) ------NET ASSETS CONSIST OF: Paid in Capital...... $ 217,212 Accumulated Net Investment Loss...... (2,586) Accumulated Net Realized Gain...... 3,987 Unrealized Appreciation on Investments and Foreign Currency Translations...... 12,841 ------NET ASSETS...... $231,454 ------CLASS A NET ASSETS...... $ 225,965 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 22,608,284 outstanding $0.001 par value shares (authorized 500,000,000 shares).... $ 9.99 ------CLASS B NET ASSETS...... $5,489 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 550,750 outstanding $0.001 par value shares (authorized 500,000,000 shares).... $ 9.97 ------FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of forward foreign currency exchange contracts open at June 30, 1996, the Portfolio is obligated to deliver foreign currency in exchange for U.S. dollars as indicated below:
NET CURRENCY TO UNREALIZED DELIVER VALUE SETTLEMENT IN EXCHANGE VALUE GAIN (LOSS) (000) (000) DATE FOR (000) (000) (000) ------ JPY 3,234,140 $ 29,630 7/09/96 U.S.$31,500 $ 31,500 $ 1,870 JPY 5,752,672 52,921 8/06/96 U.S.$55,800 55,800 2,879 JPY 6,001,148 55,593 9/25/96 U.S.$57,500 57,500 1,907 JPY 2,528,280 23,625 11/22/96 U.S.$24,000 24,000 375 ------$ 161,769 $ 168,800 $ 7,031 ------
~~------(a) -- Non-income producing security~~
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Japanese Equity Portfolio~~
67
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE LATIN AMERICAN PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
~~Argentina 9.1% Brazil 45.2% Chile 7.7% Colombia 5.5% Mexico 27.7% Peru 1.0% Venezuela 2.6% Other 1.2%~~

~~PERFORMANCE COMPARED TO MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS GLOBAL LATIN AMERICA INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE ANNUAL YTD ONE YEAR SINCE INCEPTION ------ PORTFOLIO -- CLASS A.... 34.55% 39.62% 15.27% PORTFOLIO -- CLASS B(3)...... 28.92 N/A N/A INDEX...... 17.49 17.44 5.48
1. The MSCI Emerging Markets Global Latin America Index is a broad based market cap weighted composite index covering at least 60% of markets in Mexico, Argentina, Brazil, Chile, Colombia, Peru and Venezuela (assumes dividends reinvested).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
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 six month period ended June 30, 1996, the Portfolio had a total return of 34.55% for the Class A shares and 28.92% for the Class B shares, as compared to a total return of 17.49% for the Morgan Stanley Capital International (MSCI) Emerging Markets Global Latin America Index. The average annual total return for the twelve months ended June 30, 1996 and for the period from inception on January 18, 1995 through June 30, 1996 was 39.62% and 15.27%, respectively, for the Class A shares, as compared to 17.44% and 5.48%, respectively, for the Index.
~~The table below presents the percentage change in the Morgan Stanley Capital International indices for each respective country, in U.S. dollar terms, as of June 30, 1996, for the period presented:~~
3 MONTHS 6 MONTHS 12 MONTHS ------ Argentina...... 15.3% 14.8% 36.2% Brazil...... 15.4 28.4 31.2 Chile...... 11.2 1.7 (13.6) Colombia...... 7.5 2.9 (17.2) Mexico...... 4.8 15.6 19.7
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Peru...... 9.1 8.8 19.6 Venezuela...... 40.0 56.4 31.3
~~------courtesy: FAME/Randall-Helms~~
~~ARGENTINA~~
The rally in the Argentine stock market was due primarily to signs of economic recovery after the strong recession in 1995. Liquidity in the local financial system is very high and local short term rates are low. The market had two successful IPOs in the second quarter and inflation is almost nonexistent. Nevertheless, we are somewhat cautious on the market due to the absence of strong earnings growth at the corporate level and the potential for rising rates in the U.S. to spill over into Argentina. The lingering unemployment (17%) is also acting to restrain somewhat economic growth and complicating fiscal accounts which are highly dependent on domestic economic activity. On the positive side, Argentine trade accounts are benefiting enormously from the sharp rise in agricultural commodity prices.
~~BRAZIL~~
In spite of an absence of tangible political progress on the economic reform front, the stock market had a robust performance. What we have seen, and we expect to continue to see unfolding for the remainder
~~------Latin American Portfolio~~
68
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE LATIN AMERICAN PORTFOLIO (CONT.) of the year, is an increased emphasis on company fundamentals and economic variables and a decreased emphasis on the political process. This is not to say that the political process is unimportant nor that it is incapable of delivering either positive or negative surprises, but rather that, as a stock market factor, it has receded in importance. We view this process as a healthy sign of the "maturation" of the market and a symptom of Brazil's emergence as a relatively stable economy and marketplace. The Real Plan now has two years under its belt, inflation is benign if not yet slayed, the trade accounts are balanced, and interest rates are continuing to fall. In short, the Brazilian turnaround is becoming increasingly entrenched, and the financial markets are recognizing this relative stability.
Nevertheless, there remains much work to be done, to be sure. The fiscal accounts are still in deficit at the operational level (though improving), the state's finances are still problematic, the social security fund will soon be bankrupt, tax levels are too high, and so on. The important thing, though, is that the government has proven itself to be adept at managing the components of the economy over which it has direct control, even while showing itself to be somewhat less adept at quickly maneuvering legislation through congress. The areas that we are particularly encouraged by are those sectors in which the government owns the monopolies -- i.e. oil and gas, mining, telecommunications, and electric generation. In each of these extremely important sectors, the government will either liberalize or privatize the state-run companies that currently exist. These sectors -- together with ports and railroads, which will likewise be privatized or liberalized -- form the backbone of economic development and in Brazil's case will help propel the dramatic economic restructuring and growth unfolding before our eyes. So even if congress slows down the reform process to a snail's pace, we are increasingly of the opinion that the economy can still grow at a reasonable pace.
The telecommunications industry, through monopoly provider Telebras and its operating subsidiaries, has witnessed a dramatic turnaround in profitability due to tariff reform implemented by the government. Further, draft legislation is circulating which will create a regulatory framework for the sector as well as provide the basis for free competition in the cellular telephone business. Eventually, we are increasingly of the opinion that the government will privatize the entire sector, via Telebras.
Electric generation, while slightly more cumbersome to reorganize than telecommunications, is likewise witnessing positive change. After much delay, the government successfully privatized Rio-based electric distributor Light. Profitability is improving, if not robust, due to tariff reform. A regulatory framework is being established, and steps are being taken to prepare pieces of the sector for privatization. The timing of a dramatic restructuring of the industry, however, will likely be more drawn out than with telecommunications.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document We expect interest rates to find a bottom sometime in the second half of the year, as the economy picks up steam and municipal election-related spending kicks into gear. Corporate profits, while spotty in the private sector and strong in the tariff-reform led public sector, should gather momentum in the latter part of the year together with the economy. We expect inflation to continue benign, the currency to move with inflation differentials, the trade accounts to remain roughly in balance or slightly deteriorate as the economy picks up, and the fiscal deficit to persist but improve.
~~CHILE~~
After a long period of underperformance the Chilean market has rallied recently. Expectations are that interest rate tightening is coming to an end as the torrid pace of economic growth begins to weaken. We are positioned in a couple of fast growing consumer stocks which are benefiting from strong demand and who are taking their management skills and setting up operations in neighboring countries. Andina is a Coca-Cola bottler and Santa Isabel is a supermarket chain. We are less excited about the growth prospects of the rest of the stock market.
~~COLOMBIA~~
The Colombian market is still in the grips of the political crisis over the tenure of President Samper. Hopes that he would resign were dashed when the Colombian Congress found him innocent of knowingly accepting drug money to fund his 1994 Presidential campaign. The U.S. government has threatened sanctions in response.
The Central Bank's fight against inflation continues to keep real interest rates at high levels, though concern over the slowing of the economy prompted a slight temporary easing in the second quarter. GDP growth has slowed down from prior years' levels and will likely fall in the 3% to 4% range for the entire year. We remain optimistic about our holdings in the
~~------Latin American Portfolio~~
69
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE LATIN AMERICAN PORTFOLIO (CONT.) financial sector, which are experiencing improving profitability due to good interest rate spreads, cost-cutting and improved asset quality.~~
~~MEXICO~~
The market rise has been driven by expectations of a strong economic recovery during the second half of 1996, lower inflation and interest rates, and a strengthening peso in real terms. Holding the market back somewhat has been a series of political and business scandals. Year-to-date, domestic stocks have clearly outperformed exporters as signs of an economic recovery begin to emerge. Unemployment has fallen from 6.4% in January to 5.4% in May, and GDP growth consensus estimates have risen to 3.7% for 1996. Furthermore, the Mexican government has returned to international capital markets and has raised $6.5 billion, refinancing outstanding debts at more attractive rates. Macroeconomic fundamentals continue to move in a positive direction as inflation for the first six months of 1996 is at 15.3% versus 32.9% during the first 6 months of 1995. The trade surplus continues to grow albeit at a slower pace at $3.3 billion for the first five months of 1996. Foreign exchange reserves remain at $15 billion, about the same level at which they finished 1995.
The market continues to look attractive as domestically driven companies should show strong growth in the second half of 1996. Nevertheless, as democratic opening occurs, the possibility of corruption scandals continue to lurk in the background. Domestic growth will pick up in the second half as inflation continues to decline, interest rates remain stable and the peso continues to strengthen. Under this scenario the Portfolio is emphasizing interest rate sensitive banks, consumer companies, and cement stocks. Bancomer should continue to benefit from falling interest rates, economic recovery, and reduced risk in the banking system. Femsa holds undervalued assets in the beer, packaging and retail sectors. Cemex is participating in the recovery of cement prices and cement demand in Mexico.
~~PERU~~
The Peruvian market has recently begun to rebound on waning concerns about the economy and renewed interest in the market on the back of a successful July placement of over US$1 billion of Telefonica del Peru stock in local and international markets.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Investors modified their overly pessimistic outlook for the economy, which recorded negative growth figures for the first quarter, but began turning around in subsequent months. Visibility into future performance increased with the signing of an IMF agreement during the second quarter which outlined conservative economic targets, including a 1% primary fiscal surplus and a shrinking current account deficit over the next few years. The soft landing engineered by the government to transition the country into a period of sustained growth around the 4.5% level appears to have been successful at the expense of an expected 2% to 3% growth performance for 1996. The government continues its firm commitment to privatization, currently targeting the oil and mining sectors, and President Fujimori's popularity remains strong.
~~Our position in Telefonica del Peru (which increased on July 1) anticipates 20% net income growth each year until 1998, after more than doubling earnings in 1995.~~
~~VENEZUELA~~
The introduction of a free-market economic stabilization plan under IMF auspices propelled the stock and bond markets. Capital and price controls were abolished and the currency and interest rates allowed to float freely, marking the end of a two-year closed-economy experiment that brought about high rates of inflation and poor economic performance. While we are optimistic about long term prospects in Venezuela, we recognize that the economy must undergo a lengthy adjustment process in order for the government to successfully control inflation, allow for positive real interest rates, set a rational trading range for the currency and privatize inefficient state enterprises. We are therefore maintaining our position in Venezuelan fixed income, which we feel will more immediately benefit from the country's improved ability and willingness to service debt, while providing an attractive yield.
Overall we are excited about the growth prospects of our companies and the recovery of the Latin American economies. The markets should continue to perform well assuming a relatively benign U.S. environment.
~~Robert L. Meyer PORTFOLIO MANAGER~~
~~July 1996~~
~~------Latin American Portfolio~~
70
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE LATIN AMERICAN PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------COMMON STOCKS (66.6%) ARGENTINA (9.1%) (a)22,885 Banco del Sud, Class B...... $ 268 69,842 Banco del Suquia, Class B...... 132 (a)18,515 Disco S.A. ADR...... 410 11,429 Quilmes Industrial S.A...... 117 (a)55,710 Siderar S.A., Class A...... 143 (a,e)6,370 Siderar S.A. ADR...... 130 5,898 Telecom Argentina S.A. ADR...... 276 26,578 Telefonica de Argentina S.A. ADR...... 787 12,149 YPF S.A. ADR...... 272 ------2,535 ------BRAZIL (16.7%) 4,424 Cia Energetica de Minas Gerais ADR...... 126 (a,e)1,792 Cia Energetica de Minas Gerais ADR...... 48 779,000 Electricidade de Sao Paulo S.A...... 81 3,301,000 Eletrobras...... 888 (a,e)23,185 Eletrobras ADR...... 312 (a,d)515,000 Light...... 36 15,233 Pao de Acucar ADR...... 252 2,150 Pao de Acucar GDR...... 36 11,066,000 Telebras...... 650
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 29,230 Telebras ADR...... 2,035 (a)1,055,663 Telesp...... 186 ------4,650 ------CHILE (7.7%) 21,375 Embotelladora Andina S.A. ADR...... 785 6,970 Empresa Nacional Electricidad S.A. ADR...... 150 2,845 Enersis S.A. ADR...... 88 40,610 Santa Isabel S.A. ADR...... 1,127 ------2,150 ------COLOMBIA (4.4%) 1,750 Banco Ganadero S.A. ADR...... 42 2,601,726 Banco de Colombia...... 988 (e)23,225 Banco de Colombia GDR...... 203 ------1,233 ------MEXICO (27.7%) 69,301 Alfa S.A. de C.V., Class A...... 311 71,170 Apasco S.A., Class A...... 393 (a)200,575 Banacci, Class B...... 417 (a)78,246 Banacci, Class L...... 149 (e)23,950 Cemex CPO ADR...... 166 209,960 Cemex CPO S.A., Class A...... 745 (a)288,580 Cifra S.A. de C.V., Class B...... 416 (a)58,875 Cifra S.A. de C.V., Class C...... 84 (a)107,520 Comerci, Series B...... 100 (a)16,120 Empresas ICA S.A. ADR...... 224 98,460 Farmacia Benevides S.A. de C.V., Class B...... 191 333,390 FEMSA, Class B...... 945 (a)27,150 Gruma S.A., Class B...... 126 (a,e)6,850 Grupo Carso S.A. ADR...... 97
VALUE SHARES (000) ------44,360 Grupo Cementos de Chihuahua S.A. de C.V., Class B...... $ 45 (a,e)90,222 Grupo Financiero Bancomer, Class B, ADR...... 778 (a)246,710 Grupo Financiero Bancomer, Class B...... 107 (a)16,985 Grupo Televisa S.A. GDR...... 522 13,900 Kimberly Clark de Mexico S.A. de C.V., Class A.... 253 7,500 Panamerican Beverages, Inc., Class A...... 334 (a)74,220 Sears Roebuck de Mexico S.A. de C.V., Class B1.... 195 33,105 Telefonos de Mexico S.A. ADR, Class L...... 1,109 ------7,707 ------PERU (1.0%) 135,380 Telefonica del Peru S.A., Class B...... 273 ------TOTAL COMMON STOCKS (Cost $16,267)...... 18,548 ------PREFERRED (29.0%) BRAZIL (NON-VOTING STOCKS) (28.5%) 141,307,771 Banco Bradesco S.A...... 1,154 (d)11,847,000 Banco Nacional S.A...... 1 2,431,173 Brahma...... 1,451 2,785,000 Casa Anglo Brasileira S.A...... 153 8,914,000 Cia Energetica de Minas Gerais...... 237 (a)9,951,000 Cia Paulista de Forca E Luz...... 654 12,435 Cia Vale Do Rio Doce...... 241 559,000 Coteminas...... 220 152,211 Dixie Toga S.A...... 147 756,000 Eletrobras, Class B...... 216 1,681,400 Itaubanco...... 683 180,000 Itausa Investimentos Itau S.A...... 138 21,739,000 Lojas Renner...... 1,148 4,627,000 Petrobras...... 569 13,302,000 Telebras...... 929 ------7,941 ------COLOMBIA (0.5%) 302,576 Banco Ganadero...... 60 4,500 Banco Ganadero S.A. ADR...... 88 ------148 ------TOTAL PREFERRED (Cost $6,268)...... 8,089
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------
FACE AMOUNT (000) ------ FIXED INCOME SECURITIES (3.2%) COLOMBIA (0.6%) $ (e)190 Banco de Colombia 5.20%, 2/01/99...... 170 ------VENEZUELA (2.6%) 1,000 Republic of Venezuela Debt Conversion Bonds, Series DL, (Floating Rate), 6.625%, 12/18/07.... 707 ------TOTAL FIXED INCOME SECURITIES (Cost $725)...... 877 ------TOTAL FOREIGN SECURITIES (98.8%) (Cost $23,260)...... 27,514 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Latin American Portfolio~~
71
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE LATIN AMERICAN PORTFOLIO (CONT.) ------~~
AMOUNT VALUE (000) (000) ------FOREIGN CURRENCY (0.2%) ARP 3 Argentine Peso...... $ 3 BRC 10 Brazilian Real...... 10 MXP 9 Mexican Peso...... 1 PSS 129 Peruvian New Sol...... 53 ------TOTAL FOREIGN CURRENCY (Cost $67)...... 67 ------TOTAL INVESTMENTS (99.0%) (Cost $23,327)...... 27,581 ------
OTHER ASSETS (3.9%) Receivable for Investments Sold...... $ 904 Dividends Receivable...... 160 Interest Receivable...... 7 Receivable for Portfolio Shares Sold... 4 Other...... 6 1,081 ------LIABILITIES (-2.9%) Payable for Investments Purchased...... (471) Bank Overdraft...... (220) Investment Advisory Fees Payable...... (38) Custodian Fees Payable...... (28) Administrative Fees Payable...... (4) Payable for Portfolio Shares Redeemed...... (1) Sub-Administrative Fees Payable...... (1) Other Liabilities...... (27) (790) ------NET ASSETS (100%)...... $27,872 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 21,994 Undistributed Net Investment Income...... 281 Accumulated Net Realized Gain...... 1,345 Unrealized Appreciation on Investments and Foreign
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Currency Translations...... 4,252 ------NET ASSETS...... $27,872 ------CLASS A: NET ASSETS...... $ 27,055 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 2,220,291 outstanding $0.001 par value shares (authorized 500,000,000 shares)..... $12.19 ------CLASS B: NET ASSETS...... $817 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 67,158 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $12.17 ------

------(a) -- Non-income producing security (d) -- Securities 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 -- Ordinary Participating Certificates (no voting rights) GDR -- Global Depositary Receipt Floating Rate -- Interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect on June 30, 1996. SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
VALUE PERCENT OF INDUSTRY (000) NET ASSETS ------Capital Equipment...... $ 366 1.3% Consumer Goods...... 6,489 23.3 Energy...... 3,677 13.2 Finance...... 5,377 19.3 Government...... 708 2.6 Materials...... 2,291 8.2 Multi-Industry...... 1,643 5.9 Services...... 6,963 25.0 ------$ 27,514 98.8% ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Latin American Portfolio~~
72
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE AGGRESSIVE EQUITY PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
Capital Goods-Construction 9.5% Consumer-Cyclical 22.2% Consumer-Staples 25.7% Diversified 6.0% Finance 22.8% Materials 1.9% Technology 1.0% Other 10.9%
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document

~~PERFORMANCE COMPARED TO THE LIPPER CAPITAL APPRECIATION INDEX AND THE S&P 500 INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE ANNUAL YTD ONE YEAR SINCE INCEPTION ------ PORTFOLIO -- CLASS A.... 22.63% 46.39% 51.85% PORTFOLIO -- CLASS B(3)...... 21.75 N/A N/A LIPPER CAPITAL APPRECIATION INDEX...... 10.25 23.21 28.24 S&P 500 INDEX...... 10.09 25.98 31.47
1. The Lipper Capital Appreciation Index is a composite of mutual funds managed for maximum capital gains. The S&P 500 is an unmanaged index of common stocks.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.
3. The Portfolio began offering Class B Shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
The Aggressive Equity Portfolio seeks long-term capital appreciation through a concentrated, non-diversified portfolio of U.S. equity securities. Short sales and options can be used to enhance performance, although this strategy was not being utilized at June 30. It is anticipated that the Portfolio will hold thirty names or less, although it may hold more from time to time.
For the six month period ended June 30, 1996, the Portfolio had a total return of 22.63% for the Class A shares and 21.75% for the Class B shares, as compared to a total return of 10.25% for the Lipper Capital Appreciation Index and 10.09% for the S&P 500 Index for the same period. The average annual total return for the twelve months ended June 30, 1996 and for the period from inception on March 8, 1995 through June 30, 1996 was 46.39% and 51.85%, respectively, for the Class A shares, as compared to 23.21% and 28.24%, respectively, for the Lipper Capital Appreciation Index and 25.98% and 31.47%, respectively, for the S&P 500 Index.
Cash accounted for approximately 11% of Portfolio assets at June 30. We do not attempt to time the market, nor do we attempt to project economic trends. The cash at quarter end had built up as a residual of our normal investment activity, as some of our large positions had moved up significantly and we elected to reduce our exposure to them.
The top twelve holdings represented 65.4% of the Portfolio net assets at June 30, underscoring the high degree of concentration employed. The largest position was Philip Morris, at 10.5% of net assets. Philip Morris has been the largest position since the Portfolio's inception in March 1995. But when the tobacco group sold off in March and April of this year on investor concerns over political and legal issues, and Philip Morris traded down into the mid-$80s, we took advantage of our ability to concentrate and went to as much as 22% of net assets in the stock. To us, the risk/reward at that point was overwhelming because: business trends were great; EPS estimates were rising; the company was taking advantage of weakness to accelerate share repurchases; and non-tobacco consumer staple growth stocks were rising, making the relative valuation of Philip Morris extremely compelling. From the low point in April, the stock rallied 25%, and we subsequently cut our bet almost in half. This 25% move began to look particularly rewarding in June, when many high flying and widely owned growth stocks were crushed.
~~Unlike Philip Morris, which we still like a lot, we actually added to our RJR Nabisco bet throughout~~
~~------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Aggressive Equity Portfolio~~
73
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE AGGRESSIVE EQUITY PORTFOLIO (CONT.) the June quarter. We hope RJR is Philip Morris two years ago: unloved, underowned and a powerful cash generator with improving business trends. Statistically, RJR, a 9.7% holding at June 30, looks incredible. At $30 1/4, the price to estimated 1996 free cash flow per share of $4.10 is 7.4 times, and the dividend yield is 6.1%. We expect RJR to raise the dividend significantly in March of 1997 and again in March of 1998. Finally, another potential kicker to ignite performance would be the spin-off of the food assets.
~~Other large holdings include United Technologies, mortgage insurer CMAC Investment, HFS and Loews Corp.~~
~~Kurt Feuerman PORTFOLIO MANAGER~~
~~July 1996~~
~~------Aggressive Equity Portfolio~~
74
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE AGGRESSIVE EQUITY PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------ COMMON STOCKS (89.1%) CAPITAL GOODS-CONSTRUCTION (9.5%) AEROSPACE & DEFENSE (9.3%) 4,000 General Dynamics Corp...... $ 248 14,400 McDonnell Douglas Corp...... 698 30,800 United Technologies Corp...... 3,542 ------4,488 ------BUILDING & CONSTRUCTION (0.2%) 5,500 AMRE, Inc...... 120 ------TOTAL CAPITAL GOODS-CONSTRUCTION...... 4,608 ------CONSUMER-CYCLICAL (22.2%) BROADCAST-RADIO & TELEVISION (1.1%) (a)17,600 Heftel Broadcasting Corp., Class A...... 521 ------ENTERTAINMENT & LEISURE (3.5%) (a)56,800 GTECH Holdings Corp...... 1,683 ------FOOD SERVICE & LODGING (13.2%) (a)68,300 Boston Chicken, Inc...... 2,220 (a)8,400 Foodmaker, Inc...... 72 (a)21,200 HFS, Inc...... 1,484 (a)22,600 ITT Corp. (New)...... 1,497 33,600 La Quinta Inns, Inc...... 1,126 ------6,399 ------LEISURE RELATED (0.6%) 18,100 International Game Technology...... 305 ------PHOTOGRAPHY & OPTICAL (1.1%) 31,000 PCA International, Inc...... 519 ------PUBLISHING (1.9%)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (a)60,200 K-III Communications Corp...... 753 5,200 New York Times Co., Class A...... 170 ------923 ------RETAIL-GENERAL (0.8%) (a)8,100 PetSmart, Inc...... 387 ------TOTAL CONSUMER-CYCLICAL...... 10,737 ------CONSUMER-STAPLES (25.7%) BEVERAGES (2.5%) 34,700 Coca Cola Enterprises, Inc...... 1,202 ------FOOD (3.0%) 19,900 Kellogg Co...... 1,458 ------TOBACCO (20.2%) 49,000 Philip Morris Cos., Inc...... 5,096 150,700 RJR Nabisco Holdings Corp...... 4,672 ------9,768 ------TOTAL CONSUMER-STAPLES...... 12,428 ------
VALUE SHARES (000) ------
DIVERSIFIED (6.0%) 8,400 AlliedSignal, Inc...... $ 480 30,300 Loews Corp...... 2,390 ------TOTAL DIVERSIFIED...... 2,870 ------FINANCE (22.8%) BANKING (5.7%) 8,400 Citicorp...... 694 8,600 Wells Fargo & Co...... 2,054 ------2,748 ------FINANCIAL SERVICES (7.4%) 48,500 American Express Co...... 2,164 6,100 CIGNA Corp...... 719 9,800 Student Loan Marketing Association...... 725 ------3,608 ------INSURANCE (9.2%) 9,000 Ace Ltd...... 423 58,400 CMAC Investment Corp...... 3,358 7,100 PartnerRe Ltd...... 212 10,400 PMI Group (The), Inc...... 442 ------4,435 ------REAL ESTATE (0.5%) (a)8,300 Insignia Financial Group, Inc., Class A...... 225 ------TOTAL FINANCE...... 11,016 ------MATERIALS (1.9%) CHEMICALS (1.9%) 6,100 IMC Global, Inc...... 230 4,800 Olin Corp...... 428 3,800 Potash Corp. of Saskatchewan, Inc...... 252 ------TOTAL MATERIALS...... 910 ------TECHNOLOGY (1.0%) ELECTRONICS (1.0%) 6,300 Intel Corp...... 463 ------TOTAL COMMON STOCKS (Cost $40,475)...... 43,032 ------
FACE AMOUNT (000) ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SHORT-TERM INVESTMENT (11.0%) REPURCHASE AGREEMENT (11.0%) $ 5,331 Chase Securities, Inc. 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $5,333, collateralized by $5,240, U.S. Treasury Notes, 7.125%, due 9/30/99, valued at $5,357 (Cost $5,331)...... 5,331 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Aggressive Equity Portfolio~~
75
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE AGGRESSIVE EQUITY PORTFOLIO (CONT.) ------~~
VALUE (000) ------TOTAL INVESTMENTS (100.1%) (Cost $45,806)...... $48,363 ------OTHER ASSETS (4.0%) Cash...... $ 1 Receivable for Investments Sold...... 1,795 Dividends Receivable...... 128 Interest Receivable...... 2 Receivable for Portfolio Shares Sold...... 1 Other...... 6 1,933 ------LIABILITIES (-4.1%) Payable for Investments Purchased...... (1,865) Investment Advisory Fees Payable...... (62) Administrative Fees Payable...... (7) Custodian Fees Payable...... (5) Distribution Fees Payable...... (3) Directors' Fees and Expenses Payable...... (1) Other Liabilities...... (22) (1,965 ) ------NET ASSETS (100%)...... $48,331 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 38,417 Undistributed Net Investment Income...... 159 Accumulated Net Realized Gain...... 7,198 Unrealized Appreciation on Investments...... 2,557 ------NET ASSETS...... $48,331 ------

CLASS A: ------ ~~NET ASSETS...... $ 42,760 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 2,874,684 outstanding $0.001 par value shares (authorized 500,000,000 shares)..... $14.87 ------~~
CLASS B: ------ NET ASSETS...... $5,571 NET ASSET VALUE, OFFERING AND REDEMPTION
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document PRICE PER SHARE Applicable to 374,812 outstanding $0.001 par value shares (authorized 500,000,000 shares)..... $14.86 ------
------
~~(a) -- Non-income producing security~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Aggressive Equity Portfolio~~
76
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE EMERGING GROWTH PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
~~Capital Goods-Construction 1.1% Consumer Cyclical 23.3% Consumer Staples 29.0% Finance 2.4% Services 33.3% Technology 7.9% Other 3.0%~~

~~PERFORMANCE COMPARED TO THE NASDAQ COMPOSITE INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE AVERAGE ANNUAL ANNUAL SINCE YTD ONE YEAR FIVE YEARS INCEPTION ------ PORTFOLIO -- CLASS A... 7.07% 26.15% 11.44% 13.46% PORTFOLIO -- CLASS B(3)...... 7.03 N/A N/A N/A INDEX...... 12.63 26.95 20.02 15.42
1. The NASDAQ Composite Index is an unmanaged index of common stocks.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 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 gross revenues ranging from $10 million to $750 million.
For the six month period ended June 30, 1996, the Portfolio had a total return of 7.07% for the Class A shares and 7.03% for the Class B shares, as compared to a total return of 12.63% for the NASDAQ Composite Index. The average annual total return for the twelve month and five year periods ended June 30, 1996 and for the period from inception on November 1, 1989 through June 30, 1996 was 26.15%, 11.44% and 13.46%, respectively, for the Class A shares, as compared to 26.95%, 20.02% and 15.42%, respectively, for the Index.
The first half of 1996 saw increased volatility in the small growth company sector of the market. The year started with a sharp decline in January, followed by a speculation driven rebound in April and May. The second quarter and first half finished with a meaningful decline in the month of June. Overall, the Portfolio and the broader market indices recorded positive returns in the second quarter and first half of 1996. The June quarter was the eighth consecutive quarter of positive gains in net asset value in the Portfolio, a significantly long string of increases. The U. S. equity market in general has had a two year period of uninterrupted stock price appreciation. We hope everyone enjoyed the steady rise because it is more the exception than the rule in the markets.
We believe that looking back, the April - May 1996 period will be seen as a speculative top for small growth stocks -- at least for a while. It is not unusual for long periods of rising stock prices to be capped by a speculative frenzy where investor greed completely overwhelms any fear. All of the classic signs of a speculative top were present in April and May including:
~~- A disregard for individual stock valuations with many leading stocks selling for an extremely high 20x to 30x times reported revenues and 50x to 100x times next year's estimated earnings per share.~~
~~- A red-hot market for initial public offerings (IPOs) with the speculative focus this time centered on anything related to the Internet. Last time (1991) the IPO excesses were in biotechnology.~~
~~------Emerging Growth Portfolio~~
77
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE EMERGING GROWTH PORTFOLIO (CONT.)~~
~~- Unprecedented purchases of equity mutual funds with aggressive growth funds getting a disproportionate share of the new money inflows in the first half of 1996.~~
~~- Pervasive anecdotal evidence of a top with intense media coverage of the market and mutual fund comings and goings.~~
It appears to us that the equity market will be more difficult during the next six-to-twelve months than it has been for the past two years. While economic growth is quite strong and expected to remain so well into 1997, there are important signals that inflation and interest rates have bottomed and that the next series of moves by the Federal Reserve will be to raise interest rates. We believe that such an environment is likely to halt the market's rise and produce the first meaningful correction in U.S. stock prices since the bottom in 1990. There are already indications that the speculative excesses of the Spring months are being reined-in and we expect the healthy correction in small growth stocks will continue and bring more investment rationality back to the overvalued sectors within the small growth company universe.
The Emerging Growth Portfolio has been structured relatively conservatively during the first half of 1996 by minimizing holdings in the extremely high P/E small growth stocks and avoiding such speculative areas as many Internet-related companies. The result was the Portfolio significantly outperformed the small capitalization benchmarks in the down market months of January and June, but underperformed during the speculative frenzy in the months of April and May. We believe the Portfolio is positioned to outperform on a relative basis in the more difficult market environment we see ahead for the next several months. Cash levels in the Portfolio have not been raised beyond normal levels, but the holdings are focused on more risk-adverse companies that should perform relatively well in a less buoyant market. The Portfolio is currently underweighted in technology and overweighted in relatively stable business/consumer service companies. While a meaningful correction is overdue, we remain positive on the longer term opportunities in emerging growth stocks.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document During the second quarter of 1996, the Portfolio acquired new positions in 25 stocks and eliminated holdings in four companies. A large weighting in several semiconductor stocks was eliminated in the first half of the year, which substantially reduced the Portfolio's technology sector exposure. Some of the new investments include:
~~ADC TELECOMMUNICATIONS -- manufactures transmission, networking and broadband connectivity products for the telecommunications industry.~~
~~BOSTON SCIENTIFIC -- manufactures and markets medical devices used by physicians for less invasive medical procedures.~~
~~HCIA -- develops and markets integrated clinical and financial information to health care providers, payors, and suppliers.~~
~~LA QUINTA INNS -- owns and operates moderately priced inns in 29 states concentrated in the western and southern regions of the country.~~
~~MSC INDUSTRIAL DIRECT -- distributes a broad range of industrial products to small and mid-sized businesses.~~
~~MAY & SPEH -- provides computer-based information management services for clients with significant direct marketing activities.~~
~~ROBERT HALF INTERNATIONAL -- is a leading provider of personnel services for accounting, information technology, and administrative support throughout the United States.~~
~~STERLING COMMERCE -- develops and markets electronic commerce software and provides electronic data interchange (EDI) network services.~~
~~USCS INTERNATIONAL -- provides customer software and billing services to the cable TV and telecommunications industries.~~
~~UNITED WASTE SYSTEMS -- provides integrated solid waste management services and landfill operations for commercial and industrial customers in several states.~~
~~WHITTMAN HART -- provides information technology services including systems integration, strategic IT planning, software development, and business process reengineering for medium-size companies.~~
~~At June 30, the Portfolio was diversified among 70 stocks with the top ten holdings representing 33.4% of net assets.~~
~~------Emerging Growth Portfolio~~
78
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE EMERGING GROWTH PORTFOLIO (CONT.)~~
~~TOP TEN HOLDINGS~~
% OF COMPANY ASSETS ------ SunGard Data System...... 3.9% First Data Corp...... 3.9 Cintas Corp...... 3.6 HealthSouth Rehabilitation...... 3.5 CUC International...... 3.5 Vivra Inc...... 3.2 Concord EFS...... 3.1 Viking Office Products...... 3.1 Health Management Systems...... 2.8 G&K Services...... 2.8 --- Total...... 33.4% ------
~~Dennis G. Sherva PORTFOLIO MANAGER~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document July 1996~~
~~------Emerging Growth Portfolio~~
79
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE EMERGING GROWTH PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------ COMMON STOCKS (97.0%) CAPITAL GOODS-CONSTRUCTION (1.1%) ENVIRONMENTAL CONTROLS (1.1%) (a)5,100 Sanifill, Inc...... $ 251 (a)25,400 United Waste Systems, Inc...... 819 ------TOTAL CAPITAL GOODS-CONSTRUCTION...... 1,070 ------CONSUMER-CYCLICAL (23.3%) ENTERTAINMENT & LEISURE (0.2%) (a)20,700 Moovies, Inc...... 163 ------FOOD SERVICE & LODGING (9.2%) (a)33,900 Boston Chicken, Inc...... 1,102 (a)40,000 HFS, Inc...... 2,800 38,500 La Quinta Inns, Inc...... 1,290 (a)500 Papa John's International, Inc...... 24 (a)65,000 Promus Hotel Corp...... 1,926 (a)90,000 Sonic Corp...... 2,182 ------9,324 ------PRINTING & PUBLISHING (2.0%) 32,500 Lee Enterprises, Inc...... 768 (a)20,000 Scholastic Corp...... 1,240 ------2,008 ------RETAIL-GENERAL (11.6%) (a)90,000 Bed, Bath & Beyond, Inc...... 2,374 (a)25,900 Central Tractor Farm & Country, Inc...... 317 (a)50,000 General Nutrition Cos., Inc...... 875 (a)60,000 Kohl's Corp...... 2,198 70,000 OfficeMax, Inc...... 1,671 (a)19,900 Petco Animal Supplies, Inc...... 572 (a)35,000 PetSmart, Inc...... 1,654 (a)88,000 Sunglass Hut International, Inc...... 2,134 ------11,795 ------TEXTILES & APPAREL (0.3%) 8,300 Mossimo, Inc...... 331 ------TOTAL CONSUMER-CYCLICAL...... 23,621 ------CONSUMER-STAPLES (29.0%) DRUGS (3.8%) (a)60,000 Forest Laboratories, Inc...... 2,317 (a)20,100 Genzyme Corp.-General Division...... 1,010 (a)13,000 Scherer (R.P.) Corp...... 590 ------3,917 ------HEALTH CARE SUPPLIES & SERVICES (20.0%) (a)60,000 American Oncology Resources, Inc...... 1,305 30,000 Arrow International, Inc...... 810 5,900 Arterial Vascular Engineering, Inc...... 214 55,000 Ballard Medical Products...... 1,052 (a)50,000 Biomet, Inc...... 706 (a)31,500 Boston Scientific Corp...... 1,418 (a)90,000 Health Management Systems, Inc...... 2,858 (a)90,000 Healthsource, Inc...... 1,575
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document
VALUE SHARES (000) ------ (a)100,000 HEALTHSOUTH Rehabilitation Corp...... $ 3,600 (a)6,400 Mariner Health Group, Inc...... 118 (a)31,300 OccuSystems, Inc...... 1,170 (a)75,000 Research Medical, Inc...... 1,659 (a)12,100 Target Therapeutics, Inc...... 496 (a)100,000 Vivra, Inc...... 3,287 ------20,268 ------MISCELLANEOUS (5.2%) (a)50,000 IDEXX Laboratories, Inc...... 1,963 (a)8,400 Mail Boxes Etc...... 192 (a)100,000 Viking Office Products, Inc...... 3,125 ------5,280 ------TOTAL CONSUMER-STAPLES...... 29,465 ------FINANCE (2.4%) INSURANCE (2.4%) 9,700 Meadowbrook Insurance Group, Inc...... 298 50,000 Mutual Risk Management Ltd...... 1,562 17,200 NAC Re Corp...... 576 ------TOTAL FINANCE...... 2,436 ------SERVICES (33.3%) BUSINESS SERVICES (15.4%) (a)55,000 BISYS Group, Inc...... 2,076 (a)90,000 Concord EFS, Inc...... 3,195 50,000 First Data Corp...... 3,981 11,500 First USA Paymentech, Inc...... 460 69,100 May & Speh, Inc...... 1,088 2,850 Paychex, Inc...... 137 (a)100,000 SunGard Data Systems, Inc...... 4,000 19,000 Whittman-Hart, Inc...... 684 ------15,621 ------PROFESSIONAL SERVICES (17.9%) (a)44,900 American Medical Response, Inc...... 1,583 70,000 Cintas Corp...... 3,693 (a)50,000 CRA Managed Care, Inc...... 2,238 (a)100,000 CUC International, Inc...... 3,550 100,000 G & K Services, Inc., Class A...... 2,850 (a)34,300 MSC Industrial Direct Co., Inc., Class A...... 1,106 (a)5,600 NFO Research, Inc...... 132 (a)45,000 Robert Half International, Inc...... 1,254 (a)27,000 Sitel Corp...... 1,121 26,000 Wilmar Industries, Inc...... 650 ------18,177 ------TOTAL SERVICES...... 33,798 ------TECHNOLOGY (7.9%) ELECTRONICS (1.2%) (a)10,000 Fusion Systems Corp...... 247 35,000 Molex, Inc., Class A...... 1,028 ------1,275 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Emerging Growth Portfolio~~
80
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document THE EMERGING GROWTH PORTFOLIO (CONT.) ------~~
VALUE SHARES (000) ------
~~TECHNOLOGY (CONT.)~~
SOFTWARE SERVICES (4.4%) (a)10,600 HCIA, Inc...... $ 668 (a)69,500 Informix Corp...... 1,564 44,000 Sterling Commerce, Inc...... 1,634 (a)1,000 Transaction Systems Architects, Inc., Class A..... 67 (a)25,700 USCS International, Inc...... 495 ------4,428 ------TELECOMMUNICATIONS (2.3%) (a)29,900 ADC Telecommunications, Inc...... 1,345 (a)68,000 Mobile Telecommunications Technologies Corp...... 986 ------2,331 ------TOTAL TECHNOLOGY...... 8,034 ------TOTAL COMMON STOCKS (Cost $58,032)...... 98,424 ------

FACE AMOUNT (000) ------ SHORT-TERM INVESTMENT (3.6%) REPURCHASE AGREEMENT (3.6%) $ 3,635 Chase Securities, Inc. 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $3,637, collateralized by $3,575 U.S. Treasury Notes, 7.125%, due 9/30/99, valued at $3,655 (Cost $3,635)...... 3,635 ------
VALUE (000) ------
TOTAL INVESTMENTS (100.6%) (Cost $61,667)...... $102,059 ------
OTHER ASSETS (0.6%) Receivable for Investments Sold...... $ 607 Dividends Receivable...... 7 Interest Receivable...... 2 Other...... 13 629 ----- LIABILITIES (-1.2%) Payable for Investments Purchased...... (804) Investment Advisory Fees Payable...... (261) Payable for Portfolio Shares Redeemed...... (67) Administrative Fees Payable...... (15) Custodian Fees Payable...... (7) Distribution Fees Payable...... (3) Directors' Fees and Expenses Payable...... (2) Other Liabilities...... (33) (1,192) ------NET ASSETS (100%)...... $101,496 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 40,641 Accumulated Net Investment Loss...... (522) Accumulated Net Realized Gain...... 20,985 Unrealized Appreciation on Investments...... 40,392 ------NET ASSETS...... $101,496
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------

CLASS A: NET ASSETS...... $96,512 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 4,194,648 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $23.01 ------CLASS B: NET ASSETS...... $4,984 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 216,867 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $22.98 ------

~~------~~
~~(a) -- Non-income producing security~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Emerging Growth Portfolio~~
81
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE EQUITY GROWTH PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
~~Capital Goods-Construction 9.0% Consumer-Cyclical 23.9% Consumer-Staples 22.5% Diversified 4.0% Energy 0.7% Finance 19.8% Materials 3.2% Services 2.6% Technology 6.8% Other 7.5%~~

~~PERFORMANCE COMPARED TO THE S&P 500 INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE ANNUAL FIVE AVERAGE ANNUAL YTD ONE YEAR YEARS SINCE INCEPTION ------ PORTFOLIO -- CLASS A...... 16.64% 37.47% 16.84% 16.25% PORTFOLIO -- CLASS B(3)...... 15.91 N/A N/A N/A S&P 500...... 10.09 25.98 15.71 15.06
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 1. The S&P 500 Index is an unmanaged index of common stocks.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
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 sustainable earnings growth.
For the six month period ended June 30, 1996, the Portfolio had a total return of 16.64% for the Class A shares and 15.91% for the Class B shares, as compared to a total return of 10.09% for the S&P 500 Index. The average annual total return for the twelve month and five year periods ended June 30, 1996 and for the period from inception on April 2, 1991 through June 30, 1996 was 37.47%, 16.84% and 16.25%, respectively, for the Class A shares, as compared to 25.98%, 15.71% and 15.06%, respectively, for the Index.
The Portfolio uses an investment strategy that stresses intensive analysis of business and company trends. Through exhaustive research and communication with Wall Street sources and company contacts, the Equity Growth team identifies stocks of generally high quality companies that have strong prospects and may produce positive surprises vis-a-vis consensus expectations. The companies we own fall into one of three categories: blue chip, high quality growth companies; higher beta stocks of companies where we believe the chances for positive surprise are substantial; and stocks that have declined due to investor concerns that we believe are unfounded.
A crucial principal of our investment approach is to concentrate positions opportunistically. The Portfolio may put as much as 10% of assets in one position. At June 30, the largest holding (Philip Morris) accounted for about 7% of net assets. Twice during 1996 to date, though, the Portfolio had up to 10% in a position. Both times we felt very strongly that the market was undervaluing the stock of a company that we knew well. First, back in January, the market was punishing banks and other financial stocks on fears of rising consumer loan delinquencies. Wells Fargo, which started the year at around $216, was being doubly punished on fears that the company would overpay in its battle with First Bank System to acquire First Interstate. We had owned Wells Fargo for several years, had done very well with the stock, and we were convinced management was very shareholder oriented and was unlikely to overpay. At one point, with the overall market up, Wells Fargo got down close to $200. We did more work as the stock went down and put close to 10% of net assets in a combination of the stocks of Wells Fargo and First Interstate (as an arbitrage). Wells Fargo stock surged to a high of $267
~~------Equity Growth Portfolio~~
82
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE EQUITY GROWTH PORTFOLIO (CONT.) in April. We subsequently cut the position to about 4% of net assets, still a big holding but not the huge bet we had made before.~~
We also took Philip Morris up to 10% earlier in the year and kept it there until June, when we took some profits. Philip Morris has actually been our largest holding for much of the past 2 1/2 years. As with Wells Fargo, we know Philip Morris extremely well, and the stock has treated us well. In 1995, for example, Philip Morris stock was up 57%, and dividends added about 4% to returns. But the stock still looked extremely attractive to us as 1996 began, trading at only 11.8 times forward projected earnings, yielding more than double the S&P 500 and growing 15-20% annually. Business at Philip Morris is outstanding, but in April the stock got knocked down into the mid-80s, on the usual round of investor concerns over legal and political issues. We feel those concerns are old news
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document and more than priced into the stock. For example, Philip Morris trades at less than half of Coca Cola's P/E multiple, with more or less the same growth rate. In any event, we loaded up south of $90 and cut back a bit near the June peak of $107.
Most professional investors believe in diversification; and we do as well. But on those occasions when conviction is very high, it can be costly not to concentrate and take advantage of market opportunities.
As we have cut back on our largest holding, the proceeds have gone into another tobacco stock, RJR Nabisco. Whereas Philip Morris stock has doubled since the beginning of 1994, RJR stock has been a tremendous underperformer, down about 3.5% over the same period against an S&P 500 rise of about 39.4%. In 1994 and 1995, the stock price weakness made sense to us, reflecting weak business trends and declining consensus earnings estimates. But trends have improved, and estimates actually rose after the company reported March quarter results. Yet the stock remains in the dog house. It is flat this year despite the improving trends and despite a 23% dividend hike in March. The dividend yield is now 6.1% and we expect the dividend to rise another 15-20% next March. Moreover, free cash flow per share is a whopping $4.20 and this should grow at a double-digit annual rate. Finally, when you buy RJR at $30.50 per share, you get $22 per share of Nabisco, which trades publicly and of which RJR owns 213 million shares. A spin-off of RJR's Nabisco stake is a potential kicker, but in our view not necessary for the stock to be a big performer.
As we ended the June quarter, we had approximately 7% of net assets in cash and we brought this down in the difficult market environment of July. Barring a sharp rise in interest rates, we believe the environment for growth stocks remains favorable. In particular, we are beginning to see some very good value in higher beta growth stocks, which as a group have been very weak since the beginning of June. Some of the largest high-beta positions in the portfolio include HFS, Boston Chicken, ITT, GTech, Heftel Broadcasting, and PetSmart.
Two groups that continue to represent a big part of the Portfolio are financial services and multi-industry conglomerates. In our view, many financial service companies look like stable growers, yet investors continue to sell the stocks when rates rise or when consumer debt delinquencies rise. In addition to Wells Fargo, we own sizable positions in American Express, Sallie Mae, Citicorp, CMAC, Cigna and Ace. American Express, for example, trades at only 12 times estimated earnings with a growth rate, we believe, of 14-16%. CMAC, a private mortgage insurer, trades at 11 times with an 18-20% growth rate.
United Technologies remains our largest multi-industry holding and is our third largest holding overall at June 30. This stock has done very well for us in 1995 and 1996, yet we think it still looks compelling. Big surplus cash flow generation has allowed the company to make value added acquisitions, joint ventures and share repurchases. We also own Allied Signal where the divestiture of the underperforming brake business improves the likelihood of the company generating consistent growth and funds cost cutting initiatives elsewhere.
~~Kurt Feuerman PORTFOLIO MANAGER July 1996~~
~~------Equity Growth Portfolio~~
83
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE EQUITY GROWTH PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------COMMON STOCKS (92.5%) CAPITAL GOODS-CONSTRUCTION (9.0%) AEROSPACE & DEFENSE (7.7%) 19,600 Boeing Co...... $ 1,708 18,100 General Dynamics Corp...... 1,122 42,700 McDonnell Douglas Corp...... 2,071 22,800 Rockwell International Corp...... 1,305 (a)20,400 Rohr, Inc...... 426 70,700 United Technologies Corp...... 8,131 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 14,763 ------BUILDING & CONSTRUCTION (0.4%) (a)35,900 AMRE, Inc...... 785 ------ELECTRICAL EQUIPMENT (0.5%) 11,200 Emerson Electric Co...... 1,012 ------ENVIRONMENTAL CONTROLS (0.4%) 22,200 WMX Technologies, Inc...... 727 ------TOTAL CAPITAL GOODS-CONSTRUCTION...... 17,287 ------CONSUMER-CYCLICAL (23.9%) AUTOMOTIVE (0.8%) 31,400 Goodyear Tire & Rubber Co...... 1,515 ------BROADCAST-RADIO & TELEVISION (2.0%) (a)48,700 Heftel Broadcasting Corp., Class A...... 1,443 (a)31,900 Infinity Broadcasting, Class A...... 957 (a)49,200 New World Communications Group, Inc...... 719 (a)20,700 Viacom, Inc., Class B...... 805 ------3,924 ------ENTERTAINMENT & LEISURE (2.9%) (a)34,400 AMC Entertainment, Inc...... 959 (a)103,000 GTECH Holdings Corp...... 3,051 25,800 Walt Disney Co...... 1,622 ------5,632 ------FOOD SERVICE (3.5%) (a)153,700 Boston Chicken, Inc...... 4,995 (a)45,500 Brinker International, Inc...... 682 (a)54,100 Foodmaker, Inc...... 467 (a)19,300 Planet Hollywood International, Inc., Class A..... 521 ------6,665 ------GAMING & LODGING (7.3%) (a)82,600 HFS, Inc...... 5,782 12,900 Hilton Hotels Corp...... 1,451 41,800 International Game Technology...... 705 (a)54,500 ITT Corp...... 3,611 71,800 La Quinta Inns, Inc...... 2,405 ------13,954 ------HOUSEHOLD FURNISHINGS & APPLIANCES (0.5%) (a)14,100 American Standard Cos...... 465 8,000 Premark International, Inc...... 148 (a)8,000 Tupperware Corp...... 338 ------951 ------
VALUE SHARES (000) ------PHOTOGRAPHY & OPTICAL (1.1%) 25,700 Eastman Kodak Co...... $ 1,998 7,100 PCA International, Inc...... 119 ------2,117 ------PUBLISHING (3.3%) 14,300 Gannett Co., Inc. 1,012 (a)233,600 K-III Communications Corp...... 2,920 65,400 News Corp. Ltd., ADR...... 1,537 19,600 New York Times Co., Class A...... 639 (a)13,600 Valassis Communications, Inc...... 252 ------6,360 ------RETAIL-GENERAL (2.5%) (a)39,800 AutoZone, Inc...... 1,383 (a)39,300 General Nutrition Cos., Inc...... 688 22,800 Harcourt General, Inc...... 1,140 (a)33,300 PetSmart, Inc...... 1,590 ------4,801 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document TOTAL CONSUMER-CYCLICAL...... 45,919 ------CONSUMER-STAPLES (22.5%) BEVERAGES (2.5%) 82,300 Coca Cola Enterprises, Inc...... 2,850 55,600 PepsiCo, Inc...... 1,967 ------4,817 ------DRUGS (3.2%) 34,000 American Home Products Corp...... 2,044 (a)9,700 Amgen, Inc...... 524 15,300 Pfizer, Inc...... 1,092 39,300 Schering-Plough Corp...... 2,466 ------6,126 ------FOOD (1.9%) 37,900 Interstate Bakeries Corp...... 1,014 23,100 Kellogg Co...... 1,692 15,400 Ralston Purina Group...... 988 ------3,694 ------HEALTH CARE SUPPLIES & SERVICES (2.2%) 19,000 Aetna Life & Casualty Co...... 1,359 23,800 Columbia/HCA Healthcare Corp...... 1,270 (a)10,400 PacifiCare Health Systems, Inc., Class B...... 705 17,900 United Healthcare Corp...... 904 ------4,238 ------HOSPITAL SUPPLIES & SERVICES (0.6%) 14,000 Becton Dickinson & Co...... 1,124 ------TOBACCO (12.1%) 132,800 Philip Morris Cos., Inc...... 13,811 301,800 RJR Nabisco Holdings Corp...... 9,356 ------23,167 ------TOTAL CONSUMER-STAPLES...... 43,166 ------DIVERSIFIED (4.0%) 36,100 AlliedSignal, Inc...... 2,062 71,100 Loews Corp...... 5,608 ------TOTAL DIVERSIFIED...... 7,670 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Equity Growth Portfolio~~
84
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE EQUITY GROWTH PORTFOLIO (CONT.) ------~~
VALUE SHARES (000) ------ ENERGY (0.7%) COAL, GAS, & OIL (0.7%) 11,900 Baker Hughes, Inc...... $ 391 11,200 Schlumberger Ltd...... 944 ------TOTAL ENERGY...... 1,335 ------FINANCE (19.8%) BANKING (6.5%) 23,568 Chase Manhattan Corp...... 1,664 19,600 Citicorp...... 1,619
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 15,500 Morgan (J.P.) & Co., Inc...... 1,312 33,033 Wells Fargo & Co...... 7,891 ------12,486 ------FINANCIAL SERVICES (7.1%) 119,500 American Express Co...... 5,333 (a)12,800 Associates First Capital Corp...... 482 22,600 CIGNA Corp...... 2,664 21,200 Dean Witter Discover & Co...... 1,214 28,100 Franklin Resources, Inc...... 1,714 28,000 Student Loan Marketing Association...... 2,072 ------13,479 ------INSURANCE (5.8%) 38,700 Ace Ltd...... 1,819 87,100 CMAC Investment Corp...... 5,008 16,300 Exel Ltd...... 1,149 6,700 MGIC Investment Corp...... 376 28,800 PartnerRe Ltd...... 860 37,100 PMI Group (The), Inc...... 1,577 9,800 RenaissanceRe Holdings...... 301 ------11,090 ------REAL ESTATE (0.4%) (a)29,500 Insignia Financial Group, Inc., Class A...... 800 ------TOTAL FINANCE...... 37,855 ------MATERIALS (3.2%) CHEMICALS (3.2%) 23,800 Hercules, Inc...... 1,315 18,000 IMC Global, Inc...... 677 50,400 Monsanto Co...... 1,638 17,100 Olin Corp...... 1,526 15,400 Potash Corp. of Saskatchewan, Inc...... 1,020 ------TOTAL MATERIALS...... 6,176 ------SERVICES (2.6%) PROFESSIONAL SERVICES (2.1%) (a)17,100 Bell & Howell Holding Co...... 558 (a)42,850 CUC International, Inc...... 1,521 (a)900 Catalina Marketing Corp...... 82 2,280 First Data Corp...... 1,815 ------3,976 ------TRANSPORTATION (0.5%) (a)10,600 AMR Corp...... 965 ------TOTAL SERVICES...... 4,941 ------TECHNOLOGY (6.8%) COMPUTERS (0.5%) (a)18,500 Cisco Systems, Inc...... 1,048 ------
VALUE SHARES (000) ------ELECTRONICS (1.4%) (a)17,500 Applied Materials, Inc...... $ 534 25,900 Intel Corp...... 1,902 10,500 Watkins-Johnson Co...... 287 ------2,723 ------OFFICE EQUIPMENT (1.1%) 10,600 Hewlett Packard Co...... 1,056 11,200 International Business Machines Corp...... 1,109 ------2,165 ------SOFTWARE SERVICES (1.9%) (a)1,100 America Online, Inc...... 48 (a)18,300 Microsoft Corp...... 2,198 (a)23,500 Oracle System Corp...... 927 (a)22,750 USCS International, Inc...... 438 ------3,611 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document TELECOMMUNICATIONS (1.9%) (a)28,800 AirTouch Communications, Inc...... 814 18,400 American Telephone & Telegraph Corp...... 1,141 (a)50,500 Teleport Communications Group, Inc., Class A...... 966 (a)7,300 U.S. Robotics Corp...... 624 ------3,545 ------TOTAL TECHNOLOGY...... 13,092 ------TOTAL COMMON STOCKS (Cost $157,468)...... 177,441 ------
FACE AMOUNT (000) ------ SHORT-TERM INVESTMENT (7.5%) REPURCHASE AGREEMENT (7.5%) $ 14,395 Goldman Sachs, 5.375%, dated 6/28/96, due 7/01/96, to be repurchased at $14,401, collateralized by $14,020 U.S. Treasury Bonds, 7.50%, due 11/15/16, valued at $14,693 (Cost $14,395)...... 14,395 ------TOTAL INVESTMENTS (100.0%) (Cost $171,863)...... 191,836 ------
OTHER ASSETS (2.0%) Cash...... $ 1 Receivable for Investments Sold...... 3,472 Dividends Receivable...... 370 Interest Receivable...... 6 Other...... 12 3,861 ------LIABILITIES (-2.0%) Payable for Investments Purchased...... (3,630) Investment Advisory Fees Payable...... (230) Administrative Fees Payable...... (24) Custodian Fees Payable...... (15) Payable for Portfolio Shares Redeemed...... (4) Distribution Fees Payable...... (3) Directors' Fees and Expenses Payable...... (3) Other Liabilities...... (37) (3,946) ------NET ASSETS (100%)...... $191,751 ------

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Equity Growth Portfolio~~
85
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE EQUITY GROWTH PORTFOLIO (CONT.) ------~~
AMOUNT (000) ------ NET ASSETS CONSIST OF: Paid in Capital...... $ 139,965 Undistributed Net Investment Income...... 578 Accumulated Net Realized Gain...... 31,235 Unrealized Appreciation on Investments...... 19,973 ------NET ASSETS...... $191,751 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document
CLASS A: NET ASSETS...... $186,848 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 11,362,865 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $16.44 ------CLASS B: NET ASSETS...... $4,903 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 298,399 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $16.43 ------

~~------~~
~~(a) -- Non-income producing security ADR -- American Depositary Receipt~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Equity Growth Portfolio~~
86
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE SMALL CAP VALUE EQUITY PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
Aerospace 1.9% Banking 11.4% Building 3.0% Capital Goods 4.5% Chemicals 4.3% Communications 0.4% Consumer - Durables 4.2% Consumer - Retail 5.3% Consumer - Staples 3.7% Energy 3.5% Financial - Diversified 5.5% Health Care 6.6% Industrial 4.4% Insurance 6.3% Metals 2.3% Paper & Packaging 2.1% Services 10.4% Technology 8.9% Transportation 2.2% Utilities 7.3% Other 1.8%

~~PERFORMANCE COMPARED TO THE RUSSELL 2500 AND S&P 500 INDICES(1) ------~~
TOTAL RETURNS(2)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------AVERAGE ANNUAL YTD ONE YEAR SINCE INCEPTION ------ ~~PORTFOLIO -- CLASS A.... 9.76% 18.81% 12.83% PORTFOLIO -- CLASS B(3)...... 9.31 N/A N/A RUSSELL 2500...... 10.28 24.16 16.75 S&P 500...... 10.09 25.98 16.05~~
1. The Russell 2500 Index and the S&P 500 Index are unmanaged indices of common stock. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. 3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
The Small Cap Value Equity Portfolio invests in small companies that our research indicates are undervalued, of high quality, and will reward the shareholder through high current dividend income. The Portfolio's disciplined value approach seeks to outperform the Russell 2500 Small Company Index in the longer term. We believe our emphasis on high quality companies will help the Portfolio perform particularly well in difficult markets.
The Small Cap Value Equity Portfolio selects companies that can be purchased at bargain prices. Bargains mostly arise as a result of public overreactions to temporary problems associated with an otherwise healthy company, or because a company is neglected and currently out-of-the limelight of investors' interest. Often, these companies operate as major players in very focused markets and are not widely followed by the investment community.
For the six month period ended June 30, 1996, the Portfolio had a total return of 9.76% for the Class A shares and 9.31% for the Class B shares, as compared to a total return of 10.28% and 10.09% for the Russell 2500 Index and S&P 500 Index, respectively. The average annual total return for the twelve months ended June 30, 1996 and for the period from inception on December 17, 1992 through June 30, 1996 was 18.81% and 12.83%, respectively for the Class A shares, as compared to 24.16% and 16.75%, respectively, for the Russell 2500 Index and 25.98% and 16.05%, respectively, for the S&P 500 Index.
~~PERFORMANCE REVIEW~~
The consensus economic forecast at the beginning of the year called for a soft landing and continued slow growth. Soon this forecast came into question as too conservative as economic data -- despite severe winter weather in large parts of the country -- indicated a more vigorous U.S. economy. Particularly, strong employment data and consistently high levels of consumer confidence have pointed to a stronger economy. Ever fearing a tight labor market and accelerating inflation, the bond market responded with rising interest rates. The impact on the Portfolio was mixed.
Reflecting stronger consumer confidence, and after being shunned for a long time, the retail industry staged a strong turnaround and produced excellent returns for the Portfolio. We took advantage of the high volatility in this sector and increased turnover in consumer retail stocks. We purchased Stanhome Inc., a marketer of precious, collectible giftware such as figurines and dolls, at a low 10x earnings and a dividend yield of 3.7%. Stanhome also operates a direct selling group in Europe offering consumer
~~------Small Cap Value Equity Portfolio~~
87
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE SMALL CAP VALUE EQUITY PORTFOLIO (CONT.)~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document products through independent representatives. We expect the company to grow its earnings substantially in 1996 based on turnaround performance in its direct marketing division. Other trades in the retail sector include the sale of DEB Shops and the purchase of Lillian Vernon Corp. Lillian Vernon retails household, kitchen and garden items through mail order. We purchased the company at close to its book value. Last year's earnings were penalized by higher catalog paper costs which we expect to be mostly reversed in 1996.
The Portfolio's deeply cyclical companies fundamental earnings outlook improved significantly in anticipation of stronger economic growth. Paper companies witnessed some rebound in paper prices and the steel industry showed a modest recovery from late last year's slowdown. In addition to an accelerating domestic economic environment, small cap cyclical companies continue to benefit from an inexpensive U.S. currency and strong product demand from Asia. Although the fundamental outlook for cyclical companies has improved significantly during the past six months relative valuations for these companies have become more attractive. This opened up bargains for the Portfolio's value oriented stock selection strategy such as Commercial Intertech Corp., an Ohio manufacturer of hydraulic equipment, water purification products, and metal buildings. We purchased the company in May at an attractive price of 10 times this year's expected earnings. In June Commercial Intertech received an unsolicited cash tender offer by Canadian United Dominion. Following our sell discipline the Portfolio sold its holding in the company as the price moved up to 15 times estimated earnings in response to the buyout offer.
While expectations of accelerated economic growth was positive for the Portfolio's cyclical companies, it had a dampening impact on its interest rate sensitive companies. Particularly, utilities, finance, and insurance companies suffered from their perceived excess interest rate sensitivity. While the Russell 2000 Small Company Index advanced almost ten percent during the first six months of 1996, utility companies trading at the NYSE stood at a standstill advancing by only 0.5%, and the NASDAQ's insurance index advanced by only 1.6%. In addition to improving relative valuations we continue to believe in a very favorable fundamental business outlook for financial companies. Steady loan growth, favorable net interest margins, continued high asset quality, and improved efficiencies drive our optimism for that sector. During the second quarter, we added Susquehanna Bancshares and Astoria Financial Corp. to the Portfolio's bank holdings. Susquehanna Bancshares (1.2x price-to-book ratio, 4.5% dividend yield) is expanding its banking franchise into the lucrative Washington D.C. / Baltimore area while still being priced as an undiscovered Pennsylvania community bank. We purchased Astoria Financial Corp., a New York thrift institution, at book value and 9.1 times this year's expected cash earnings. While Astoria is extremely attractive on valuation alone, we expect a favorable supervisory goodwill ruling to provide extra upside momentum for the stock.
Domestic small company markets saw extraordinary gains at the beginning of the second quarter. The driving force behind this strength has been the market's unquestioned affection for technology stocks. Two months into the second quarter, growth-oriented small cap issues were leading value-oriented small cap companies by almost 800 basis points as measured by the Russell 2000 Growth and Value Indices. June brought a steep reversal of that trend as the small cap growth advantage shrunk to 160 basis points. The market's fondness for the technology sector has been put to the test by lower than expected sales and ensuing inventory overhang, particularly for semiconductors and related products. Since we believe the sector has been valued fairly richly the Portfolio was underweight in technology issues and avoided much of the volatility.
As we have stated in the past the Portfolio is designed to outperform small cap indices in the long term, as well as do so with lower return volatility. In times of sharp -- almost speculative -- market advances such as we have witnessed in the first five months of 1996, the Portfolio is expected to provide strong absolute returns but may not participate fully in speculative rallies. However, we expect the Portfolio's undervalued, under-researched and dividend paying companies to outperform small company indices in difficult market environments.
The Small Cap Value Equity Portfolio offers the consistent application of a disciplined value driven investment process to its shareholders. As such, we will pursue our search for smaller companies that our research shows are undervalued, are of high quality and pay above average dividend yield. We believe these companies will be well positioned to achieve superior total return for the longer term.
~~Gary D. Haubold PORTFOLIO MANAGER~~
~~William B. Gerlach PORTFOLIO MANAGER~~
~~July 1996~~
~~------~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Christian Stadlinger, the portfolio manager of the Portfolio resigned from Morgan Stanley Asset Management Inc. in August 1996. Gary D. Haubold and William B. Gerlach have replaced Mr. Stadlinger and now have primary responsibility for managing the assets of the Portfolio.
~~------Small Cap Value Equity Portfolio~~
88
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE SMALL CAP VALUE EQUITY PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------ COMMON STOCKS (98.2%) AEROSPACE (1.9%) 19,000 AAR Corp...... $ 387 13,000 Thiokol Corp...... 513 300 United Industrial Corp...... 2 ------902 ------BANKING (11.4%) 17,000 Astoria Financial Corp...... 461 17,175 First Security Corp. (Delaware)...... 412 20,000 Greenpoint Financial Corp...... 565 17,600 Onbancorp, Inc...... 576 28,000 Peoples Heritage Financial Group, Inc...... 571 16,000 Standard Federal Bank...... 616 20,000 Susquehanna Bancshares, Inc...... 535 27,000 Trustmark Corp...... 567 20,000 Union Planters Corp...... 608 21,000 Washington Mutual, Inc...... 627 ------5,538 ------BUILDING (3.0%) 13,300 Ameron International Corp. (Delaware)...... 525 38,800 Gilbert Associates, Inc., Class A...... 495 29,000 Ryland Group, Inc...... 435 ------1,455 ------CAPITAL GOODS (4.5%) 19,403 Binks Manufacturing Co...... 529 33,200 Cascade Corp...... 444 21,600 Starret (L.S.) Co., Class A...... 562 11,700 Tecumseh Products Co., Class A...... 629 ------2,164 ------CHEMICALS (4.3%) 33,792 Aceto Corp...... 532 19,400 Dexter Corp...... 577 9,400 Learonal, Inc...... 235 19,800 Quaker Chemical Corp...... 253 14,000 Witco Corp...... 481 ------2,078 ------COMMUNICATIONS (0.4%) 8,200 Comsat Corp...... 213 ------CONSUMER-DURABLES (4.2%) 21,200 Arvin Industries, Inc...... 472 23,998 Knape & Vogt Manufacturing Co...... 378 31,300 Oneida Ltd...... 587 23,100 Smith (A.O.) Corp., Class B...... 577 ------2,014 ------CONSUMER-RETAIL (5.3%)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 29,800 CPI Corp...... 492 20,700 Guilford Mills, Inc...... 517 40,000 Lillian Vernon Corp...... 510 10,100 Springs Industries, Inc., Class A...... 510 20,000 Stanhome, Inc...... 530 ------2,559 ------
VALUE SHARES (000) ------CONSUMER-STAPLES (3.7%) 15,246 Block Drug Co., Inc., Class A...... $ 640 25,400 Coors (Adolph), Inc., Class B...... 454 14,900 International Multifoods Corp...... 272 26,400 Nash Finch Co...... 423 ------1,789 ------ENERGY (3.5%) 24,600 Ashland Coal, Inc...... 640 17,000 Diamond Shamrock, Inc...... 491 18,500 Ultramar Corp...... 536 ------1,667 ------FINANCIAL-DIVERSIFIED (5.5%) 11,900 Finova Group, Inc...... 580 12,100 GATX Corp...... 584 28,000 Manufactured Home Communities, Inc. REIT...... 539 35,000 South West Property Trust REIT...... 468 21,000 Wellsford Residential Property Trust REIT...... 472 ------2,643 ------HEALTH CARE (6.6%) 25,000 Analogic Corp...... 669 14,500 Beckman Instruments, Inc...... 551 19,400 Bergen Brunswig Corp., Class A...... 538 35,500 Bindley Western Industries, Inc...... 595 22,700 Kinetic Concepts, Inc...... 352 19,000 United Wisconsin Services, Inc...... 494 ------3,199 ------INDUSTRIAL (4.4%) 17,200 American Filtrona Corp...... 550 9,400 Barnes Group, Inc...... 481 7,200 Commercial Intertech Corp...... 185 34,700 GenCorp, Inc...... 525 38,500 Kaman Corp., Class A...... 390 ------2,131 ------INSURANCE (6.3%) 16,200 Argonaut Group, Inc...... 506 24,000 Enhance Financial Services Group, Inc...... 672 15,500 Provident Companies, Inc...... 574 18,900 Selective Insurance Group, Inc...... 614 19,950 USLife Corp...... 656 ------3,022 ------METALS (2.3%) 33,000 Birmingham Steel Corp...... 540 14,100 Cleveland-Cliffs, Inc...... 552 ------1,092 ------PAPER & PACKAGING (2.1%) 16,500 Ball Corp...... 474 13,900 Potlatch Corp...... 544 ------1,018 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Small Cap Value Equity Portfolio~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 89~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE SMALL CAP VALUE EQUITY PORTFOLIO (CONT.) ------~~
VALUE SHARES (000) ------ SERVICES (10.4%) 21,200 Angelica Corp...... $ 501 29,000 Bowne & Co...... 598 25,700 Cross (A.T.) Co., Class A...... 456 40,000 Jackpot Enterprises, Inc...... 510 25,900 New England Business Services, Inc...... 505 24,400 Ogden Corp...... 442 55,400 Piccadilly Cafeterias, Inc...... 582 29,500 Russ Berrie & Co., Inc...... 542 20,000 Sbarro, Inc...... 502 16,300 True North Communications, Inc...... 363 ------5,001 ------TECHNOLOGY (8.9%) 30,000 Augat, Inc...... 574 35,000 Core Industries, Inc...... 503 15,800 Cubic Corp...... 515 29,000 Dallas Semiconductor Corp...... 526 33,700 Gerber Scientific, Inc...... 543 26,400 MTS Systems Corp...... 554 22,500 National Computer Systems, Inc...... 481 5,000 Park Electrochemical Corp...... 100 28,000 Scitex Ltd...... 483 ------4,279 ------TRANSPORTATION (2.2%) 21,000 Airborne Freight Corp...... 546 3,800 Overseas Shipholding Group, Inc...... 69 25,000 SkyWest, Inc...... 466 ------1,081 ------UTILITIES (7.3%) 19,700 Central Hudson Gas & Electric...... 616 19,600 Commonwealth Energy Systems Cos...... 505 12,000 Eastern Enterprises...... 399 18,900 Oneok, Inc...... 472 13,700 Orange & Rockland Utilities, Inc...... 503 13,700 SJW Corp...... 456 31,500 Washington Water Power Co...... 587 ------3,538 ------TOTAL COMMON STOCKS (Cost $41,033)...... 47,383 ------
FACE AMOUNT VALUE (000) (000) ------SHORT-TERM INVESTMENT (1.0%) REPURCHASE AGREEMENT (1.0%) $ 465 Chase Securities, Inc. 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $465, collateralized by $460 U.S. Treasury Notes, 7.125%, due 9/30/99, valued at $470 (Cost $465)...... $ 465 ------TOTAL INVESTMENTS (99.2%) (Cost $41,498)...... 47,848 ------
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document~~
OTHER ASSETS (1.3%) Cash...... $ 1 Receivable for Investments Sold...... 516 Dividends Receivable...... 101 Other...... 9 627 ------LIABILITIES (-0.5%) Payable for Investments Purchased...... (101) Investment Advisory Fees Payable...... (80) Professional Fees Payable...... (12) Administrative Fees Payable...... (8) Custodian Fees Payable...... (5) Distribution Fees Payable...... (1) Payable for Portfolio Shares Redeemed...... (1) Directors' Fees and Expenses Payable...... (1) Other Liabilities...... (9) (218) ------NET ASSETS (100%)...... $48,257 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 38,164 Undistributed Net Investment Income...... 295 Accumulated Net Realized Gain...... 3,448 Unrealized Appreciation on Investments...... 6,350 ------NET ASSETS...... $48,257 ------CLASS A: NET ASSETS...... $46,746 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 3,594,590 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $13.00 ------CLASS B: NET ASSETS...... $1,511 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 116,308 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $12.99 ------

~~------REIT -- Real Estate Investment Trust~~
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Small Cap Value Equity Portfolio~~
90
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE U.S. REAL ESTATE PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
Apartment 20.3% Land 3.0% Lodging/Leisure 10.5% Manufactured Home 7.1% Office and Industrial 35.4% Retail 13.7% Self Storage 4.4% Other 5.6%
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document

~~PERFORMANCE COMPARED TO THE NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS (NAREIT) INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE ANNUAL YTD ONE YEAR SINCE INCEPTION ------ PORTFOLIO -- CLASS A...... 11.10% 24.20% 24.60% PORTFOLIO -- CLASS B(3)...... 10.15 N/A N/A INDEX...... 6.90 16.16 16.15
1. The NAREIT Index is an unmanaged market weighted index of tax qualified REITs (excluding healthcare 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.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
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.
For the six month period ended June 30, 1996, the Portfolio had a total return of 11.10% for the Class A shares and 10.15% for the Class B shares, as compared to a total return of 6.90% for the National Association of Real Estate Investment Trusts (NAREIT) Index. The average annual total return for the twelve months ended June 30, 1996 and for the period from inception on February 24, 1995 through June 30, 1996 was 24.20% and 24.60%, respectively, for the Class A shares, as compared to 16.16% and 16.15%, respectively, for the Index.
The continued gradual appreciation in the Index together with average dividend yields for the companies comprising the Index are consistent with our view of a commercial real estate market in the United States that is making a transition from recovery to overall equilibrium. Net absorption of all types of real estate continued in the second quarter to be positive, and there are even some indications of a pick-up in spatial demand commensurate with an increase this year in the overall level of economic activity. As occupancy rates have continued to rise, rental growth has become generally more widespread, and many property types are registering not only nominal, but positive REAL growth as well for the preceding twelve months.
With the growth in rental rates and occupancy, new construction of real estate has now become economically feasible for the first time in over five years. While providers of capital (including the public REIT market) are generally skeptical of speculative development, new projects which are well-supported by pre-leasing and which are conservatively financed are being developed in today's environment. In those markets which have reached equilibrium, that is, where new construction is taking place, we can expect rental growth to begin to moderate. Clearly, our focus in the coming quarters will be to monitor market conditions to identify which markets, if any, are subject to potential overbuilding which could lead to a deterioration in operating results. With the exception of a handful of apartment markets, new development, where it is taking place, does not appear excessive in comparison to tenant demand.
~~The real estate capital markets have continued to become more liquid. We believe that this phenomenon is a function of three key factors: first, the gradual~~
~~------U.S. Real Estate Portfolio~~
91
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document [LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE U.S. REAL ESTATE PORTFOLIO (CONT.) recovery in the markets has reduced perceived risk and therefore enticed investors to re-enter the market; second, the withdrawal of traditional capital providers and the resumption of selective development has created a substantial need for new capital in the industry, and third, concern about potential risk in the equity and fixed income markets has led to a search for defensive investments such as real estate that provide low or negative correlations with the primary asset classes.
We continue to manage the Portfolio on the basis of establishing an overall asset allocation framework defined by target exposures to each property type and region based upon our analysis of underlying property supply and demand fundamentals. We then select individual securities based upon our analysis of underlying property value. Using this methodology, the overall shape and composition of the Portfolio continued to evolve over the course of the second quarter.
To begin with, we continued our policy of gradually under-weighting the apartment sector, where our overall exposure fell from 23.8% as of March 31, 1996 to 20.3% as of June 30. By contrast, the weighting for the Index is 26%. As noted in previous reports and as alluded to above, the apartment markets today are generally in equilibrium, and new construction has led to a leveling-off in rental growth in most markets. While apartments continue to serve as a relatively low volatility core to our Portfolio, we continue to find more attractive total return investment opportunities in other sectors. Consistent with previous quarters, we continue to focus our investments in regions (e.g., the Pacific Coast) or sub-markets (e.g., Class "B" apartments in the sun-belt) where rental growth continues to exceed the inflation rate.
Manufactured Housing continues to be over-weighted in our Portfolio with a 7.1% position. While dividend and property yields in this sector are relatively modest, we believe that the combination of modest new construction, minimal capital requirements and low volatility make this an attractive anchor to the Portfolio. We continue to underweight the retail sector, and in fact our overall weighting fell again last quarter, to 13.7%, compared to an Index weighting of 36%. While share prices in the retail sector recovered in May and June after a significant fall during the first four months of the year, we believe that the secular bear market in retail continues unabated and that the sector offers no better than fair value relative to an increasing level of operating risk. To put our view in some perspective, the overall level of new retail construction is now at levels not seen since the height of the real estate development boom in 1986. At the same time, the fundamentals of tenant demand and credit risk remain shaky at best. Increasingly today retail landlords are being asked to take what are in effect venture capital risks in sponsoring new retail tenants in their malls and yet are being compensated with fixed income type returns. We do not believe that this disequilibrium between risk and reward will be alleviated until the retail market undergoes the kind of wash-out that occurred in the office, apartment and hotel sectors. Of course, that wash-out was characterized by 7 years of no construction, tremendous vacancy rates, a precipitous fall in nominal rents and a huge erosion in operating margins. Under these circumstances, we have concentrated our retail holdings in names with the highest quality malls that will best withstand the downturn in capital values and in companies with a regional focus that provides the best protection against new competition.
At the end of the previous quarter we spoke of our intention to remain overweight in the office and industrial sectors but to rigorously review our commitments with a view towards finding attractive underlying asset value. We felt that this strategy was necessitated by a sector which boasted the most attractive fundamentals in the industry but where share prices exceeded intrinsic value by a widening margin. Today, our exposure to the sector is approximately 35.4% versus 18% for the Index, and we have continued to identify and add to positions which offer discounts to underlying asset value. During the quarter we added substantially to our holdings in Bedford Properties, Pacific Gulf and East Group Properties, three companies with significant exposure to the office or industrial markets in California and in other selective sun-belt locations. All three trade at attractive levels relative to underlying assets and are capitalized to grow through acquisitions and new development. We also established a position this quarter in The Parkway Company, a company engaged in the office business in Texas and the Southeast. These four companies, together with Meridian Industrial, Duke Realty and Liberty Property Trust, form the backbone of our overweighting in the office and industrial sectors today. Finally, we have reserved a modest level of cash for an investment in a company focusing on suburban office buildings in the Midwest which will close in the third quarter.
Lastly, we remain overweighted in the lodging sector, with a 10.5% exposure vs. 6% for the Index, in large part because of the continuing attractive operating fundamentals in the full-service components of the sector. Shareholders will
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document note, however, that our~~
~~------U.S. Real Estate Portfolio~~
92
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE U.S. REAL ESTATE PORTFOLIO (CONT.) exposure has been reduced significantly from the previous quarter, largely as a result of what we believe are now excessive valuation levels prevailing throughout the sector. One measure of this emerging over-valuation is the substantial number of IPO in the hotel business. Furthermore, a re-emergence of new construction in the limited service sector has pushed new construction to the level of 1986, the preceding peak in the lodging business. While we remain convinced that full service hotels can deliver attractive capital appreciation in the coming year, we are becoming increasingly selective in our picks in this sector and will have a bias towards lightening our exposure should share prices continue their rapid rise.
~~Russell C. Platt PORTFOLIO MANAGER~~
~~Theodore R. Bigman PORTFOLIO MANAGER~~
~~July 1996~~
~~------U.S. Real Estate Portfolio~~
93
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE U.S. REAL ESTATE PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------ COMMON STOCKS (94.0%) APARTMENT (20.3%) 162,800 Amli Residential Properties Trust REIT...... $ 3,358 41,000 Apartment Investment & Management Co., Class A, REIT...... 769 233,300 Avalon Properties, Inc., REIT...... 5,074 23,000 Columbus Realty Trust REIT...... 446 132,700 Essex Property Trust, Inc., REIT...... 2,853 27,800 Evans Withycombe Residential, Inc...... 580 234,000 Irvine Apartment Communities, Inc., REIT .... 4,709 99,600 Oasis Residental, Inc., REIT...... 2,179 124,500 Paragon Group, Inc., REIT...... 2,039 220,300 South West Property Trust REIT...... 2,946 16,100 Summit Properties, Inc...... 316 ------25,269 ------LAND (3.0%) (a)245,700 Atlantic Gulf Communities Corp...... 1,474 (a)252,800 Catellus Development Corp...... 2,307 ------3,781 ------LODGING/LEISURE (10.5%) 59,900 Felcor Suite Hotels, Inc., REIT...... 1,827 (a)255,000 Host Marriott Corp...... 3,347 (a)16,100 Interstate Hotels Co...... 358 (a)306,200 John Q Hammons Hotels, Inc...... 3,330 9,100 National Golf Properties, Inc...... 221 (a)258,100 Servico, Inc...... 3,936 8,400 Winston Hotels, Inc., REIT...... 97
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------13,116 ------MANUFACTURED HOME (7.1%) 367,850 ROC Communities, Inc., REIT...... 8,782 ------OFFICE AND INDUSTRIAL (35.0%) INDUSTRIAL (16.8%) 57,800 CenterPoint Properties Corp., REIT...... 1,402 201,000 East Group Properties REIT...... 4,372 464,984 Meridian Industrial Trust, Inc., REIT...... 8,544 11,100 Meridian Point Realty Trust '83 REIT...... 22 353,300 Pacific Gulf Properties, Inc., REIT...... 5,918 38,800 Security Capital Industrial Trust REIT...... 684 ------20,942 ------OFFICE (6.8%) 255,600 Crocker Realty Trust, Inc., REIT...... 2,939 323,000 Parkway Co...... 4,926 (a)67,900 Trizec Corp., Ltd., REIT...... 518 ------8,383 ------
VALUE SHARES (000) ------ OFFICE AND INDUSTRIAL (11.4%) 397,300 Bedford Property Investors, Inc., REIT...... $ 5,363 33,600 Brandywine Realty Trust REIT...... 189 160,200 Duke Realty Investments, Inc., REIT...... 4,846 191,500 Liberty Property Trust REIT...... 3,806 ------14,204 ------TOTAL OFFICE AND INDUSTRIAL...... 43,529 ------RETAIL (13.7%) FACTORY OUTLET CENTER (1.0%) 131,200 Factory Stores of America, Inc., REIT...... 1,197 2,000 Horizon Group, Inc., REIT...... 41 ------1,238 ------REGIONAL MALL (7.5%) 170,700 Crown American Realty Trust REIT...... 1,323 254,100 DeBartolo Realty Corp., REIT...... 4,097 37,900 Glimcher Realty Trust REIT...... 640 139,100 Urban Shopping Centers, Inc., REIT...... 3,304 ------9,364 ------SHOPPING CENTER (5.2%) 277,500 Alexander Haagen Properties, Inc., REIT...... 3,538 254,000 Burnham Pacific Property Trust REIT...... 2,953 ------6,491 ------TOTAL RETAIL...... 17,093 ------SELF STORAGE (4.4%) 11,900 Public Storage, Inc., REIT...... 245 132,300 Shurgard Storage Centers, Inc., Series A, REIT.... 3,341 92,300 Storage Trust Realty REIT...... 1,892 ------TOTAL SELF STORAGE...... 5,478 ------TOTAL COMMON STOCKS (Cost $110,912)...... 117,048 ------
NO. OF WARRANTS (000) ------ WARRANTS (0.4%) INDUSTRIAL (0.4%) (a)29,470 Meridian Industrial Trust, Inc., REIT, expiring 2/23/99...... 78
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (a)184,843 Meridian Industrial Trust, Inc., REIT, expiring 2/23/99...... 485 ------TOTAL WARRANTS (Cost $409)...... 563 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------U.S. Real Estate Portfolio~~
94
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~U.S. REAL ESTATE PORTFOLIO (CONT.) ------~~
FACE AMOUNT VALUE (000) (000) ------ SHORT-TERM INVESTMENT (6.2%) REPURCHASE AGREEMENT (6.2%) $ 7,703 Chase Securities, Inc., 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $7,706, collateralized by $7,570 U.S. Treasury Notes, 7.125%, due 9/30/99, valued at $7,739 (Cost $7,703)...... $ 7,703 ------TOTAL INVESTMENTS (100.6%) (Cost $119,024)...... 125,314 ------
OTHER ASSETS (5.2%) Receivable for Investments Sold...... $ 5,571 Dividends Receivable...... 823 Interest Receivable...... 3 Other...... 6 6,403 ------LIABILITIES (-5.8%) Payable for Investments Purchased...... (6,906) Investment Advisory Fees Payable...... (188) Bank Overdraft...... (38) Administrative Fees Payable...... (15) Custodian Fees Payable...... (13) Payable for Portfolio Shares Redeemed...... (2) Distribution Fees Payable...... (2) Directors' Fees and Expenses Payable...... (2) Other Liabilities...... (39) (7,205) ------NET ASSETS (100%)...... $124,512 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 110,144 Undistributed Net Investment Income...... 548 Accumulated Net Realized Gain...... 7,530 Unrealized Appreciation on Investments...... 6,290 ------NET ASSETS...... $ 124,512 ------
CLASS A: ------ NET ASSETS...... $119,709 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 9,548,747 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $12.54 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------
CLASS B: ------ ~~NET ASSETS...... $4,803 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 383,754 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $12.52 ------~~
~~------(a) -- Non-income producing security REIT -- Real Estate Investment Trust~~
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------U.S. Real Estate Portfolio~~
95
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE VALUE EQUITY PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
Aerospace 2.4% Banking 11.9% Capital Goods 2.1% Chemicals 4.1% Communications 5.0% Consumer-Durables 4.6% Consumer-Retail 6.5% Consumer-Service & Growth 3.0% Consumer-Staples 8.0% Energy 6.9% Financial-Diversified 2.4% Health Care 3.8% Industrial 4.0% Insurance 6.4% Metals 2.2% Paper & Packaging 5.4% Technology 4.5% Transportation 3.9% Utilities 9.1% Other 3.8%

~~PERFORMANCE COMPARED TO THE S&P 500 AND THE INDATA EQUITY-MEDIAN INDICES(1) ------~~
TOTAL RETURNS(2) ------AVERAGE AVERAGE ANNUAL FIVE ANNUAL SINCE YTD ONE YEAR YEARS INCEPTION ------ PORTFOLIO -- CLASS A... 8.55% 21.53% 15.35% 12.31% PORTFOLIO -- CLASS B(3)...... 7.48 N/A N/A N/A S&P 500...... 10.09 25.98 15.71 15.05 INDATA EQUITY-MEDIAN... 9.53 23.96 14.95 14.31
1. The Indata Equity-Median Index and the S&P 500 Index are unmanaged indices of
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document common stocks. The Indata Equity-Median Index includes an average asset allocation of 5% cash and 95% equity based on $30.6 billion in assets among 562 portfolios for the six month period ended June 30, 1996.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
Our value investment philosophy for the Value Equity Portfolio is based on the premise that a diversified portfolio of undervalued securities will outperform the market over the long-term, and can be expected to preserve principal in a difficult market environment.
~~Key aspects of our philosophy are as follows:~~
~~Reversion to mean valuation levels (return to the long term average) is the most consistent and powerful force in investing.~~
~~We buy companies selling at less than our research measures to be their true worth.~~
~~Our Portfolio is characterized by a distinctly below average price-to-earnings ratio, price-to-book ratio, and a high dividend yield.~~
~~We limit our universe of investments to larger, liquid stocks. This is a list similar to the S&P 500.~~
~~Investment decisions are based on research undertaken by the Morgan Stanley Asset Management/ Chicago investment team.~~
For the six month period ended June 30, 1996, the Portfolio had a total return of 8.55% for the Class A shares and 7.48% for the Class B shares, as compared to a total return of 10.09% for the S&P 500 Index and 9.53% for the Indata Equity-Median Index. The average annual total return for the twelve month and five year periods ended June 30, 1996 and for the period from inception on January 31, 1990 through June 30, 1996 were 21.53%, 15.35% and 12.31%, respectively, for the Class A shares, as compared to 25.98%, 15.71% and 15.05% for the S&P 500 Index and 23.96%, 14.95% and 14.31%, respectively for the Indata Equity-Median Index.
~~The Portfolio holds undervalued companies with a wide valuation gap as compared to the characteristics of the S&P 500:~~
P/E P/B ------ ~~Value Equity Portfolio...... 14.9x 2.4x S&P 500...... 18.3x 4.3x~~
Performance in the first half of 1996 was driven primarily by investment style as growth significantly outperformed value in both large and small cap stock segments. Year-to-date, the S&P/Barra Value Index returned 8.65% and the S&P/Barra Growth Index returned 11.80%. The small cap Russell 2000 Value Index increased 8.86% in the first half while the Russell 2000 Growth Index returned 11.94%. The market was extremely volatile, particularly near the end of June, as it deteriorated on fears of an overheating economy, rising inflation and interest rate
~~------Value Equity Portfolio~~
96
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document THE VALUE EQUITY PORTFOLIO (CONT.) increases along with corporate earnings uncertainty, which caused investors to sell banking and cyclical stocks in favor of consumer and technology stocks. The market continued to rise however, as historically strong mutual fund inflows persisted during the first six months of 1996.
The best performing sectors in the Portfolio during the first half of 1996 were retail, up 57%, and transportation, up 23%. The underperforming sectors for the first half were consumer non-durables, which declined 3% and paper & forest products, which returned 0.11%. Year-to-date, the best performing stocks were TJ Maxx, up 80%, Woolworth, up 73%, Monsanto, up 34%, and Sprint, up 26%. Stocks providing the biggest disappointment in the first half included Apple Computer, down 34%, and Fleming Companies, down 29%.
During the first six months of 1996, we initiated positions in the tobacco industry, purchasing both Philip Morris and RJR Nabisco. Due to the overhang of litigation and possible government regulation, we found the sector to offer high yields and attractive valuations. We also adjusted the exposure to the energy sector through sales of Royal Dutch and Texaco, but have been adding to the Exxon position to maintain a market weighting in the sector.
We continue to find the current valuations in finance and cyclicals attractive and are overweighted in these sectors. The Portfolio is underweighted in health care, consumer-staples, technology and communications.
~~Stephen C. Sexauer PORTFOLIO MANAGER~~
~~Alford E. Zick, Jr. PORTFOLIO MANAGER~~
~~July 1996~~
~~------Value Equity Portfolio~~
97
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE VALUE EQUITY PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------COMMON STOCKS (96.2%) AEROSPACE (2.4%) 27,900 United Technologies Corp...... $ 3,208 ------BANKING (11.9%) 35,650 BankAmerica Corp...... 2,700 35,800 Bankers Trust (New York) Corp...... 2,645 44,400 Chase Manhattan Corp...... 3,136 60,000 First of America Bank Corp...... 2,685 47,650 Mellon Bank Corp...... 2,716 80,600 PNC Bank Corp...... 2,398 ------16,280 ------CAPITAL GOODS (2.1%) 70,500 Deere & Co...... 2,820 ------CHEMICALS (4.1%) 43,475 Eastman Chemical Co...... 2,647 91,300 Monsanto Co...... 2,967 ------5,614 ------COMMUNICATIONS (5.0%) 48,600 NYNEX Corp...... 2,308 33,400 SBC Communications, Inc...... 1,645 68,300 Sprint Corp...... 2,869 ------6,822 ------CONSUMER-DURABLES (4.6%)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 28,800 Chrysler Corp...... 1,786 70,500 Ford Motor Co...... 2,282 41,700 General Motors Corp...... 2,184 ------6,252 ------CONSUMER-RETAIL (6.5%) 50,500 J.C. Penney Co., Inc...... 2,651 78,400 TJX Companies, Inc...... 2,646 (a)158,200 Woolworth Corp...... 3,559 ------8,856 ------CONSUMER-SERVICE & GROWTH (3.0%) 26,900 Eastman Kodak Co...... 2,091 111,500 Ogden Corp...... 2,021 ------4,112 ------CONSUMER-STAPLES (8.0%) 55,500 American Brands, Inc...... 2,518 145,200 Fleming Cos., Inc...... 2,087 32,400 Philip Morris Cos., Inc...... 3,370 91,400 RJR Nabisco Holdings Corp...... 2,833 ------10,808 ------ENERGY (6.9%) 69,800 Ashland, Inc...... 2,766 26,800 Atlantic Richfield Co...... 3,176 40,100 Exxon Corp...... 3,484 ------9,426 ------FINANCIAL-DIVERSIFIED (2.4%) 43,450 Student Loan Marketing Association...... 3,215 ------
VALUE SHARES (000) ------HEALTH CARE (3.8%) 67,100 Bausch & Lomb, Inc...... $ 2,852 48,900 Baxter International, Inc...... 2,311 ------5,163 ------INDUSTRIAL (4.0%) 133,900 Hanson plc ADR...... 1,908 62,100 Rockwell International Corp...... 3,555 ------5,463 ------INSURANCE (6.4%) 84,800 American General Corp...... 3,085 72,500 Lincoln National Corp...... 3,353 43,300 St. Paul Cos., Inc...... 2,317 ------8,755 ------METALS (2.2%) 48,400 Phelps Dodge Corp...... 3,019 ------PAPER & PACKAGING (5.4%) 99,400 Louisiana-Pacific Corp...... 2,199 53,300 Weyerhauser Co...... 2,265 48,000 Willamette Industries, Inc...... 2,844 ------7,308 ------TECHNOLOGY (4.5%) 63,100 Apple Computer, Inc...... 1,317 51,400 Harris Corp...... 3,135 34,700 Texas Instruments, Inc...... 1,731 ------6,183 ------TRANSPORTATION (3.9%) (a)26,600 AMR Corp...... 2,421 103,500 Ryder System, Inc...... 2,911 ------5,332 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document UTILITIES (9.1%) 86,000 General Public Utilities Corp...... 3,031 75,200 NIPSCO Industries, Inc...... 3,027 111,200 Pinnacle West Capital Corp...... 3,378 69,700 Texas Utilities Co...... 2,980 ------12,416 ------TOTAL COMMON STOCKS (Cost $113,174)...... 131,052 ------
FACE AMOUNT (000) ------ SHORT-TERM INVESTMENT (3.5%) REPURCHASE AGREEMENT (3.5%) $ 4,864 Chase Securities, Inc., 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $4,866, collateralized by $4,860 U.S.Treasury Notes, 7.125%, due 9/30/99, valued at $4,969 (Cost $4,864)...... 4,864 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Value Equity Portfolio~~
98
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS JUNE 30, 1996 ------~~
~~THE VALUE EQUITY PORTFOLIO (CONT.) ------~~
VALUE (000) ------TOTAL INVESTMENTS (99.7%) (Cost $118,038)...... $135,916 ------OTHER ASSETS (0.4%) Cash...... $ 1 Dividends Receivable...... 331 Receivable for Investments Sold...... 122 Receivable for Portfolio Shares Sold...... 117 Interest Receivable...... 2 Other...... 10 583 ------LIABILITIES (-0.1%) Investment Advisory Fees Payable...... (163) Administrative Fees Payable...... (18) Professional Fees Payable...... (13) Custodian Fees Payable...... (7) Payable for Portfolio Shares Redeemed...... (5) Directors' Fees and Expenses Payable...... (3) Distribution Fees Payable...... (1) Other Liabilities...... (19) (229) ------NET ASSETS (100%)...... $136,270 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 103,944 Undistributed Net Investment Income...... 1,001 Accumulated Net Realized Gain...... 13,447 Unrealized Appreciation on Investments...... 17,878 ------NET ASSETS...... $136,270 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------
CLASS A: NET ASSETS...... $134,316 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 8,933,461 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $15.04 ------CLASS B: NET ASSETS...... $1,954 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 130,101 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $15.02 ------

~~------~~
~~(a) -- Non-income producing security ADR -- American Depositary Receipt~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Value Equity Portfolio~~
99
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE BALANCED PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
Aerospace 1.1% Banking 6.2% Capital Goods 0.9% Chemicals 2.1% Communications 2.8% Consumer - Durables 2.3% Consumer - Retail 3.4% Consumer - Service & Growth 1.5% Consumer - Staples 3.7% Energy 3.4% Financial -Diversified 1.1% Health Care 1.9% Industrial 2.0% Insurance 3.0% Metals 1.2% Paper & Packaging 3.0% Technology 2.7% Transportation 1.9% Utilities 4.7% U.S. Treasury Notes 43.0% Other 8.1%

~~PERFORMANCE COMPARED TO INDATA BALANCED-MEDIAN INDEX(1) ------~~
TOTAL RETURNS(2) ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AVERAGE AVERAGE ANNUAL ANNUAL SINCE YTD ONE YEAR FIVE YEARS INCEPTION ------ ~~PORTFOLIO -- CLASS A..... 3.92% 12.44% 11.26% 10.13% PORTFOLIO -- CLASS B(3)...... 3.40 N/A N/A N/A INDEX...... 5.41 15.57 11.68 11.15~~
1. The Indata Balanced-Median Index is an unmanaged index and includes an asset allocation of 7% cash, 39% bonds and 54% equity based on $37.8 billion in assets among 538 portfolios for the six month period ended June 30, 1996 (assumes dividends reinvested). The index returns are gross of management fees; the Portfolio returns are net of management fees and expenses.
~~2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.~~
~~3. The Portfolio began offering Class B shares on January 2, 1996.~~
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
The Balanced Portfolio's value investment philosophy is based on the premise that a diversified portfolio of undervalued equity securities and fixed income securities will outperform the market over the long-term and can be expected to preserve principal in a difficult market environment.
The Balanced Portfolio's asset allocation strategy between equities, fixed income and cash is based upon our estimate of the portfolio's risk. Since equities are the highest risk asset class, we have maintained a below average equity exposure during past periods of high market valuation. Typically, our equity exposure will range between 35% and 65% with an expected long term average of 55%.
For the six month period ended June 30, 1996, the Portfolio had a total return of 3.92% for the Class A shares and 3.40% for the Class B shares, as compared to a total return of 5.41% for the Indata Balanced-Median Index. The average annual total return for the twelve month and five year periods ended June 30, 1996, and for the period from inception on February 20, 1990 through June 30, 1996 for the Class A shares was 12.44%, 11.26% and 10.13%, respectively, as compared to 15.57%, 11.68% and 11.15%, respectively, for the Index.
~~Our asset allocation, based on market value at June 30, 1996, is as follows:~~
~~Equities...... 49.3% Fixed Income...... 43.4 Cash...... 7.3 ----- 100.0% ------~~

~~EQUITIES~~
For the quarter ended June 30, 1996, the equity component of the Portfolio had a gross return of 3.21% and for the six months ended June 30, 1996, returned 9.33%. The S&P 500 returned 4.51% for the quarter ended June 30, 1996 and 10.20% for the first half of 1996.
Performance in the first half of 1996 was driven primarily by investment style as growth significantly outperformed value in both large and small cap stock segments. Year-to-date, the S&P/Barra Value Index returned 8.65% and the S&P/Barra Growth Index returned 11.80%. The small cap Russell 2000 Value Index increased 8.86% in the first half while the Russell 2000 Growth Index returned 11.94%. The market was extremely volatile, particularly near the
~~------Balanced Portfolio~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 100~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE BALANCED PORTFOLIO (CONT.) end of June, as it deteriorated on fears of an overheating economy, rising inflation and interest rate increases along with corporate earnings uncertainty, which caused investors to sell banking and cyclical stocks in favor of consumer and technology stocks. The market continued to rise however, as historically strong mutual fund inflows persisted during the first six months of 1996.
The equity component of the Balanced Portfolio holds the same undervalued companies that are held in the Value Equity Portfolio. The equity portion of the Portfolio has a wide valuation gap as compared to the characteristics of the S&P 500.
PORTFOLIO EQUITY PORTION P/E P/B ------ ~~Value Equity Portfolio...... 14.9x 2.4x S&P 500...... 18.3x 4.3x~~
The best performing sectors in the Portfolio during the first half of 1996 were retail, up 57%, and transportation, up 23%. The underperforming sectors for the first half were consumer non-durables which declined 3% and paper & forest products, which returned 0.11%. Year-to-date, the best performing stocks were TJ Maxx, up 80%, Woolworth, up 73%, Monsanto, up 34%, and Sprint, up 26%. Stocks providing the biggest disappointment in the first half included Apple Computer, down 34%, and Fleming Companies, down 29%.
During the first six months of 1996, we initiated positions in the tobacco industry, purchasing both Philip Morris and RJR Nabisco. Due to the overhang of litigation and possible government regulation, we found the sector to offer high yields and attractive valuations. We also adjusted the exposure to the energy sector through sales of Royal Dutch and Texaco, but have been adding to the Exxon position to maintain a market weighting in the sector.
We continue to find the current valuations in finance and cyclicals attractive and are overweighted in these sectors. The Portfolio is underweighted in health care, consumer-staples, technology and communications.
~~FIXED INCOME~~
The fixed income component of the Balanced Portfolio continues to maintain 100% exposure to intermediate-term U.S. Government securities. For the six months ended June 30, 1996, the fixed income portion of the Portfolio had total return of (-0.02%) compared to a return of (-0.21%) for the Lehman Intermediate- Government/Corporate Index (MSAM/Chicago's fixed-income benchmark).
The fixed income component of the Portfolio began the year at a weighted average maturity of 3.1 years. During the first half of 1996, interest rates rose across all maturity spectrums, with the largest increase occurring in the longer term maturities. This upward shift in the yield curve hurt the performance of the Portfolio. With inflation at approximately the 3% level, and intermediate yields (5 year maturity) at the 6.5% level, we are comfortable with our current position, which is less than the benchmark.
~~Stephen C. Sexauer PORTFOLIO MANAGER~~
~~Alford E. Zick, Jr. PORTFOLIO MANAGER~~
~~July 1996~~
~~------Balanced Portfolio~~
~~101~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document THE BALANCED PORTFOLIO~~
~~------~~
VALUE SHARES (000) ------ COMMON STOCKS (48.9%) AEROSPACE (1.1%) 1,425 United Technologies Corp...... $ 164 ------BANKING (6.2%) 2,250 BankAmerica Corp...... 170 2,050 Bankers Trust (New York) Corp...... 152 2,550 Chase Manhattan Corp...... 180 3,500 First of America Bank Corp...... 157 2,800 Mellon Bank Corp...... 160 4,550 PNC Bank Corp...... 135 ------954 ------CAPITAL GOODS (0.9%) 3,500 Deere & Co...... 140 ------CHEMICALS (2.1%) 2,225 Eastman Chemical Co...... 135 6,000 Monsanto Co...... 195 ------330 ------COMMUNICATIONS (2.8%) 3,500 NYNEX Corp...... 166 1,925 SBC Communications, Inc...... 95 4,150 Sprint Corp...... 174 ------435 ------CONSUMER-DURABLES (2.3%) 1,475 Chrysler Corp...... 91 4,225 Ford Motor Co...... 137 2,550 General Motors Corp...... 134 ------362 ------CONSUMER-RETAIL (3.4%) 2,950 J.C. Penney Co., Inc...... 155 4,550 TJX Companies, Inc...... 154 (a)9,800 Woolworth Corp...... 220 ------529 ------CONSUMER-SERVICE & GROWTH (1.5%) 1,500 Eastman Kodak Co...... 117 6,150 Ogden Corp...... 111 ------228 ------CONSUMER-STAPLES (3.7%) 3,150 American Brands, Inc...... 143 9,600 Fleming Cos., Inc...... 138 1,475 Philip Morris Cos., Inc...... 153 4,200 RJR Nabisco Holdings Corp...... 130 ------564 ------ENERGY (3.4%) 3,800 Ashland, Inc...... 150 1,550 Atlantic Richfield Co...... 184 2,275 Exxon Corp...... 198 ------532 ------
VALUE SHARES (000) ------ FINANCIAL-DIVERSIFIED (1.1%) 2,250 Student Loan Marketing Association...... $ 167 ------HEALTH CARE (1.9%)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 3,850 Bausch & Lomb, Inc...... 164 2,800 Baxter International, Inc...... 132 ------296 ------INDUSTRIAL (2.0%) 7,950 Hanson plc ADR...... 114 3,550 Rockwell International Corp...... 203 ------317 ------INSURANCE (3.0%) 4,650 American General Corp...... 169 3,650 Lincoln National Corp...... 169 2,500 St. Paul Cos., Inc...... 134 ------472 ------METALS (1.2%) 3,050 Phelps Dodge Corp...... 190 ------PAPER & PACKAGING (3.0%) 5,700 Louisiana-Pacific Corp...... 126 3,200 Weyerhauser Co...... 136 3,500 Willamette Industries, Inc...... 207 ------469 ------TECHNOLOGY (2.7%) 4,000 Apple Computer, Inc...... 83 3,225 Harris Corp...... 197 2,800 Texas Instruments, Inc...... 140 ------420 ------TRANSPORTATION (1.9%) (a)1,600 AMR Corp...... 145 5,150 Ryder System, Inc...... 145 ------290 ------UTILITIES (4.7%) 5,550 General Public Utilities Corp...... 196 4,300 NIPSCO Industries, Inc...... 173 5,700 Pinnacle West Capital Corp...... 173 4,350 Texas Utilities Co...... 186 ------728 ------TOTAL COMMON STOCKS (Cost $6,206)...... 7,587 ------
FACE AMOUNT (000) ------FIXED INCOME SECURITIES (43.0%) U.S. TREASURY NOTES (43.0%) $ 2,875 8.25%, 7/15/98...... 2,989 3,803 5.50%, 4/15/00...... 3,689 ------TOTAL FIXED INCOME SECURITIES (Cost $6,681)...... 6,678 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Balanced Portfolio~~
~~102~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE BALANCED PORTFOLIO (CONT.)~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------~~
FACE AMOUNT VALUE (000) (000) ------ SHORT-TERM INVESTMENT (7.2%) REPURCHASE AGREEMENT (7.2%) $ 1,121 Chase Securities, Inc. 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $1,121, collateralized by $1,105 U.S. Treasury Notes, 7.125%, due 9/30/99, valued at $1,130 (Cost $1,121)...... $ 1,121 ------TOTAL INVESTMENTS (99.1%) (Cost $14,008)...... 15,386 ------
OTHER ASSETS (1.2%) Interest Receivable...... $ 154 Dividends Receivable...... 20 Receivable due from Investment Adviser...... 1 Other...... 6 181 ----- LIABILITIES (-0.3%) Professional Fees Payable...... (12) Bank Overdraft...... (11) Custodian Fees Payable...... (4) Shareholder Reporting Fees Payable...... (4) Administrative Fees Payable...... (3) Distribution Fees Payable...... (2) Other Liabilities...... (2) (38) ------NET ASSETS (100%)...... $15,529 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 12,381 Undistributed Net Investment Income...... 185 Accumulated Net Realized Gain...... 1,585 Unrealized Appreciation on Investments...... 1,378 ------NET ASSETS...... $15,529 ------

CLASS A: NET ASSETS...... $13,173 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 1,282,063 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $10.27 ------CLASS B: NET ASSETS...... $2,356 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 229,653 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $10.26 ------

~~------~~
~~(a) -- Non-income producing security ADR -- American Depositary Receipt~~

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Balanced Portfolio~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 103~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE EMERGING MARKETS DEBT PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
~~Argentina 10.9% Brazil 21.2% Ecuador 5.2% Mexico 14.4% Morocco 3.7% Panama 5.1% Peru 3.2% Poland 1.0% Russia 19.6% South Africa 3.6% Turkey 1.2% Venezuela 11.4% United States 4.1% Other -4.6%~~

~~PERFORMANCE COMPARED TO THE JP MORGAN EMERGING MARKETS BOND INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE ANNUAL YTD ONE YEAR SINCE INCEPTION ------ PORTFOLIO -- CLASS A.... 18.39% 36.37% 11.64% PORTFOLIO -- CLASS B(3)...... 16.94 N/A N/A INDEX...... 13.38 32.39 6.95
1. The J.P. Morgan Emerging Markets Bond Index is a market weighted index composed of all Brady bonds outstanding and includes Argentina, Brazil, Bulgaria, Mexico, Nigeria, the Philippines, Poland and Venezuela.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE 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. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The investment objective of the Emerging Markets Debt Portfolio is high total return through investment primarily in debt securities of government, government-related and corporate issuers located in emerging countries.
For the six month period ended June 30, 1996, the Portfolio had a total return of 18.39% for the Class A shares and 16.94% for the Class B shares, as compared to a total return of 13.38% for the J.P. Morgan Emerging Markets Bond Index. The average annual total return for the twelve months ended June 30, 1996 and for the period from inception on February 1, 1994 through June 30, 1996 was 36.37%
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document and 11.64%, respectively, for the Class A shares, as compared to 32.39% and 6.95%, respectively, for the Index. As of June 30, 1996, the Portfolio had an SEC 30-day yield of 12.65% for the Class A shares and 12.64% for the Class B shares.
~~For the three months ended June 30, 1996 the Portfolio had a total return of 12.75% for the Class A shares and 12.53% for the Class B shares as compared to a total return of 9.28% for the Index.~~
Emerging markets debt de-coupled from the U.S. bond market during the second quarter of 1996. Improving credit stories in emerging market countries successively counteracted the negative influence of rising interest rates. The U.S. bond market was repeatedly buffeted by signs of strength in the U.S. economy during the last three months. The long end of the market tested the lows on each occasion that the non-farm payroll data was released in the quarter. Yields of 7.20% and above were attractive to aggressive fixed income investors. High real rates and the prospect that the economy would fail to retain the momentum of faster growth prompted rates to rally from their highs. We believe that the global economy is likely to witness a synchronized global pick up in aggregate demand within the next twelve months and any sign that the Federal Reserve is behind the curve in terms of managing inflation could result in a severe reaction in the bond market. Emerging market debt should continue to outperform other fixed income markets as long as credit fundamentals remain on an improving trend, with floating rate non-collateralized bonds continuing to be the preferred sector in the market.
The Portfolio outperformed over the quarter due to its overweight positions in Russia, Venezuela and Panama and underweight position for the major Latin American countries: Argentina, Brazil and Mexico. During the quarter, Russia, Panama, Venezuela, Peru, Philippines and Ecuador outperformed the market and Argentina, Brazil and Mexico underperformed the overall market.
~~------Emerging Markets Debt Portfolio~~
~~104~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE EMERGING MARKETS DEBT PORTFOLIO (CONT.)~~
Russian loans were the outperformers of the quarter as incumbent President Yeltsin won the second round election by a wide margin. We reduced our positions in Russian loans gradually during the last month of the quarter. The sharp post-election rally surprised even the believers. We believe the loans will trade in a tight range for some time as post-election reality sets in. Economic problems such as a wide fiscal deficit, banking sector restructurings, tight domestic liquidity conditions, a gradual uptick in inflation and Kremlin politics will keep a lid on prices. Valuations of the loans, based on the terms of the restructuring, suggest that they continue to be the cheapest assets in the emerging fixed income markets.
Mexican external debt trailed the market after the run-up in prices on the back of its exchange offer to substitute collateralized Brady debt with a non- collateralized, current coupon bond with a bullet maturity of 30 years. Lingering concerns over the fragile economic recovery in the domestic non-tradeable sector and the need for an adjustment in the nominal value of the exchange rate made investors shy away from Mexican bonds. The local currency denominated treasury bills continued to be the best performing sector. We increased our allocation to Mexico towards the end of the quarter as we believed investor skepticism to have peaked. The domestic political situation continues to warrant a close watch as the investigation of various financial scandals could unearth all kinds of skeletons in the cupboards of the ruling elites.
Argentina continued to underperform the market, despite signs that an economic recovery was underway. Tax receipts continued to stagnate and the fiscal targets agreed to with the IMF continue to look ambitious. High unemployment and low consumer confidence continue to prove to be a drag on the recovery. Despite abundant liquidity in the banking system, a consumption and trade led economic recovery is taking a long time to take hold. Unless a durable and sustained recovery becomes a reality in the second half, Argentina faces a difficult economic future in the months ahead. Rising U.S. interest rates and a firm dollar will prove to be a considerable headwind for the Convertibility Plan to weather. We do not anticipate making any changes to our allocation to Argentina in the immediate future.
Brazil came under closer scrutiny as a leading academic questioned the sustainability of the Real plan. Questions related to its burgeoning internal debt and overvalued exchange rates led some to draw parallels with Mexico's situation in 1994. We do not believe that Brazil and Mexico should be put in the same basket. Brazil's performance is far less dependent on external capital, (
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document in fact it could be argued that a withdrawal of short term capital will probably be of benefit) and the overvaluation of its currency less significant, for any comparisons to Mexico to setoff any alarm bells at this juncture. There is no doubt that the long run sustainability of the Real plan requires a fiscal adjustment. Political wrangling should not be allowed to derail the process of stabilization. Progress towards implementing a fiscal adjustment remains one of the elements that we would be watching for to justify maintaining our allocation to Brazil. We increased our allocations towards the end of the quarter as the administration sought to counteract market pressure related to the stagnation of its various reform proposals in the legislature by becoming more ambitious in the fields of privatization and de-regulation of the economy.
Venezuela continued to make slow and steady progress towards implementing an orthodox stabilization program. We reduced our allocation to the country as its bonds moved up in price, discounting the positive news of an IMF stabilization plan.
Other high yielding markets of Ecuador and Bulgaria witnessed volatility as Ecuador braced for the second round of its Presidential elections and Bulgaria coped with economic distress after swallowing the bitter pill of an IMF program.
Despite a negative U.S. rate environment in the first half, emerging debt has performed well. Improvement in economic fortunes of most of the countries included in the universe has delivered handsome returns. What is underway is the dramatic re-rating of this asset class, a process that was interrupted by the Mexican crisis of 1994. Barring changes in the economic outlook of the various countries, this process has not yet been finished. If the headwind of rising interest rates becomes stronger in the second half, there may be some retracement in prices, as liquidity alone cannot sustain the run-up in prices.
~~Paul Ghaffari PORTFOLIO MANAGER~~
~~July 1996~~
~~------Emerging Markets Debt Portfolio~~
~~105~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE EMERGING MARKETS DEBT PORTFOLIO~~
~~------~~
FACE AMOUNT VALUE (000) (000) ------DEBT INSTRUMENTS (91.3%) ARGENTINA (10.9%) BONDS (10.9%) $ 2,000 Republic of Argentina BOCON, Series 2, (Floating Rate), PIK, 3.359%, 9/01/02...... $ 1,538 5,000 Republic of Argentina Discount Bonds, (Floating Rate), 6.438%, 3/31/23...... 3,500 (s)20,790 Republic of Argentina, Series L, "Euro", (Floating Rate) 6.313%, 3/31/05...... 16,242 ------21,280 ------BRAZIL (21.2%) BONDS (21.2%) 13,500 Federative Republic of Brazil Discount Bond, Series Z-L, (Floating Rate), 6.50%, 4/15/24..... 9,593 14,500 Federative Republic of Brazil Debt Conversion Bond, Series Z-L, (Floating Rate), 6.563%, 4/15/12...... 9,932 35,406 Federative Republic of Brazil, Series C, "Euro", (Floating Rate), PIK, 8.00%, 4/15/14...... 21,908 ------41,433 ------ECUADOR (5.2%) BOND (5.2%) (e)21,867 Republic of Ecuador PDI Bond, (Floating Rate), PIK, 6.063%, 2/27/15...... 9,963
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------MEXICO (8.1%) BONDS (8.1%) 2,000 Banamex Convertible Bond, 7.00%, 12/15/99...... 1,850 MXP 19,092 Banamex Pagare Discount Bond, 4/03/97...... 1,987 32,143 Banamex Pagare Discount Bond, 10/09/97...... 2,927 $ 1,000 Grupo Mexicano de Desarrollo, 8.25%, 2/17/01...... 520 ZAR 8,000 Nacional Financiera SNC 17.00%, 2/26/99...... 1,800 $ 6,000 United Mexican States, 11.50%, 5/15/26...... 5,490 1,500 Mexican Discount Bond, Series A, (Floating Rate), 6.398%, 12/31/19 (Value Recovery Rights Attached)...... 1,181 ------15,755 ------MOROCCO (3.7%) LOAN AGREEMENTS (3.7%) (l)10,000 Kingdom of Morocco Restructuring and Consolidating Agreement, Tranche A, 6.4381%, (Floating Rate), 1/01/09 (Participation: J.P. Morgan)...... 7,212 ------
FACE AMOUNT VALUE (000) (000) ------PANAMA (5.1%) LOAN AGREEMENTS (5.1%) $ (b,d,k)10,113 Republic of Panama Loans...... $ 9,961 ------PERU (3.2%) BOND (3.2%) (b,k)9,699 Peru Working Capital Lines, 1/01/99 (Floating Rate)...... 6,183 ------POLAND (1.0%) NOTE (1.0%) *2,224 Republic of Poland Note, Zero Coupon, 1/08/97..... 2,003 ------RUSSIA (17.9%) LOAN AGREEMENTS (11.2%) CHF (b,k)15,000 Bank for Foreign Economic Affairs, (Floating Rate)...... 5,672 DEM (b,k)46,000 Bank for Foreign Economic Affairs, (Floating Rate)...... 16,248 ------21,920 ------BONDS (6.7%) $ 3,000 Ministry of Finance Tranche III, 3.00%, 5/14/99... 2,153 25,450 Ministry of Finance Tranche IV, 3.00%, 5/14/03.... 10,880 ------13,033 ------34,953 ------SOUTH AFRICA (3.6%) BONDS (3.6%) ZAR 3,500 Republic of South Africa, Series 147, 11.50%, 5/30/00...... 744 18,340 Republic of South Africa, Series 153, 13.00%, 8/31/10...... 3,737 8,120 Republic of South Africa, Series 162, 12.50%, 1/15/02...... 1,733 2,800 Republic of South Africa, Series 175, 9.00%, 10/15/02...... 492 2,100 Republic of South Africa, Series 177, 9.50%, 5/15/07...... 341 ------7,047 ------VENEZUELA (11.4%) BONDS (11.4%) $ 5,250 Republic of Venezuela Front Loaded Interest Reduction Bond, Series A, 6.375%, 3/31/07...... 3,800 26,000 Republic of Venezuela Debt Conversion Bonds, Series DL, (Floating Rate), 6.625%, 12/18/07.... 18,395 ------22,195 ------TOTAL DEBT INSTRUMENTS (Cost $167,058)...... 177,985 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The accompanying notes are an integral part of the financial statements. (Pages 182-188)
~~------Emerging Markets Debt Portfolio~~
~~106~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE EMERGING MARKETS DEBT PORTFOLIO (CONT.) ------~~
NO. OF VALUE CONTRACTS (000) ------PURCHASED OPTIONS (1.7%) POLAND (0.0%) (a)120,000 Poland Past Due Loan Put Option, expiring 7/29/96, strike price U.S.$73.19, (Cost U.S.$84)...... $ 16 ------RUSSIA (1.7%) (a)10,500 Russian Vnesh Call, expiring 7/22/96, strike price DEM45.13, (Cost U.S.$254)...... 618 (a)31,000 Russian Vnesh Loans, expiring 7/22/96, strike price U.S.$41.31, (Cost U.S.$1,070)...... 2,710 ------3,328 ------TOTAL PURCHASED OPTIONS (Cost $1,408)...... 3,344 ------
FACE AMOUNT (000) ------ STRUCTURED SECURITY (4.1%) UNITED STATES NOTE (4.1%) $ (s)8,000 Salomon Brothers Short-Term Structured Note, 10.125%, 4/02/97 (Principal is composed of National Treasury Notes, issued by the National Treasury of Brazil, valued at approximately U.S. $8,000.) (Cost $8,000)...... 8,020 ------SHORT-TERM INVESTMENTS (12.2%) MEXICO (6.3%) BILLS (6.3%) MXP 19,994 Mexican Cetes, Zero Coupon, 7/18/96...... 2,593 41,820 Mexican Cetes, Zero Coupon, 8/08/96...... 5,330 35,000 Mexican Cetes, Zero Coupon, 9/26/96...... 4,274 ------12,197 ------TURKEY (1.2%) BILLS (1.2%) TRL 204,000,000 Turkish T-Bill, Zero Coupon, 7/10/96...... 2,414 ------UNITED STATES (4.7%) REPURCHASE AGREEMENT (4.7%) $ 9,246 Chase Securities, Inc., 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $9,250, collateralized by $9,085 U.S. Treasury Notes, 7.125%, due 9/30/99, valued at $9,288 (Cost $9,246)...... 9,246 ------TOTAL SHORT-TERM INVESTMENTS (Cost $26,715)...... 23,857 ------FOREIGN CURRENCY (1.9%) TRL 298,720,000 Turkish Lira (Cost $3,652)...... 3,638 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document
VALUE (000)
------ TOTAL INVESTMENTS (111.2%) (Cost $206,833)...... $216,844 ------OTHER ASSETS (19.9%) Cash...... $ 2,865 Collateral on Deposit with Broker...... 16,010 Receivable for Investments Sold...... 12,878 Receivable due from Broker...... 3,450 Interest Receivable...... 3,179 Receivable for Portfolio Shares Sold...... 540 Other...... 14 38,936 ------LIABILITIES (-31.1%) Payable for Investments Purchased...... (21,868) Securities Sold Short, at Value (20,736) (Proceeds $19,510)...... Payable for Reverse Repurchase Agreement...... (16,465) Investment Advisory Fees Payable...... (447) Payable for Portfolio Shares Redeemed...... (62) Custodian Fees Payable...... (59) Administrative Fees Payable...... (25) Interest Payable on Securities Sold Short...... (25) Net Unrealized Loss on Forward Foreign Currency (5) Exchange Contracts...... Directors' Fees and Expenses Payable...... (3) Other Liabilities...... (1,035) (60,730) ------NET ASSETS (100%)...... $195,050 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 158,343 Undistributed Net Investment Income...... 10,230 Accumulated Net Realized Gain...... 17,843 Unrealized Appreciation on Investments, Foreign Currency 8,634 Translations and Securities Sold Short...... ------NET ASSETS...... $195,050 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Emerging Markets Debt Portfolio~~
~~107~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE EMERGING MARKETS DEBT PORTFOLIO (CONT.) ------~~
AMOUNT (000) ------ CLASS A: NET ASSETS...... $191,976 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 18,885,791 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $10.17 ------CLASS B: NET ASSETS...... $3,074 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Applicable to 302,828 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $10.15 ------
~~------~~
(a) -- Non-income producing security (b) -- Non-income producing security -- in default (d) -- Security (Totaling $9,961 or 5.1% of net assets at June 30, 1996) valued at fair value -- See note A-1 to financial statements (e) -- 144A security -- Certain conditions for public sale may exist (k) -- Under restructuring at June 30, 1996 -- See note A-7 to financial statements (l) -- Participation interests were acquired through the financial institutions listed parenthetically. (s) -- Denotes all or a portion of securities subject to repurchase under Reverse Repurchase Agreements as of June 30, 1996 -- See note A-4 to financial statements * -- Security's redemption value is linked to the Republic of Poland Treasury Bill maturing 1/01/97 and to the value of the Polish Zloty and Deutsche Mark at maturity. Q -- Securities are expected to be received in connection with the restructuring of the issuing country's loan agreements owned by the Portfolio. PDI -- Past Due Interest PIK -- Payment-In-Kind. Income may be paid in additional securities or cash at the discretion of the issuer. CHF -- Swiss Franc DEM -- Deutsche Mark MXP -- Mexican Peso ZAR -- South African Rand Floating Rate -- Interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect on June 30, 1996.

FACE AMOUNT VALUE (000) (000) ------SECURITIES SOLD SHORT (NOTE A-9) MEXICO BOND $ 5,000 United Mexican States Discount Bond, Series D, (Floating Rate) 6.453%, 12/31/19 (Value Recovery Rights Attached) (Proceeds $3,500)...... $ 3,937 ------PANAMA BONDS Q(b)10,650 Republic of Panama Interest Reduction Bond, (Floating Rate), 12/29/49 (Proceeds $5,077)..... 5,937 Q(b)3,000 Republic of Panama Past Due Interest Bond, Zero Coupon, 12/29/49 (Proceeds $1,860)...... 1,840 ------7,777 ------RUSSIA LOAN AGREEMENTS (b)7,900 Bank for Foreign Economic Affairs (Proceeds $3,811)...... 3,842 ------NOTES Q(b)7,000 Interest Arrears Note, 12/31/99 (Proceeds $3,844)...... 3,745 Q(b)4,000 Principal Notes, 12/31/99 (Proceeds $1,418)...... 1,435 ------5,180 ------9,022 ------TOTAL SECURITIES SOLD SHORT (Proceeds $19,510)...... $20,736 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document
~~------~~
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of forward foreign currency exchange contracts open at June 30, 1996, the Portfolio is obligated to deliver foreign currency in exchange for U.S. dollars as indicated below:

CURRENCY IN EXCHANGE NET UNREALIZED TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS) (000) (000) DATE (000) (000) (000) ------ ~~TRL 298,720 $3,639 7/01/96 U.S.$ 3,634 $ 3,634 $ (5 ) ------~~
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Emerging Markets Debt Portfolio~~
~~108~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE FIXED INCOME PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
~~U.S. Government & Agency Obligations 63.2% Foreign Government & Agency Obligations 7.5% Corporate Bonds & Notes 21.5% Asset Backed Securities 5.7% Other 2.1%~~

~~PERFORMANCE COMPARED TO THE LEHMAN AGGREGATE BOND INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE AVERAGE ANNUAL ANNUAL FIVE SINCE YTD ONE YEAR YEARS INCEPTION ------ PORTFOLIO -- CLASS A..... -0.92% 5.86% 8.24% 8.06% PORTFOLIO -- CLASS B(3)...... -1.02 N/A N/A N/A INDEX...... -1.22 5.01 7.96 8.15
1. The Lehman Aggregate Bond Index is an unmanaged index made up of the Government/Corporate Index, the Mortgage-Backed Securities Index and the Asset-Backed Securities Index.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The Fixed Income Portfolio invests primarily in a diversified portfolio of U.S. Government securities, corporate bonds (including competitively priced Eurodollar bonds), mortgage-backed securities and other fixed income securities. Targeted rates of return for the Portfolio are based on current and projected market and economic conditions and on a conservative investment management approach.
For the six month period ended June 30, 1996, the Portfolio had a total return of -0.92% for the Class A shares and -1.02% for the Class B shares, as compared to a total return of -1.22% for the Lehman Aggregate Bond Index. The average annual total return for the twelve months and five years ended June 30, 1996 and for the period from inception on May 15, 1991 through June 30, 1996 was 5.86%, 8.24%, and 8.06% respectively, for the Class A shares, as compared to 5.01%, 7.96% and 8.15%, respectively, for the Index. As of June 30, 1996, the Portfolio had an SEC 30-day yield of 6.59% for the Class A shares and 6.44% for the Class B shares.
Although bond market returns for the second quarter of 1996 improved relative to those of the first quarter, the fixed income markets nonetheless continued to disappoint investors. Bond yields maintained their upward trend over the first half, rising by almost 1 percent for long U.S. Treasury issues. As a result, the Lehman Aggregate Bond Index returned -1.22% and the Lehman Government/Corporate Index returned -1.88% for the first half of 1996.
The ongoing backup in bond yields was a straightforward response to economic considerations. Over the course of the first half, the markets received multiple signals that the economy was growing strongly. While the signs of a growth pick-up in the first quarter were sometimes attributed to one-time factors or dismissed by the markets as unsustainable, the evidence of strong economic momentum in the second quarter was consistent and powerful.
The monthly employment reports drew the most attention from the markets. The three reports released during the second quarter not only showed job growth continuing at much higher levels than had been the case for most of 1995, but each report showed gains above consensus expectations. As a result, each release of the employment report was followed by a sharp rise in yields. Cumulatively, 10-year Treasury yields rose 40 basis points on the three days that the employment reports were released during the second quarter.
~~In addition to the employment data, other economic indicators also showed strength. Housing and autos,~~
~~------Fixed Income Portfolio~~
~~109~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE FIXED INCOME PORTFOLIO (CONT.) the two-sectors of the economy thought to be most cyclical and therefore most likely to slow in response to rising interest rates, were particularly strong. The manufacturing sector also appeared to have bottomed and began to recover during the second quarter.
As the strength in the economy became evident, yield levels increasingly began to reflect expectations of a Federal Reserve tightening. Short rates rose more than long rates over the second quarter, with the yield curve flattening by 15 basis points between two years and thirty years. From its steepest point in mid- February, the yield curve has flattened almost 60 basis points through the end of June. While two-year yields were almost 50 basis points below the Federal Funds rate earlier in the year, they finished the first half almost 90 basis points above the Fed Funds rate, reflecting concerns that the Fed would need to tighten to slow economic growth.
~~Despite the strength in the economy, not all market participants are convinced the Fed will tighten. Those who argue against a tightening point out that the~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document economic strength has not translated into higher inflation. Moreover, they expect that increases in market interest rates to date may be sufficient on their own to slow the economy. On the other hand, with the economy arguably at full employment and growing well above trend, the risks of an increase in inflation may be sufficiently high that the Fed simply cannot wait to see whether the economy loses momentum on its own, but rather is forced to tighten.
From a sector standpoint, the major non-Treasury sectors performed reasonably well over the first half. Despite some quarter end selling pressure, corporate spreads generally tightened over the six month period, reflecting both favorable credit trends and market technicals. Mortgage-backed securities also tightened in spread. As the vast majority of the mortgage sector came to trade at a discount dollar price, an increasing number of investors came to focus on the value represented by this sector relative to the tight spreads in the corporate market. The asset-backed sector also outperformed comparable duration Treasuries despite concerns over rising delinquencies on credit card receivables.
Foreign bond markets continued to outperform the U.S. bond market. For example, 10-year German yields only rose about 37 basis points during the first half of 1996 compared with an increase of over 110 basis points for 10-year U.S. Treasury issues. Other foreign bond markets provided even better results, with yields on most European markets actually declining over the second quarter of 1996.
~~FIRST HALF STRATEGY REVIEW~~
During the first half, we maintained a neutral duration in the Portfolio relative to our benchmark. While the market trend and economic data might have suggested a shorter duration posture, market valuations suggested that the risks associated with taking such a position were high. Instead we focused on sector allocation, which we felt presented a better risk/ reward tradeoff. In particular, we saw good value in discount mortgage-backed securities and increased exposure to this sector. Within the mortgage sector, we also focused extensively on maturity selection as fine-tuning of maturities can have significant impact on value within the sector. Our corporate weightings were fairly stable over the first half as generally tight spreads limited opportunities to find attractive values within this sector. Finally, we continued to maintain an exposure to hedged German bonds. Although German bonds have substantially outperformed U.S. bonds year-to-date and our exposure is therefore lower than it was at the start of the year, we believe fundamentals continue to favor German bonds over U.S. bonds.
~~THIRD QUARTER OUTLOOK~~
Our Portfolio begins the third quarter with neutral duration relative to our benchmark. Although rates have risen significantly and currently price in an expectation of roughly 50 basis points of Fed tightening, we do not anticipate increasing duration in the near-term. Unless clear evidence emerges that economic growth is returning to a below trend path, we see limited scope for the market to sustain a rally. We will continue to focus on sector opportunities, particularly in the mortgage-backed area, to add value to our Portfolio. Discount mortgages offer attractive yield spreads relative to corporate bonds and their low dollar prices greatly reduce the convexity concerns traditionally associated with the sector. We expect this sector to perform well over the quarter.
~~Warren Ackerman, III PORTFOLIO MANAGER~~
~~July 1996~~
~~------Fixed Income Portfolio~~
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~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE FIXED INCOME PORTFOLIO~~
~~------~~
FACE AMOUNT VALUE (000) (000) ------ FIXED INCOME SECURITIES (97.9%) U.S. GOVERNMENT AND AGENCY OBLIGATIONS (63.2%)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document U.S. TREASURY NOTES (28.0%) $ 13,000 8.25%, 7/15/98...... $ 13,514 19,500 6.25%, 5/31/00...... 19,375 11,000 7.25%, 8/15/04...... 11,394 ------44,283 ------FEDERAL HOME LOAN MORTGAGE CORPORATION (0.8%) 349 9.50%, 2/01/03...... 364 628 8.00%, 6/01/06...... 641 85 8.00%, 1/01/09...... 87 84 9.00%, 11/01/09...... 88 91 8.00%, 8/01/10...... 94 13 13.00%, 9/01/10...... 14 ------1,288 ------FEDERAL NATIONAL MORTGAGE ASSOCIATION (16.9%) 4,807 6.00%, 9/01/10...... 4,545 5,813 6.00%, 2/01/11...... 5,497 1,700 6.00%, 5/01/11...... 1,608 2,320 6.00%, 5/01/11...... 2,194 (d)12 14.75%, 10/01/12...... 13 4,000 7.00%, 7/01/16...... 3,946 9,625 6.50%, 4/01/24...... 9,002 ------26,805 ------GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (17.5%) 205 7.00%, 7/15/08...... 204 348 7.00%, 12/15/08...... 344 9 11.00%, 12/15/15...... 10 14 10.00%, 5/15/19...... 16 611 9.50%, 8/15/19...... 656 7,703 6.00%, 2/15/24...... 7,012 9,267 7.00%, 5/15/24...... 8,922 7,970 7.00%, 3/15/26...... 7,641 3,015 7.50%, 5/15/26...... 2,972 ------27,777 ------TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS...... 100,153 ------FOREIGN GOVERNMENT AND AGENCY OBLIGATIONS (7.5%) 13,500 Treuhandanstalt 6.75%, 5/13/04...... 9,066 3,000 Quebec Province (Yankee) 7.50%, 7/15/23...... 2,871 ------TOTAL FOREIGN GOVERNMENT AND AGENCY OBLIGATIONS...... 11,937 ------
FACE AMOUNT VALUE (000) (000) ------
CORPORATE BONDS AND NOTES (21.5%) FINANCE (20.6%) $ 2,000 Capital One Bank 6.73%, 6/04/98...... $ 2,003 (e)7,500 Farmers Insurance 8.625%, 5/01/24...... 7,134 5,000 Ford Motor Credit Co. 6.25%, 11/08/00...... 4,877 5,000 General Motors Acceptance Corp. 7.375%, 6/22/00... 5,100 5,000 Goldman Sachs Group 6.25%, 2/01/03...... 4,725 3,215 Lehman Brothers Holdings, Inc. 5.75%, 2/15/98..... 3,172 3,000 Lehman Brothers Holdings, Inc. 7.25%, 4/15/03..... 2,971 (e)2,500 Lumbermens Mutual Casualty Co., Series AI, 9.15%, 7/01/26...... 2,584 ------32,566 ------TELECOMMUNICATIONS (0.9%) 1,500 Tele-Communications, Inc. 8.25%, 1/15/03...... 1,516 ------TOTAL CORPORATE BONDS AND NOTES...... 34,082 ------ASSET BACKED SECURITIES (5.7%) 18 Federal Home Loan Mortgage Corp., REMIC 16-B, 10.00%, 10/15/19...... 18 15 Federal National Mortgage Association, REMIC 92-59F, (Floating Rate), 5.862%, 8/25/06...... 15 100 Ford Credit Auto Loan Master Trust, 92-1A, 6.875%, 1/15/99...... 101 63 ML Asset Backed Corporation, Series 1993-1, Class A2, 5.125%, 7/15/98...... 63
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 3,648 Resolution Trust Corp., Series 1991-M5, Class A, 9.00%, 3/25/17...... 3,718 5,000 Standard Credit Card Trust 6.75%, 6/07/00...... 5,031 ------TOTAL ASSET BACKED SECURITIES...... 8,946 ------TOTAL FIXED INCOME SECURITIES (97.9%)(Cost $155,325)...... 155,118 ------SHORT-TERM INVESTMENT (3.5%) REPURCHASE AGREEMENT (3.5%) 5,507 Goldman Sachs & Co., 5.375%, dated 6/28/96, due 7/01/96, to be repurchased at $5,509, collateralized by $5,365 U.S. Treasury Bonds, 7.50%, due 11/15/16, valued at $5,623 (Cost $5,507)...... 5,507 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Fixed Income Portfolio~~
~~111~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE FIXED INCOME PORTFOLIO (CONT.) ------~~
VALUE (000) ------TOTAL INVESTMENTS (101.4%) (Cost $160,832)...... $160,625 ------OTHER ASSETS (1.2%) Cash...... $ 1 Interest Receivable...... 2,019 Other...... 18 2,038 ------LIABILITIES (-2.6%) Payable for Investments Purchased...... (3,930) Payable for Portfolio Shares Redeemed...... (200) Investment Advisory Fees Payable...... (78) Net Unrealized Loss on Forward Foreign Currency (26) Exchange Contracts...... Administrative Fees Payable...... (21) Custodian Fees Payable...... (6) Directors' Fees and Expenses Payable...... (3) Distribution Fees Payable...... (1) Other Liabilities...... (29) (4,294) ------NET ASSETS (100%)...... $158,369 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 163,665 Undistributed Net Investment Income...... 1,550 Accumulated Net Realized Loss...... (6,613) Unrealized Depreciation on Investments and Foreign Currency (233) Translations...... ------NET ASSETS...... $158,369 ------CLASS A: NET ASSETS...... $157,098 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 14,986,137 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $10.48 ------CLASS B: NET ASSETS...... $1,271 NET ASSET VALUE, OFFERING AND REDEMPTION
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document PRICE PER SHARE Applicable to 121,359 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $10.47 ------
------FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of forward foreign currency exchange contracts open at June 30, 1996, the Portfolio is obligated to deliver foreign currency in exchange for U.S. dollars as indicated below:
IN NET CURRENCY TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS) (000) (000) DATE (000) (000) (000) ------ ~~DEM 940 $ 621 9/09/96 U.S.$ 642 $ 642 $ 21 DEM 8,050 5,348 11/29/96 U.S.$ 5,314 5,314 (34) DEM 5,400 3,587 11/29/96 U.S.$ 3,574 3,574 (13) ------$ 9,556 $ 9,530 $ (26) ------~~
~~------~~
(d) -- Security valued at fair value -- See note A-1 to financial statements (e) -- 144A Security -- Certain conditions for public sale may exist REMIC -- Real Estate Mortgage Investment Conduit Floating Rate -- Interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect on June 30, 1996.

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Fixed Income Portfolio~~
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~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE GLOBAL FIXED INCOME PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
Australian Dollar 2.7% British Pound 7.0% Canadian Dollar 2.8% Danish Krone 6.2% Deutsche Mark 14.8% French Franc 3.1% Italian Lira 5.8% Japanese Yen 7.9% Netherlands Guilder 3.5% Spanish Peseta 1.0% Swedish Krona 7.7% United States Dollar 22.6% Other 14.9%

~~PERFORMANCE COMPARED TO THE J.P. MORGAN TRADED GLOBAL BOND INDEX(1) ------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document~~
TOTAL RETURNS(2) ------AVERAGE AVERAGE ANNUAL ANNUAL SINCE YTD ONE YEAR FIVE YEARS INCEPTION ------ PORTFOLIO -- CLASS A...... 0.20% 6.23% 8.67% 8.10% PORTFOLIO -- CLASS B(3)...... 0.02 N/A N/A N/A INDEX...... -1.16 2.05 10.31 9.68
1. The J.P. Morgan Traded Global Bond Index is an unmanaged index of securities and includes Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan, The Netherlands, Spain, Sweden, the United Kingdom and the United States.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
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. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The Global Fixed Income Portfolio aims to produce an attractive rate of return by investing in fixed income securities issued by governments, agencies, supranational entities and corporations with varying maturities in various currencies.
For the six month period ended June 30, 1996, the Portfolio had a total return of 0.20% for the Class A shares and 0.02% for the Class B shares, as compared to a total return of -1.16% for the J.P. Morgan Traded Global Bond Index. The average annual total return for the twelve month and five year periods ended June 30, 1996 and for the period from inception on May 1, 1991 through June 30, 1996 was 6.23%, 8.67% and 8.10%, respectively, for the Class A shares, as compared to 2.05%, 10.31% and 9.68%, respectively, for the Index. As of June 30, 1996, the Portfolio had an SEC 30-day yield of 5.78% for the Class A shares and 5.63% for the Class B shares.
~~FIXED INCOME MARKETS~~
Global fixed income markets produced generally mediocre returns in the first half of 1996, with only a few exceptions. More specifically, European bonds did best, followed by Japan with the dollar bloc markets pulling up the rear; in local currency terms, returns ranged from -2.4% in New Zealand to 11.2% in Italy. First quarter returns were significantly weaker than in the second as upward pressure on yields (which rose substantially in the first quarter) moderated in the second quarter, although yields still rose in most countries. Markets remain worried about strong economic growth, rising inflation and tighter monetary policy; economic activity indicators released in the second quarter have showed growth picking up in all major regions. And, if the United States, German and Japanese economies are truly once again growing in synchronized fashion, there is a much higher chance that central banks will have to respond with higher interest rates to choke off incipient inflationary pressures.
U.S. Treasury bonds were the second worst performing bond market in the world, returning a desultory -1.4%. Ten-year yields rose approximately 75 basis points in the first quarter and another 38 basis points in the second. All maturity classes underperformed cash with a steeper yield curve further hurting the performance of longer dated bonds. Corporate bonds and mortgage backed securities outperformed Treasuries: corporate bond spreads remain tight but show no signs of widening; mortgages had a good second quarter as volatility in the bond market declined. The key 30-year bond traded in a yield range of 6.6% to 7.2% with a weakening bias.
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------Global Fixed Income Portfolio~~
~~113~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE GLOBAL FIXED INCOME PORTFOLIO (CONT.)~~
U.S. bonds started the year well. Economic activity was perceived to be weak and the Fed was still cutting interest rates. Indeed, the Fed cut rates for the third time in January by 25 basis points, bringing the Federal funds rate down to 5.25%. However, the economic data flow changed dramatically after January. Employment growth in particular was notable, showing a clear accelerating trend. Activity indicators such as industrial production, auto sales and housing starts also began to show an economy rebounding quite smartly from its end of 1995 depressed levels. As such, second quarter GDP growth is expected to be well over 4%. This rebound has fueled speculation that the Federal Reserve Bank would have to raise interest rates before too long, especially once the unemployment rate fell below 5.7%. Some comfort was taken by the benign inflation background, although there was some disquiet as labor cost indicators began to show an acceleration from 1995 levels (not something unexpected given the low level of unemployment).
The U.S. market will continue to assess the strength of the economy, looking for signs of moderation in the second half of the year. If the economy shows no signs of returning to trend growth of 2.5%, the market's expectations of monetary tightening will grow further and yields will correspondingly rise. However, there is every prospect that the market driven tightening in yields will begin to slow the interest rate sensitive sectors of the economy and prevent the need for a dramatic tightening by the Fed.
The Portfolio has been underweight U.S. bonds throughout the first half of the year with a duration position slightly short to neutral of the market. Mortgage backed securities have also been overweighted. On the other hand, the Portfolio has been overweight Canadian and Australian bonds which have outperformed their U.S. counterparts. The bellwether 10-year Canadian/U.S. 10-year yield spread narrowed below 100 basis points in the second quarter with money market yields in Canada moving decidedly below those in the U.S. for the first time in over a decade. The Canadian economy has surprisingly been much weaker than the U.S. economy and inflation very subdued, allowing the Canadian central bank to lower interest rates substantially. A much improved fiscal situation has also helped. Canadian bonds had a first half total return of 1.3% (an outperformance over U.S. Treasuries of 2.7%). Further outperformance of Canadian bonds should be a much lower order of magnitude as the scope for further yield convergence is limited. However, the added yield, steeper yield curve continue to make this market attractive. Australian bond yield spreads to U.S. Treasuries also narrowed. Australian bonds have been bolstered by the strength in the currency, prospective fiscal tightening, a favorable inflation trend and their substantial yield. At the end of the second quarter 10-year Australian government bonds yielded 200 basis points more than 10-year U.S. Treasuries. Hampered by the world's only inverted yield curve (3-month rates higher than 10-year yields), political risk and rising inflation, New Zealand turned in the world's worst bond market performance in local currency terms, returning -2.4%. With money market rates in the neighborhood of 10% it will be difficult for New Zealand bonds to do well.
Japanese bond returns continue to be constrained by their low yield and low capital gains prospects. While the total return in local currency terms was only 0.9% in the first half of the year, 10-year yields rose only 16 basis points, avoiding much of the sell off that occurred in the rest of the world. As in all markets, the second quarter produced better returns than the first. Ten-year yields did reach a high of 3.5% at the end of February when the Finance Minister made comments that implied that savers were suffering from the Bank of Japan's low interest rate policy. This was unwound in fairly short order following a weaker than expected business expectations survey. Generally speaking, the market was supported by domestic investors who were attracted to longer maturity bonds due to the steepness of the yield curve, perceived weakness in the economy and expectations that short rates would remain low, and by a lack of selling from the international investment community who were substantially underweight yen bonds.
While Japanese yields have not risen much compared to what occurred in the rest of the world, they are at risk to move higher. The economy is benefiting from significant economic stimulus resulting from low interest rates and loose fiscal policy. Signs of this flowing through was indicated in the first quarter GDP report which was much stronger than anticipated as was the latest June business expectations survey. Looking forward, the stronger growth profile has elevated Bank of Japan tightening risk. We believe yields will rise in anticipation of a tightening and that the market remains vulnerable to stronger economic data.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document However, on the positive side, inflation is very low and given the continued problems in the financial system with regard to bad loan write-off's, it is possible that short rates do not go up until late this year or early next year which will likely put a lid on how high
~~------Global Fixed Income Portfolio~~
~~114~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE GLOBAL FIXED INCOME PORTFOLIO (CONT.) longer maturity bond yields can rise. The Portfolio has maintained an underweight position in yen bonds throughout the first half of the year. Two adjustments were made in this underweight position during this period. One was to increase exposure after the February sell off and the second was to reduce exposure after Japanese bonds put in a strong performance in May.
European bonds have been the stellar performers on a relative and absolute basis. The fundamental backdrop for bonds has remained friendly throughout the first half of the year, although clouds are beginning to gather on the horizon. European bond market performance can be segmented into four groups: (1) Germany and the Netherlands; (2) France, Belgium and Denmark; (3) Italy, Spain and Sweden; and (4) the United Kingdom. Yield convergence has been the dominant theme in Europe as yield spreads compressed down towards German levels. Expectations that European monetary union will occur in some form has bolstered the non-Germanic markets. The best performers have been the highest yielding markets, Italy, Spain and Sweden. They returned 11.2%, 9.1% and 6.61%, respectively, in local currency terms for the first half of the year.
Italian bonds have rallied in response to fiscal tightening, weakening economic conditions, new found political stability, a strong currency, falling inflation and unwinding of the risk premiums built up since the lira was ejected from the ERM in September 1992. However, with 10-year yield spreads to German bonds below 300 basis points, scope for further outperformance is much more limited. Spanish bonds have benefited from similar factors. In Spain, the market has been further bolstered by a more significant deceleration in inflation allowing the central bank to ease monetary policy aggressively. A new conservative government is also helping market confidence. As in Italy, Spanish yield spreads to Germany have narrowed considerably. With the 10-year yield spread to Germany below 250 basis points it will be difficult for Spanish bonds to perform better than German ones unless the inflation differential to Germany narrows appreciably. The Swedish market has, in our opinion, the best fundamentals. Inflation is down to 1% and is still falling; the central bank has cut interest rates over 200 basis points year-to-date and more is likely; and fiscal policy is the tightest in the world. There is more scope for Swedish outperformance, especially with respect to the Italian and Spanish markets. The Portfolio has been overweight this sector of its European portfolio all year with some rotation among the higher yielding markets. We have reduced our overweights in Italy and Spain and transferred them to Sweden as Italy and Spain have outperformed in the last two months.
The French, Danish and Belgian markets have also continued to perform relatively well, returning 4.4%, 3.2% and 3.3%, respecitvely, in local currency terms. They have benefited from the same factors as the higher yielding European markets. As such, French yield differentials with Germany have evaporated in the longer maturities. Belgian yield spreads have also fallen to historical lows. High confidence that both the French and Belgian francs will participate in monetary union with the Deutschemark and continued support of domestic investors will keep the yield spread to German bonds narrow. However, it is very difficult to imagine French and Belgian yields trading much lower relative to Germany. Danish bonds have lagged a bit despite their higher yields due to uncertainty over the Danish krone's status. Denmark has opted out of monetary union and is being penalized for it. We view the risk premium as too high and prefer it to France and Belgium. The portfolio is underweight, as a group, these three countries given the narrowness of their respective yield spreads to German bonds.
The British bond market had been the laggard among the Europeans until late in the second quarter. Overall, the bond market returned 1.25% in local currency terms, outpacing Germany modestly. However, this was a big recovery. The first quarter return was -2.2%, the worst performance in the world. The gilt market suffered in the first quarter from the government's precarious parliamentary circumstances, the more advanced economic position relative to the continent (e.g., faster growth, higher inflation risk) and the possible consequences of the BSE beef scare. During the second quarter, sterling rebounded, the BSE scare turned out to be a tempest in a teapot, at least macroeconomically, inflation surprised on the low side, short rates were cut and UK manufacturing weakened much more than expected. With investors -- domestic and international -- lightly invested, there was plenty of room for outperformance. Looking forward, we see the gilt market as an average performer. The Portfolio has been neutral on the gilt market year-to-date.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The German and its close substitute the Netherlands markets have been the worst performers in Europe, returning 0.97% and 1.15% in local currency terms respectively. These markets have been hit the hardest by the sell off in the U.S. Treasury market. Despite the better inflation picture (inflation is at least 1.5%
~~------Global Fixed Income Portfolio~~
~~115~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE GLOBAL FIXED INCOME PORTFOLIO (CONT.) lower in Germany than in the U.S.) and weaker economic environment, it has been difficult for longer maturity German bonds to decouple from the U.S. market. Germany did continue to cut interest rates in the first half of the year with the discount rate falling another 50 basis points to a historic low of 2.5%. Market rates fell by a similar amount.
The German bond's travails have not all been foreign in origin. Some homegrown problems include an unexpected surge in monetary growth and stronger than expected economic data. With the Bundesbank explicitly targeting M3 growth, faster growth has put a damper on hopes for further monetary ease. In addition, after a very poor first quarter when German GDP went negative for the second quarter in a row, second quarter economic statistics turned much more robust, implying that earlier weakness was exaggerated. Lastly, increased confidence that monetary union will occur, implying that the Deutschemark will be replaced by the Euro, has led to a higher risk premium on longer dated German securities. The next move in German official rates is probably up but it will most likely not occur until 1997. In the meantime, the steepness of the yield curve, reasonably high real interest rates and moderate economic growth will prevent yields from rising too much even if the U.S. bond market continues to sell off. The Portfolio has been overweight German bonds to compensate for the underweight U.S. bond position.
The current economic environment is rather uninspiring for fixed income. Global economic growth has accelerated and shows no signs of fading in the second half. Interest rates and inflation have bottomed in the major economies. However, further sharp losses are unlikely from present yield levels. Yield curves are steep, real yields, particularly in Europe, are attractive and some monetary tightening is already factored into yield curves (unlike in January). In addition, fiscal austerity is a theme across the OECD and promises to dampen growth prospects. Inflation and interest rate trends continue to favor European markets over the U.S. and Japan.
~~CURRENCIES~~
On the foreign exchange front, the U.S. dollar maintained its positive tone from the first quarter. After rising 3% against the Deutschemark in the first quarter, it rose another 3% in the second quarter; against the Japanese yen, it rose only 2.6% in the second quarter following a 3.4% rise in the first. The dollar traded in a DM/$1.48 - 1.55 range in the second quarter while moving between Y/$105 - 110. Low volumes and volatilities characterized the latter part of the second quarter.
The source of dollar strength has not changed much of the course of the first half of the year. Cyclical factors regarding growth and interest rate expectations continue to be dollar positive while official rhetoric was broadly encouraging of further dollar strength. With demand conditions most robust and inflationary risk the highest in the United States it makes good macroeconomic sense to "redistribute" some of that strength to Europe and Japan through dollar appreciation. In addition, soft monetary conditions abroad have offered investors attractive hedging premiums to be in dollars while making it expensive to bet against it. The yen did experience bouts of strength against both the dollar and Deutschemark on the back of occasional fears that an interest rate hike was nearby. But, with the Japanese current account shrinking rapidly and the Bank of Japan ready to buy dollars on weakness, it is difficult to see the yen sustaining much strength in the second half of the year. The Deutschemark was also hurt by growing confidence that European monetary union would happen which made investors more willing to overweight the other higher yielding European currencies at the Deutschemark's expense. The Portfolio has and continues to maintain overweight positions in the dollar against both the Deutschemark and the yen. This has aided performance while the forward premiums earned on hedging has boosted overall yield.
Within Europe, the Deutschemark continued to weaken on the European crosses. Its trade weighted exchange rate ended the quarter 7% down from the highs of early 1995. The Italian lira rose approximately 10% against the Deutschemark due to improving political and economic fundamentals and speculation of its return to
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document the ERM fold by the end of the year. Sterling strengthened nicely in the second quarter, appreciating over 4% against the Deutschemark, to end the first half of the year up over 6% versus the mark. The stronger dollar and perceptions of a more advanced economic recovery relative to continental Europe outweighed political uncertainty and lower short-term interest rates. The prospect of a Labour government was not seen as having a serious effect on the currency but a deteriorating current account remained a familiar concern. The Swiss franc depreciated almost 2% against the mark in the second quarter on the back of a weak economy and low interest rates. The franc remains, in our opinion, the most overvalued currency in the world.
~~------Global Fixed Income Portfolio~~
~~116~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE GLOBAL FIXED INCOME PORTFOLIO (CONT.)~~
Among the other dollar bloc currencies both the Australian and New Zealand dollars have done well although almost all of their rises versus the U.S. dollar occurred in the first quarter. They rose 5.8% and 4.8%, respectively with over 80% of those moves occurring earlier in the year. The Australian dollar reached a five year high in the beginning of the second quarter of USD/AUD 0.80 before succumbing to profit taking. It was aided by global demand for its raw materials, high nominal yields and capital inflows from Japan. It remains a highly cyclical currency. The New Zealand dollar ended the second quarter little changed after appreciating 4.2% in the first quarter. Political concerns and controversy over the course of the economy and the appropriate stance of monetary policy has hurt it. The Canadian dollar ended the first half of 1996 essentially unchanged. Two conflicting forces have essentially offset each other. On the negative side, nominal interest rates are low; short-term rates in Canada are over 50 basis points lower than in the U.S. On the positive side, the currency is competitive; inflation is low (1.5%); deficits are falling; and the current account deficit is shrinking.
Currency developments this year have had the effect of unwinding the dramatic moves of the first half of 1995. The dollar has now risen back to levels last seen in 1994, both against the yen and the Deutschemark. Similar patterns are reflected in the European crossrates. Exchange rates have arguably moved closer to fair value. Nonetheless, the dollar currently appears well underpinned by relative growth differentials and the likelihood that monetary policy will turn restrictive in the U.S. first. A relatively favorable budget position (the U.S. has one of the smallest budget deficits as a percentage of GDP of any major country) should help as well. The current international desire on the part of global policymakers to avoid another round of dollar depreciation should also not be ignored. The dollar could come under pressure later in the year if the Fed does not tighten in response to strong economic data (falling "behind the curve") or the U.S. economy slows precipitously. And, the dollar could succumb if speculation increases that a Bundesbank or Bank of Japan tightening is imminent, especially if combined with a weak-willed Fed or weak U.S. economy.
~~Michael J. Smith PORTFOLIO MANAGER~~
~~Robert M. Smith PORTFOLIO MANAGER~~
~~July 1996~~
~~------Global Fixed Income Portfolio~~
~~117~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE GLOBAL FIXED INCOME PORTFOLIO ------~~
FACE AMOUNT VALUE (000) (000) ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document FIXED INCOME SECURITIES (85.1%) AUSTRALIAN DOLLAR (2.7%) GOVERNMENT BONDS (2.7%) AUD 2,200 Government of Australia 9.75%, 3/15/02...... $ 1,806 1,800 Government of Australia 9.00%, 9/15/04...... 1,429 ------3,235 ------BRITISH POUND (7.0%) GOVERNMENT BONDS (7.0%) GBP 2,350 United Kingdom Conversion Bond 9.50%, 4/18/05..... 4,014 700 United Kingdom Treasury GILT 10.00%, 2/26/01...... 1,199 1,750 United Kingdom Treasury GILT 9.75%, 8/27/02...... 3,008 ------8,221 ------CANADIAN DOLLAR (2.8%) GOVERNMENT BONDS (2.8%) CAD 1,800 Government of Canada 7.50%, 12/01/03...... 1,324 1,250 Government of Canada 6.50%, 6/01/04...... 861 1,300 Government of Canada 9.75%, 6/01/21...... 1,118 ------3,303 ------DANISH KRONE (6.2%) GOVERNMENT BONDS (6.2%) DKK 23,500 Kingdom of Denmark 8.00%, 11/15/01...... 4,288 13,500 Kingdom of Denmark 7.00%, 12/15/04...... 2,281 4,000 Kingdom of Denmark 8.00%, 3/15/06...... 711 ------7,280 ------DEUTSCHE MARK (14.8%) GOVERNMENT BONDS (14.8%) DEM 11,700 German Unity Bond 8.00%, 1/21/02...... 8,465 2,000 Government of Germany 6.25%, 1/04/24...... 1,157 6,350 Treuhandanstalt 6.875%, 6/11/03...... 4,326 5,325 Treuhandanstalt 6.75%, 5/13/04...... 3,576 ------17,524 ------FRENCH FRANC (3.1%) GOVERNMENT BOND (3.1%) FRF 17,200 French Treasury Bill 7.75%, 4/12/00...... 3,621 ------ITALIAN LIRA (5.8%) GOVERNMENT BOND (5.8%) ITL 9,890,000 Republic of Italy Treasury Bond 10.50%, 11/01/00...... 6,874 ------JAPANESE YEN (7.9%) EUROBONDS (7.9%) JPY 300,000 European Investment Bank 6.625%, 3/15/00...... 3,186 200,000 Export-Import Bank of Japan 4.375%, 10/01/03...... 1,985
FACE AMOUNT VALUE (000) (000) ------
JPY 245,000 International Bank for Reconstruction & Development 4.75%, 12/20/04...... $ 2,517 145,000 Republic of Austria 6.25%, 10/16/03...... 1,605 ------9,293 ------NETHERLANDS GUILDER (3.5%) GOVERNMENT BONDS (3.5%) NLG 3,250 Netherlands Government 9.00%, 1/15/01...... 2,179 3,350 Netherlands Government 5.75%, 1/15/04...... 1,918 ------4,097 ------SPANISH PESETA (1.0%) GOVERNMENT BONDS (1.0%) ESP 70,000 Spanish Government 12.25%, 3/25/00...... 620 70,000 Spanish Government 11.30%, 1/15/02...... 615 ------1,235 ------SWEDISH KRONA (7.7%) GOVERNMENT BOND (7.7%)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SEK 48,900 Swedish Government 13.00%, 6/15/01...... 9,039 ------UNITED STATES DOLLAR (22.6%) CORPORATE BONDS AND NOTES (4.3%) U.S.$ 992 Asset Securitization Corp. 7.10%, 8/13/29...... 971 (e)385 Goldman Sachs Group 6.25%, 2/01/03...... 364 892 LB Commercial Conduit Mortgage Trust 7.144%, 8/25/04...... 886 (e)300 Lumbermens Mutual Casualty Co., Series AI, 9.15%, 7/01/26...... 299 (e)600 Metropolitan Life Insurance 7.45%, 11/01/23...... 544 2,000 UCFC CMO, Series 1995-C1, Class A3, 6.775%, 9/10/17...... 1,962 ------5,026 ------U.S. GOVERNMENT AND AGENCY OBLIGATIONS (17.7%) U.S. TREASURY BONDS 800 7.50%, 11/15/16...... 840 750 8.75%, 5/15/20...... 896 ------1,736 ------U.S. TREASURY NOTES 2,300 5.125%, 11/30/98...... 2,245 710 6.25%, 2/15/03...... 697 ------2,942 ------FEDERAL NATIONAL MORTGAGE ASSOCIATION 11,700 6.00%, 7/25/03...... 11,261 ------GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 2,814 6.50%, 1/01/26...... 2,632 2,479 7.00%, 2/15/26...... 2,378 ------5,010 ------20,949 ------YANKEE BOND (0.6%) 700 Quebec Province 7.50%, 7/15/23...... 671 ------TOTAL FIXED INCOME SECURITIES (85.1%) (Cost $100,890)...... 100,368 ------
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188) ------Global Fixed Income Portfolio~~
~~118~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE GLOBAL FIXED INCOME PORTFOLIO (CONT.) ------~~
FACE AMOUNT VALUE (000) (000) ------ SHORT-TERM INVESTMENT (18.4%) REPURCHASE AGREEMENT (18.4%) $ 21,759 Chase Securities, Inc. 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $21,768, collateralized by $21,375 U.S. Treasury Notes, 7.125%, 9/30/99, valued at $21,853 (Cost $21,759)...... $ 21,759 ------FOREIGN CURRENCY (1.1%) FRF 1 French Franc...... -- ITL 4,666 Italian Lira...... 3 JPY 137,377 Japanese Yen...... 1,257 SEK 3 Swedish Krona...... 1 ------TOTAL FOREIGN CURRENCY (Cost $1,259)...... 1,261
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------TOTAL INVESTMENTS (104.6%) (Cost $123,908)...... 123,388 ------
OTHER ASSETS (5.3%) Receivable for Portfolio Shares Sold...... $ 4,566 Interest Receivable...... 1,674 Foreign Withholding Tax Reclaim Receivable...... 36 Other...... 14 6,290 ------LIABILITIES (-9.9%) Payable for Investments Purchased...... (11,248) Net Unrealized Loss on Forward Foreign Currency Exchange Contracts...... (265) Bank Overdraft...... (59) Investment Advisory Fees Payable...... (42) Administrative Fees Payable...... (15) Custodian Fees Payable...... (13) Directors' Fees and Expenses Payable...... (2) Distribution Fees Payable...... (1) Payable for Portfolio Shares Redeemed...... (1) Other Liabilities...... (33) (11,679) ------NET ASSETS (100%)...... $117,999 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 122,476 Undistributed Net Investment Income...... 1,673 Accumulated Net Realized Loss...... (5,348) Unrealized Depreciation on Investments and Foreign Currency Translations...... (802) ------NET ASSETS...... $117,999 ------CLASS A: ------NET ASSETS...... $116,382 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 10,520,411 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $11.06 ------CLASS B: ------NET ASSETS...... $1,617 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 146,342 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $11.05 ------
------FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of forward foreign currency exchange contracts open at June 30, 1996, the Portfolio is obligated to deliver or is to receive foreign currency in exchange for U.S. dollars or foreign currency as indicated below:

NET CURRENCY TO IN EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS) (000) (000) DATE (000) (000) (000) ------ CHF 3,500 $ 2,804 7/12/96 U.S.$ 2,787 $ 2,787 $ (17) DEM 9,800 6,453 7/12/96 U.S.$ 6,420 6,420 (33) DEM 1,795 1,182 7/12/96 FRF 6,080 1,184 2 DKK 5,000 854 7/12/96 U.S.$ 846 846 (8) FRF 12,206 2,377 7/12/96 DEM 3,600 2,370 (7) JPY 450,000 4,125 7/12/96 U.S.$ 4,138 4,138 13 NLG 3,000 1,762 7/12/96 U.S.$ 1,750 1,750 (12) SEK 44,500 6,726 7/12/96 U.S.$ 6,616 6,616 (110) U.S.$ 4,148 4,148 7/12/96 JPY 450,000 4,125 (23) U.S.$ 861 861 7/12/96 DEM 1,300 856 (5) U.S.$ 679 679 7/12/96 SEK 4,500 680 1 U.S.$ 295 295 7/12/96 NLG 500 294 (1)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document U.S.$ 63 63 7/12/96 GBP 41 63 -- CAD 900 660 7/19/96 U.S.$ 659 659 (1) DEM 8,770 5,777 7/19/96 U.S.$ 5,732 5,732 (45) DKK18,000 3,077 7/19/96 U.S.$ 3,047 3,047 (30) NLG 4,200 2,468 7/19/96 U.S.$ 2,454 2,454 (14) U.S.$ 328 328 7/19/96 DEM 500 329 1 U.S.$ 366 366 7/19/96 CAD 500 367 1 U.S.$ 158 158 7/19/96 AUD 200 157 (1) U.S.$ 4,486 4,486 7/26/96 ITL 6,900,000 4,495 9 U.S.$ 4,239 4,239 7/26/96 ESP 545,000 4,254 15 ------$ 53,888 $ 53,623 $ (265) ------
~~------~~
~~(e) -- 144A Security -- Certain conditions for public sale may exist. CMO -- Collateralized Mortgage Obligation CHF -- Swiss Franc~~

~~------~~
~~SUMMARY OF FIXED INCOME SECURITIES BY INDUSTRY CLASSIFICATION~~
PERCENT VALUE OF NET INDUSTRY (000) ASSETS ------ ~~Finance...... $ 12,714 10.8% Foreign Government and Agency Obligations...... 66,705 56.5 U.S. Government and Agency Obligations...... 20,949 17.8 ------$ 100,368 85.1% ------~~
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188) ------Global Fixed Income Portfolio~~
~~119~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE HIGH YIELD PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
Aerospace & Defense 1.6% Automotive 0.2% Banking 1.2% Broadcast - Radio & Television 14.8% Construction 1.4% Electrical Equipment 0.5% Energy 1.1% Entertainment & Leisure 3.7% Environmental Controls 1.4% Financial Services 8.5% Food 3.0% Food Services & Lodging 2.2% Gaming & Lodging 2.6% Machinery 1.3% Materials 4.0% Metals 4.3% Multi-Industry 2.2%
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Packaging & Container 4.3% Publishing 1.8% Real Estate 1.7% Retail - General 5.0% Telecommunications 7.7% Textiles & Apparel 2.0% Transportation 1.5% Utilities 3.0% Foreign Government & Agency Obligations 8.6% Other 10.4%

~~PERFORMANCE COMPARED TO THE CS FIRST BOSTON HIGH YIELD INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE ANNUAL YTD ONE YEAR SINCE INCEPTION ------ PORTFOLIO -- CLASS A.... 4.47% 12.62% 11.86% PORTFOLIO -- CLASS B(3)...... 3.89 N/A N/A INDEX...... 3.75 9.95 10.54
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.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The High Yield Portfolio seeks to maximize total return by investing in a diversified portfolio of fixed income securities that offer a higher yield than that offered by debt securities in the three highest rating categories.
For the six month period ended June 30, 1996, the Portfolio had a total return of 4.47% for the Class A shares and 3.89% for the Class B shares, as compared to a total return of 3.75% for the CS First Boston High Yield Index. The average annual total return for the twelve months ended June 30, 1996 and for the period from inception on September 28, 1992 through June 30, 1996 was 12.62% and 11.86%, respectively, for the Class A shares, as compared to 9.95% and 10.54%, respectively, for the Index. As of June 30, 1996, the Portfolio had an SEC 30-day yield of 9.86% for the Class A shares and 9.61% for the Class B shares.
For the three months ended June 30, 1996, the Portfolio had a total return of 1.29% for the Class A shares and 1.20% for the Class B shares as compared to 1.56% for the Index. Helping the Portfolio in the quarter were: our paper industry overweighting, specific securities which performed particularly well (including Marvel, Revlon and Six Flags) and our emerging markets investments. Offsetting factors included the underperformance of our cable investments, where spreads widened in the quarter, and specific securities which performed poorly, including Home Holdings.
During the quarter, we made incremental changes to industry exposures. We added to our cable holdings. We believe that cable television bonds represent the best value in the higher quality sector of the high yield bond market, and think that this overweighting will benefit future performance. We also added to diversified media companies, including Viacom and Time Warner.
A new investment in the second quarter was ALPS 96-1. This is an airline lease securitization where the aircraft and related leases were sold in securitized form by GPA, the lessor. We purchased a BB-rated security in this transaction where we thought the trade-off between portfolio collateralization levels and expected return was the most attractive.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document We also continued to maintain an exposure in U.S. dollar-denominated emerging markets bonds. Increasingly, our investments take the form of non-U.S. companies, rather than in emerging markets sovereign debt. For these corporate credits, a combination of
~~------High Yield Portfolio~~
~~120~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE HIGH YIELD PORTFOLIO (CONT.) sovereign risk analysis and our traditional high yield credit work offers the potential to uncover attractive values.~~
The high yield market has performed extremely well year-to-date compared to high quality bonds. Credit spreads have tightened meaningfully, with strong economic growth and favorable trends in credit quality making for an extremely supportive environment. Looking ahead, we are being somewhat more cautious with regard to overall credit quality. While we expect continued favorable returns from high yield bonds, the market may be somewhat more vulnerable to signs of economic weakness or to an equity market correction.
~~Robert Angevine PORTFOLIO MANAGER~~
~~July 1996~~
~~------High Yield Portfolio~~
~~121~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE HIGH YIELD PORTFOLIO~~
~~------~~
FACE AMOUNT VALUE (000) (000) ------ CORPORATE BONDS AND NOTES (71.8%) AUTOMOTIVE (0.2%) $ (e)255 Exide Corp., 2.90%, 12/15/05...... $ 139 ------BANKING (0.9%) (e)775 United Savings Texas, 8.55%, 5/15/98...... 777 ------BROADCAST-RADIO & TELEVISION (14.8%) 950 Cablevision Systems Corp., 9.875%, 5/15/06...... 914 500 Comcast Cellular Corp., Series A, Zero Coupon, 3/05/00...... 344 1,350 Comcast Cellular Corp., Series B, Zero Coupon, 3/05/00...... 928 925 Comcast Corp., 9.375%, 5/15/05...... 893 1,235 Continental Cablevision, Inc., 9.50%, 8/01/13...... 1,340 2,425 Lenfest Communications, 8.375%, 11/01/05..... 2,219 (e)315 Lenfest Communications, 10.50%, 6/15/06...... 317
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (n)2,400 Marcus Cable Co., 0.00%, 12/15/05...... 1,482 (n)3,075 MFS Communications Co., Inc., 0.00%, 1/15/06...... 1,872 1,350 Rogers Cablesystems Ltd., 10.00%, 3/15/05...... 1,337 2,000 Viacom Inc., 8.00%, 7/07/06...... 1,830 ------13,476 ------CONSTRUCTION (1.4%) (e,n)2,060 Echostar Satellite Broadcast, 0.00%, 3/15/04...... 1,277 ------ENERGY (1.1%) 1,000 Nuevo Energy, 9.50%, 4/15/06...... 987 ------ENTERTAINMENT & LEISURE (1.9%) (n)2,000 Six Flags Theme Park, Inc., 0.00%, 6/15/05...... 1,703 ------ENVIRONMENTAL CONTROLS (1.4%) (e,n)1,200 Norcal Waste Systems, 12.75%, 11/15/05..... 1,263 ------FINANCIAL SERVICES (5.2%) 1,850 APP International Finance, 11.75%, 10/01/05...... 1,910 2,360 Home Holdings, Inc., 8.625%, 12/15/03..... 1,534 (e)400 Homeside, Inc., 11.25%, 5/15/03...... 413 940 Reliance Group Holdings, Inc., 9.00%, 11/15/00...... 932 ------4,789 ------FOOD (3.0%) 315 Big V Supermarkets, Inc., 11.00%, 2/15/04...... 294 1,150 Pilgrim's Pride Corp., 10.875%, 8/01/03..... 1,105 475 RJR Nabisco, Inc., 8.75%, 8/15/05...... 475 900 Smith's Food & Drug, 11.25%, 5/15/07...... 911 ------2,785 ------
FACE AMOUNT VALUE (000) (000) ------ FOOD SERVICE & LODGING (2.1%) $(e)1,475 Courtyard by Marriott, 10.75%, 2/01/08...... $ 1,442 435 La Quinta Inns, Inc., 9.25%, 5/15/03...... 445 ------1,887 ------GAMING & LODGING (2.1%) 175 Grand Casinos Inc., 10.125%, 12/01/03.... 179 522 Louisiana Casino Cruises, 11.50%, 12/01/98...... 444 1,350 Trump Atlantic, 11.25%, 5/01/06...... 1,353 ------1,976 ------MACHINERY (1.3%)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 1,145 SD Warren Co., 12.00%, 12/15/04...... 1,211 ------MATERIALS (4.0%) (e,n)3,000 Brooks Fiber Properties, 0.00%, 3/01/06...... 1,590 500 IMC Global, Inc., 9.25%, 10/01/00...... 512 1,500 IMC Global, Inc., 9.45%, 12/15/11...... 1,530 ------3,632 ------METALS (3.3%) 750 Algoma Steel Inc., (Yankee Bond), 12.375%, 7/15/05..... 731 (e)525 Jet Equipment Trust, Series 95-D, 11.44%, 11/01/14...... 576 (e)1,050 Jet Equipment Trust, Series C1, 11.79%, 6/15/13...... 1,179 650 Sheffield Steel Corp., 12.00%, 11/01/01..... 572 ------3,058 ------MULTI-INDUSTRY (2.2%) 765 TLC Beatrice International Holdings, 11.50%, 10/01/05...... 776 (e)1,195 Unisys Corp., 12.00%, 4/15/03...... 1,214 ------1,990 ------PACKAGING & CONTAINER (4.3%) 400 Gaylord Container Corp., 11.50%, 5/15/01...... 408 (n)425 Gaylord Container Corp., 12.75%, 5/15/05...... 448 1,060 G-I Holdings, Inc. Zero Coupon, 10/01/98..... 851 825 Owens-Illinois, Inc., 11.00%, 12/01/03..... 887 1,400 Stone Container Corp., 10.75%, 10/01/02..... 1,414 ------4,008 ------PUBLISHING (1.8%) 1,365 Crown Paper Co., 11.00%, 9/01/05...... 1,297 500 Marvel Parent Holdings, Zero Coupon, 4/15/98...... 396 ------1,693 ------REAL ESTATE (1.6%) (e)1,250 HMC Acquisition Properties, 9.00%, 12/15/07...... 1,144
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------High Yield Portfolio~~
~~122~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document THE HIGH YIELD PORTFOLIO (CONT.) ------~~
FACE AMOUNT VALUE (000) (000) ------
~~REAL ESTATE (CONT.)~~
$ 350 MDC Holdings, 11.125%, 12/15/03...... $ 337 ------1,481 ------RETAIL-GENERAL (5.0%) 1,400 Host Marriott Travel Plaza, Series B, 9.50%, 5/15/05...... 1,342 2,171 Revlon Worldwide, Series B, Zero Coupon, 3/15/98...... 1,807 1,775 Southland Corp., 5.00%, 12/15/03...... 1,385 ------4,534 ------TELECOMMUNICATIONS (7.7%) (n)3,000 Dial Call Communications, 0.00%, 4/15/04...... 1,920 (n)2,250 Nextel Communications, 0.00%, 8/15/04...... 1,322 (e,n)2,200 Occidente y Caribe, 0.00%, 3/15/04...... 1,122 350 Philippines Long Distance Telephone, 9.25%, 6/30/06...... 350 (n)1,700 Telewest plc, 0.00%, 10/01/07...... 1,007 1,500 TCI Communications, Inc., 7.875%, 2/15/26...... 1,311 ------7,032 ------TEXTILES & APPAREL (2.0%) 525 Collins & Aikman Products, 11.50%, 4/15/06...... 534 1,365 Westpoint Stevens, Inc., 9.375%, 12/15/05...... 1,327 ------1,861 ------TRANSPORTATION (1.5%) 164 America West Airlines, 6.00%, 3/31/97...... 154 1,500 Venture Holdings, 9.75%, 4/01/04...... 1,238 ------1,392 ------UTILITIES (3.0%) 1,400 First PV Funding Corp., (Lease Obligation Bond) Series 1986B, 10.15%, 1/15/16...... 1,418 212 Midland Cogeneration Ventures, Series C-91, 10.33%, 7/23/02...... 221 374 Midland Cogeneration Ventures, Series C-94, 10.33%, 7/23/02...... 394 650 Midland Funding II, Series A, 11.75%, 7/23/05...... 681 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2,714 ------TOTAL CORPORATE BONDS AND NOTES (Cost $66,556)...... 65,665 ------ASSET BACKED SECURITIES (5.2%) AEROSPACE & DEFENSE (1.6%) (e)1,500 Aircraft Lease Portfolio Securitization Ltd., Series 1996-1, Class D, 12.75%, 6/15/06... 1,500 ------
FACE AMOUNT VALUE (000) (000) ------ BANKING (0.3%) $ 349 PNC Mortgage Securities Corp., Series 1995-2, Class B4, REMIC, 7.50%, 9/25/25...... $ 262 ------FINANCIAL SERVICES (3.3%) 972 DR Securitized Lease Trust, Series 1993-K1, Class A1, 6.66%, 8/15/10...... 735 1,374 DR Securitized Lease Trust, Series 1994-K1, Class A1, 7.60%, 8/15/07...... 1,154 (e)311 GE Capital Mortgage Services, Inc., Series 1995-12, Class B3, REMIC, 7.88%, 8/25/25...... 235 (e)350 Prudential Home Mortgage Securities, Inc., Series 1996-4, Class B3, REMIC, 6.50%, 4/25/26...... 258 875 Prudential Home Mortgage Securities Inc., Series 1996-A Class B1, 7.96%, 4/15/25...... 582 ------2,964 ------TOTAL ASSET BACKED SECURITIES (Cost $4,783)...... 4,726 ------FOREIGN GOVERNMENT BONDS (8.6%) BONDS (8.6%) 5,310 Federative Republic of Brazil, Par Bond, Series Z-L, 5.00%, 4/15/24...... 2,950 (n)1,250 Government of Venezuela Front Loaded Interest Reduction Bond, Series A, 6.375%, 3/31/07...... 905 1,485 Republic of Argentina, Series L, "Euro" (Floating Rate), 6.313%, 3/31/05...... 1,160 (n)3,160 Republic of Argentina Series L, "Euro" (Floating Rate), 5.25%, 3/31/23...... 1,734 1,750 United Mexican States, Series B, 6.25%, 12/31/19...... 1,120 ------TOTAL FOREIGN GOVERNMENT BONDS (Cost $7,244)...... 7,869 ------

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SHARES ------ COMMON STOCKS (0.1%) FINANCIAL SERVICES (0.0%) (a)1,268 WestFed Holdings, Inc., Class B.... ------FOOD SERVICE & LODGING (0.1%) (a)1,300 Motels of America, Inc...... 95 ------TOTAL COMMON STOCKS (Cost $85)...... 95 ------PREFERRED STOCKS (1.8%) ENTERTAINMENT & LEISURE (1.8%) (e)1,700 Time Warner, Inc...... 1,666
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------High Yield Portfolio~~
~~123~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE HIGH YIELD PORTFOLIO (CONT.) ------~~
VALUE SHARES (000) ------ ~~FINANCIAL SERVICES (0.0%) 3 WestFed Holdings, Inc., Series A... $ ------TOTAL PREFERRED STOCKS (Cost $1,771)...... 1,666 ------~~

NO. OF RIGHTS ------ RIGHTS (0.0%) BROADCAST-RADIO & TELEVISION (0.0%) (a)35,000 SpectraVision, Inc., expiring 10/08/97...... 2 ------FOREIGN GOVERNMENT (0.0%) (a)1,750,000 United Mexican States, 6.25% 12/31/19...... ------TOTAL RIGHTS (Cost $133)...... 2 ------
NO. OF WARRANTS ------ WARRANTS (0.6%) AEROSPACE & DEFENSE (0.0%) (a)500 Sabreliner Corp., expiring 4/15/03...... ------ELECTRICAL EQUIPMENT (0.5%) (a,e)28,000 Protection One Alarm, Inc., expiring 4/03/03...... 416 ------GAMING & LODGING (0.0%) (a)2,700 Casino Magic Corp., expiring 10/14/96...... -- (a)1,725 Louisiana Casino Cruises, expiring 12/01/98...... 9 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 9 ------INSURANCE (0.0%) (a)500 Horace Mann Educators Corp., expiring 4/03/99...... 7 ------METALS (0.0%) (a)8,250 Sheffield Steel Corp., expiring 11/01/01...... 25 ------PACKAGING & CONTAINER (0.0%) (a)1,000 Crown Packaging Holdings, expiring 11/01/03...... 5 ------REAL ESTATE (0.1%) (a)1,000 Petro PSC Properties L.P., expiring 7/15/97...... 33 ------TELECOMMUNICATIONS (0.0%) (a,e)1,250 American Telecasting, expiring 8/10/00...... 30 (a,e)3,000 Nextel Communications, Inc., expiring 4/25/99...... ------30 ------TOTAL WARRANTS (Cost $260)...... 525 ------
NO. OF VALUE UNITS (000) ------UNITS (1.5%) GAMING & LODGING (0.5%) (b,e)2,207,906 Maritime Group, Series A, 13.50%, 2/15/97...... $ 487 ------METALS (1.0%) 1,000,000 Sheffield Steel Corp. (1st Mortgage Bond + 5 common stock warrants), 12.00%, 11/01/01...... 885 ------TOTAL UNITS (Cost $3,426)...... 1,372 ------
FACE AMOUNT (000) ------ SHORT-TERM INVESTMENT (8.0%) REPURCHASE AGREEMENT (8.0%) $ 7,289 Chase Securities, Inc., 5.15%, dated 6/28/96, due 7/01/96, to be repurchased at $7,292, collateralized by $7,165 U.S. Treasury Notes, 7.125%, due 9/30/99, valued at $7,325 (Cost $7,289)...... 7,289 ------TOTAL INVESTMENTS (97.6%) (Cost $91,547)...... 89,209 ------
OTHER ASSETS (3.3%) Receivable for Investments Sold...... $1,534 Interest Receivable...... 1,406 Receivable for Portfolio Shares Sold.... 2 Other...... 12 2,954 ------LIABILITIES (-0.9%) Payable for Investments Purchased...... (338) Interest Claims Payable...... (289) Investment Advisory Fees Payable...... (88) Administrative Fees Payable...... (12) Custodian Fees Payable...... (4) Distribution Fees Payable...... (2) Directors' Fees and Expenses Payable.... (1) Other Liabilities...... (28) (762) ------

~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document~~
NET ASSETS (100.0%)...... $ 91,401 ------NET ASSETS CONSIST OF: Paid in Capital...... $ 96,640 Undistributed Net Investment Income...... 730 Accumulated Net Realized Loss...... (3,631) Unrealized Depreciation on Investments...... (2,338) ------NET ASSETS...... $ 91,401 ------

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------High Yield Portfolio~~
~~124~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE HIGH YIELD PORTFOLIO (CONT.) ------~~
AMOUNT (000) ------ CLASS A: NET ASSETS...... $ 87,902 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 8,372,561 outstanding $0.001 par value shares (authorized 500,000,000 shares).... $10.50 ------CLASS B: NET ASSETS...... $3,499 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 334,052 outstanding $0.001 par value shares (authorized 500,000,000 shares).... $10.47 ------
~~------~~
(a) -- Non-income producing security (b) -- Non-income producing security -- in default (e) -- 144A Security -- Certain conditions for public sale may exist (n) -- Step Bond -- Coupon rate increases in increments to maturity. Rate disclosed is as of June 30, 1996. Maturity date disclosed is the ultimate maturity date.

~~REMIC -- Real Estate Mortgage Investment Conduit~~
~~Floating Rate Security -- The interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect on June 30, 1996.~~
At June 30, 1996, approximately 99% of the Portfolio's net assets consisted of high yield securities rated below investment grade. Investments in high yield securities are accompanied by a greater degree of credit risk and the risk tends to be more sensitive to economic conditions than higher rated securities.
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------High Yield Portfolio~~
~~125~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE MUNICIPAL BOND PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
~~Daily Variable Rate Bonds 1.0% Fixed Rate Instruments 96.3% Other 2.7%~~

~~PERFORMANCE COMPARED TO THE LEHMAN 7 YR. MUNICIPAL BOND INDEX(1) ------~~
TOTAL RETURNS(2) ------AVERAGE ANNUAL YTD ONE YEAR SINCE INCEPTION ------ PORTFOLIO -- CLASS A..... -0.09% 4.30% 5.93% PORTFOLIO -- CLASS B(3)...... -0.10 N/A N/A INDEX...... 0.09 5.54 8.22
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.
3. The Portfolio began offering Class B shares on January 2, 1996.
~~PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.~~
~~------~~
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The Municipal Bond Portfolio seeks high current income consistent with preservation of principal through investment in a portfolio consisting primarily of intermediate and long-term investment grade municipal obligations, the interest on which is exempt from Federal income tax.
For the six month period ended June 30, 1996, the Portfolio had a total return of -0.09% for the Class A shares and -0.10% for the Class B shares, as compared to a total return of 0.09% for the Lehman 7-Year Municipal Bond Index. The average annual total return for the twelve months ended June 30, 1996 and for the period from inception on January 18, 1995 through June 30, 1996 was 4.30% and 5.93%, respectively for the Class A shares, as compared to 5.54% and 8.22% for the Index. As of June 30, 1996, the Portfolio had an SEC 30-day yield of 4.66% for the Class A shares and 4.42% for the Class B shares.
The U.S. fixed income market has spent the first half of 1996 struggling to determine the direction of Federal Reserve interest rate policy. The Federal Reserve started off the year with a bias towards easing, and on January 31
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document decreased both the Federal Funds and Discount Rate by 25 basis points. Following the easing, the Federal Reserve seemed to have mixed feelings about the strength of the economy going forward, injecting into the market uncertainty about the future direction of interest rate policy. Economic releases showing signs of growth in the economy, including continued strength in home sales, a robust employment picture and hints of inflationary pressure beginning to creep into the labor market, all combined to put upward pressure on interest rates. The markets were subject to day-to-day volatility caused by sharp movements in commodity prices and a keen interest in the value of the U.S. dollar compared to the Japanese yen and the German mark. Signs of strength in the economy and rhetoric coming from Federal Reserve Bank Governors indicating the Federal Reserve was concerned about the current level of inflation, specifically wage pressures and their effect on the economy, put all thoughts of further Fed easing on hold. Any attempts by the market to stage rallies were short-lived. The market briefly rallied before the release of both the May and June employment report; stronger than expected increases in these numbers sent the market in a tailspin, as has been the scenario for much of this year. The first half of the year ended with market participants anxiously anticipating what action the Fed would or would not take at the July 2nd and 3rd FOMC meeting. The meeting ended with no change in the Federal Funds or Discount Rate. Going into the third quarter,
~~------Municipal Bond Portfolio~~
~~126~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------THE MUNICIPAL BOND PORTFOLIO (CONT.) market sentiment seems to be not if, but when and by how much will the Federal Reserve increase the Federal Funds and Discount Rate.~~
The municipal bond market year-to-date performed relatively well compared to the U.S. Treasury market, outperforming comparable maturity Treasuries across the yield curve. Individual investors continued to be good buyers as cash poured into the market from the seasonal June and July increase in flows due to coupon payments, calls and redemptions. Individuals looked to the municipal market as yields became more attractive compared to recent levels and the stock market began to make investors nervous with signs of topping out. Property and casualty insurance companies were heavy participants in the new issue market and tax-exempt mutual funds were active swappers, buying new issues and selling older holdings to pay for new purchases.
The Portfolio is defensively structured, with over 30% of the Portfolio invested in high quality premium coupon prerefunded bonds escrowed in U.S. Treasury securities. The remainder of the Portfolio consists of premium coupon high quality general obligation and revenue bonds. This structure provides some cushion in a rising interest rate environment. We have not made any significant changes to the Portfolio, with activity mainly limited to selling securities to meet liquidity needs. Our average maturity is currently 6 years, slightly shorter than the 7 year benchmark. We will continue to maintain a defensive bias and will not look to extend the maturity of the Portfolio until we feel the market has settled into a more stable trading range.
~~Lori A. Cohane PORTFOLIO MANAGER~~
~~July 1996~~
~~------Municipal Bond Portfolio~~
~~127~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE MUNICIPAL BOND PORTFOLIO~~
~~------~~
FACE AMOUNT VALUE (000) (000) ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document TAX EXEMPT INSTRUMENTS (97.3%) DAILY VARIABLE RATE BONDS (1.0%) $ (c)300 New York City, New York, General Obligation Bonds, Series B, 3.75%, 10/01/21 (Cost $300)...... $ 300 ------FIXED RATE INSTRUMENTS (96.3%) 1,000 Connecticut State Special Obligation, Tax Revenue Bonds, Transportation, 6.50%, 7/01/09, Prerefunded 7/01/99 at 102...... 1,073 1,000 De Kalb County, Georgia, General Obligation Bonds, 7.30%, 1/01/00, Prerefunded 1/01/97 at 102...... 1,038 1,000 De Kalb County, Georgia, Water & Sewer Revenue Bonds, 7.00%, 10/01/06...... 1,054 1,000 Delaware Transportation Authority, Transportation System Revenue Bonds, 6.50%, 7/01/11, Prerefunded 7/01/01 at 102...... 1,090 1,000 Fairfax County Virginia Water Authority, Revenue Bonds, 6.00%, 4/01/22...... 1,003 1,000 Georgia State, General Obligation Bonds, Series E, 6.75%, 12/01/02...... 1,111 500 Georgia State, General Obligation Bonds, Series F, 6.50%, 12/01/06...... 556 500 Hawaii State, General Obligation Bonds, Series BS, 6.70%, 9/01/97...... 516 1,000 Hawaii State, General Obligation Bonds, Series CJ, 6.20%, 1/01/12...... 1,037 1,500 Intermountain Power Agency, Utah, Power Supply Revenue Bonds, Series D, 8.375%, 7/01/12...... 1,587 1,000 Kentucky State Housing Corp., Revenue Bonds, Series A, 6.00%, 7/01/10...... 1,008 1,155 Maryland State Department of Transportation, Construction Revenue Bonds, Second Issue, 6.80%, 11/01/05, Prerefunded 11/01/99 at 102...... 1,255 1,000 Massachusetts State Consolidated Loan, Series A, 7.50%, 3/01/03, Prerefunded 3/01/00 at 102...... 1,112 500 Massachusetts State Consolidated Loan, Series A, 7.63%, 6/01/08, Prerefunded 6/01/01 at 102...... 571 1,625 Michigan State Housing Development Authority, Revenue Bonds, Series A, 6.75%, 12/01/14...... 1,689 1,590 Minnesota State Infrastructure Development, General Obligation Bonds, 6.80%, 8/01/03, Prerefunded 8/01/00 at 100...... 1,712 1,400 Mississippi State, General Obligation Bonds, 6.00%, 2/01/09...... 1,455 1,475 Montana State, General Obligation Bonds, Long Range Building Program, Series C, 6.00%, 8/01/13...... 1,516 1,000 New Castle County, Delaware, General Obligation Bonds, 6.25%, 10/15/01...... 1,071
FACE AMOUNT VALUE (000) (000) ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document $ 1,000 New York State Local Government Assistance Corp., Revenue Bonds, Series B, 7.50%, 4/01/20, Prerefunded 4/01/01 at 102...... $ 1,136 500 Ohio State, General Obligation Bonds, 6.20%, 8/01/12...... 527 1,000 Ohio State Housing Finance Agency, Residential Mortgage Revenue Bonds, Series A-1, 6.20%, 9/01/14...... 1,014 1,000 Reedy Creek Improvement District, Florida, Utility Revenue Bonds, Series 91-1, 6.50%, 10/01/16, Prerefunded 10/01/01 at 101...... 1,091 1,350 San Antonio, Texas, General Obligation Bonds, 6.50%, 8/01/14...... 1,415 1,000 Virginia Beach, Virginia, General Obligation Bonds, 6.00%, 9/01/10...... 1,038 500 Virginia State Housing Development Authority, Commonwealth Mortgage Revenue Bonds, Series B, 6.60%, 1/01/12...... 524 1,000 Virginia State Housing Development Authority, Commonwealth Mortgage Revenue Bonds, Series B, 6.65%, 1/01/13...... 1,048 1,000 Washington State, General Obligation Bonds, Series B, 6.20%, 6/01/01...... 1,061 500 Washington Suburban Sanitary District, General Obligation Revenue Bonds, 6.50%, 11/01/05, Prerefunded 11/01/01 at 102...... 548 ------TOTAL FIXED RATE INSTRUMENTS (Cost $30,287)...... 30,856 ------TOTAL TAX-EXEMPT INSTRUMENTS (97.3%) (Cost $30,587)...... 31,156 ------TOTAL INVESTMENTS (97.3%) (Cost $30,587).... 31,156 ------
OTHER ASSETS (2.8%) Cash...... $ 67 Interest Receivable...... 644 Receivable for Portfolio Shares Sold.... 195 Other...... 7 913 ------LIABILITIES (-0.1%) Professional Fees Payable...... (11) Investment Advisory Fees Payable...... (5) Administrative Fees Payable...... (5) Custodian Fees Payable...... (2) Directors' Fees and Expenses Payable.... (1) Other Liabilities...... (8) (32) ------NET ASSETS (100%)...... $32,037 ------NET ASSETS CONSIST OF: Paid in Capital...... $31,428 Undistributed Net Investment Income...... 140 Accumulated Net Realized Loss...... (100) Unrealized Appreciation on Investments...... 569 ------NET ASSETS...... $32,037 ------

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Municipal Bond Portfolio~~
~~128~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE MUNICIPAL BOND PORTFOLIO (CONT.) ------~~
AMOUNT (000) ------ CLASS A: NET ASSETS...... $31,869 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 3,136,557 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $10.16 ------CLASS B: $168 NET ASSETS...... NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 16,541 outstanding $0.001 par value shares (authorized 500,000,000 shares)...... $10.16 ------
~~------(c) -- Security is valued at cost -- See note A-1 to financial statements~~
Variable/Floating Rate Instruments. The interest rate changes on these instruments are based upon a designated base rate. These instruments are payable on demand and are secured by a letter of credit or other support agreements.
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 Treasury escrow.
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Municipal Bond Portfolio~~
~~129~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE MONEY MARKET PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
Certificates of Deposit 18.9% Commercial Paper 47.8% Corporate Floating Rate Note 2.4% U.S. Government Agency Discount Notes 6.5% U.S. Government Agency Floating Rate Notes 20.2%
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document U.S. Treasury Bill 1.8% Other 2.4%

~~COMPARATIVE MONTHLY AVERAGE YIELDS~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
MONEY MARKET PORTFOLIO DONOGHUE'S SEC ~~30-Day Yields 30-Day Yields Jan. 5.11 5.05 Feb. 4.90 4.85 Mar. 4.82 4.76 Apr. 4.80 4.75 May 4.81 4.74 Jun. 4.89 4.76~~
~~------~~
INVESTMENTS IN SHARES OF THE PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE PORTFOLIO WILL MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The Money Market Portfolio's investment objectives are to maximize current income and preserve capital while maintaining high levels of liquidity through investing in high quality money market instruments which have effective maturities of one year or less. The Portfolio's average maturity (on a dollar-weighted basis) will not exceed 90 days. The Portfolio will purchase only securities having a remaining maturity of one year or less. The Portfolio is expected to maintain a net asset value of $1.00 per share. There can be no assurance, however, that the Portfolio will be successful in maintaining a net asset value of $1.00 per share.
The seven day yield and seven day effective yield (which assumes an annualization of the current yield with all dividends reinvested) for the Portfolio as of June 30, 1996 were 4.89% and 5.00%, respectively. As with all money market portfolios, the seven day yields are not necessarily indicative of future performance.
The Fed began the year by cutting interest rates (from 5.5% to 5.25% on the 31st of January). But from that point on short term interest rates moved uniformly in an upward direction. This came as a big surprise to most money market participants because when the year began they believed that the economy was very weak. In January leading economists were predicting that the Fed would be required to ease interest rates dramatically to stimulate the economy. Calls for a full percentage point cut were not uncommon. Instead, the U. S. economy showed surprising strength, particularly in the housing and job creation categories. These key components proved that the string of Fed easings, which had begun in July of 1995, was beginning to show results. So great has been the strength of the American economy that the Fed is now expected to hike interest rates this summer in an effort to slow things down and avoid an increase in inflation.
At the beginning of each spring month the number of people on non-farm payrolls presented a new shock that sent interest rates higher. March's report, which revealed that a staggering 705,000 jobs had been created, was a particular surprise. It led to some of the biggest one day losses in the bond market this year. We chose to use these setbacks as buying opportunities and took advantage of the higher yields available. At those times we bought longer dated securities for the portfolio to extend its weighted average maturity. Not until summer did the market finally seem comfortable with the conclusion that the strength promised in the spring's employment reports had been real. Since that time opportunities to extend at attractive levels have been rare. Gradually, since
~~------Money Market Portfolio~~
~~130~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE MONEY MARKET PORTFOLIO (CONT.) the first of the year we have increased the percentage of the Portfolio that is devoted to highly-rated commercial paper. This came as we decreased our holdings of agency discount notes. This was done to take advantage of the higher yields available on commercial paper.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document We are pleased to report that the Portfolio continues to meet its goal of providing as high a level of interest income as is consistent with maintaining liquidity and stability of principal, and that the Portfolio still holds only high quality securities with over 90% of assets invested in securities rated A1+/P1.
~~Gerald Barth PORTFOLIO MANAGER~~
~~Abigail Jones Feder PORTFOLIO MANAGER~~
~~Kenneth R. Holley PORTFOLIO MANAGER~~
~~July 1996~~
~~------Money Market Portfolio~~
~~131~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE MONEY MARKET PORTFOLIO~~
~~------~~
FACE AMORTIZED AMOUNT COST (000) (000) ------ MONEY MARKET INSTRUMENTS (97.6%) U.S. GOVERNMENT AND AGENCY OBLIGATIONS (28.5%) AGENCY DISCOUNT NOTES (6.5%) Federal Home Loan Bank $ 20,000 4.93%, 8/30/96...... $ 19,836 Federal National Mortgage Corp. 20,000 4.95%, 9/5/96...... 19,818 30,000 5.16%, 9/20/96...... 29,652 ------69,306 ------AGENCY FLOATING RATE NOTES (20.2%) Federal National Mortgage Association 20,000 5.34%, 8/16/96...... 19,999 20,000 5.39%, 10/11/96...... 19,995 25,000 5.34%, 11/20/96...... 24,993 25,000 5.29%, 4/11/97...... 24,992 65,000 5.42%, 9/2/97...... 65,000 13,000 5.54%, 7/26/99...... 12,957 ------167,936 ------Student Loan Marketing Association 46,000 5.53%, 10/30/97...... 46,043 ------213,979 ------U.S. TREASURY BILL (1.8%) 20,000 5.05%, 3/6/97...... 19,304 ------TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $302,589)...... 302,589 ------COMMERCIAL PAPER (47.8%) FINANCE (47.8%) 43,000 Abbey National North America 5.35%, 11/29/96...... 42,035 25,000 ABN-AMRO North America Finance, Inc. 5.30%, 7/11/96...... 24,963 20,000 ABN-AMRO North America Finance, Inc. 4.96%, 8/27/96...... 19,843 20,000 AT&T Capital Corp. 5.25%, 7/9/96...... 19,977 20,000 Ameritech Capital Funding Corp. 5.25%, 7/2/96..... 19,997 10,000 Ameritech Capital Funding Corp. 5.27%, 7/19/96.... 9,974 30,000 Coca-Cola Co. 5.28%, 8/8/96...... 29,833 25,000 Daimler-Benz North America Corp. 5.29%, 8/16/96... 24,831 30,000 Daimler-Benz North America Corp. 5.44%,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 11/14/96...... 29,384 30,000 General Electric Capital Corp. 5.19%, 9/4/96...... 29,719 25,000 Harvard University 5.34%, 7/23/96...... 24,918 50,000 Koch Industries 5.30%, 7/15/96...... 49,897 20,000 McDonald's Corp. 5.35%, 7/15/96...... 19,958 22,906 MetLife Funding, Inc. 5.27%, 7/26/96...... 22,822 15,000 Sandoz Corp. 5.27%, 7/17/96...... 14,965 20,000 SunTrust Banks, Inc. 5.29%, 7/1/96...... 20,000
FACE AMORTIZED AMOUNT COST (000) (000) ------ $ 5,200 Toys 'R' Us, Inc. 5.27%, 7/2/96...... $ 5,199 50,000 UBS Finance 5.55%, 7/1/96...... 50,000 7,000 Unilever Capital Corp. 5.33%, 12/13/96...... 6,829 9,295 Weyerhaeuser Co. 5.28%, 8/6/96...... 9,246 15,300 Weyerhaeuser Co. 5.28%, 8/7/96...... 15,217 18,000 Weyerhaeuser Co. 5.28%, 8/8/96...... 17,900 ------TOTAL COMMERCIAL PAPER (Cost $507,507)...... 507,507 ------CORPORATE FLOATING RATE NOTE (2.4%) FINANCE (2.4%) 25,000 First Chicago Corp. 5.34%, 12/2/96 (Cost $24,996)...... 24,996 ------CERTIFICATES OF DEPOSIT (18.9%) 30,000 Commerzbank (Yankee) 5.33%, 9/25/96...... 29,995 20,000 Commerzbank (Yankee) 5.52%, 12/4/96...... 19,989 45,000 Deutsche Bank (Yankee) 5.37%, 7/10/96...... 45,000 32,000 National Westminster Bank plc (Yankee) 5.36%, 7/10/96...... 32,000 50,000 Royal Bank of Canada (Yankee) 6.05%, 6/11/97...... 50,000 24,000 Societe Generale Bank (Yankee) 5.33%, 7/8/96...... 24,000 ------TOTAL CERTIFICATES OF DEPOSIT (Cost $200,984)...... 200,984 ------TOTAL MONEY MARKET INSTRUMENTS (Cost $1,036,076)...... 1,036,076 ------SHORT-TERM INVESTMENT (2.4%) REPURCHASE AGREEMENT (2.4%) 26,082 Goldman Sachs & Co, 5.375%, dated 6/28/96, due 7/01/96, to be repurchased at $26,094, collateralized by $23,920 U.S. Treasury Bonds, 8.75%, due 11/15/08, valued at $26,623 (Cost $26,082)...... 26,082 ------TOTAL INVESTMENTS (100.0%) (Cost $1,062,158)...... 1,062,158 ------
OTHER ASSETS (0.3%) Interest Receivable...... $ 3,386 Other...... 41 3,427 ------LIABILITIES (-0.3%) Dividends Payable...... (2,039) Investment Advisory Fees Payable...... (837) Administrative Fees Payable...... (151) Custodian Fees Payable...... (31) Directors' Fees and Expenses Payable...... (18) Other Liabilities...... (125) (3,201) ------NET ASSETS (100%)...... $1,062,384 ------

~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Money Market Portfolio~~
~~132~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED)~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document JUNE 30, 1996 ------~~
~~THE MONEY MARKET PORTFOLIO (CONT.) ------~~
AMOUNT (000) ------ NET ASSETS CONSIST OF: Paid in Capital...... $1,062,871 Accumulated Net Realized Loss...... (487) ------NET ASSETS...... $1,062,384 ------NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 1,062,875,799 outstanding $0.001 par value shares (authorized 4,000,000,000 shares)...... $1.00 ------
~~------~~
~~Floating Rate -- The interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect at June 30, 1996.~~
~~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.~~
~~Interest rates disclosed for Commercial Paper, Agency Discount Notes and the Treasury Bill represent effective yields at June 30, 1996.~~
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Money Market Portfolio~~
~~133~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~OVERVIEW ------~~
~~THE MUNICIPAL MONEY MARKET PORTFOLIO~~
~~COMPOSITION OF NET ASSETS (AT JUNE 30, 1996)~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
~~Fixed Rate Instruments 37.6% U.S. Government & Agency Obligations 3.9% Variable/Floating Rate Instruments 59.3% Other -0.8%~~

~~COMPARATIVE MONTHLY AVERAGE YIELDS~~
~~EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC~~
MUNICIPAL MONEY MARKET PORTFOLIO DONOGHUE'S SEC 30-DAY YIELDS 30-DAY YIELDS ~~Jan. 2.96 3.01 Feb. 2.94 2.86 Mar. 2.88 2.79 Apr. 3.01 2.96 May 3.25 3.19 Jun. 3.06 2.87~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------~~
INVESTMENTS IN SHARES OF THE PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE PORTFOLIO WILL MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The Municipal Money Market Portfolio's investment objectives are to maximize current income that is exempt from Federal income tax and preserve capital while maintaining high levels of liquidity through investing in high quality municipal money market instruments which earn interest exempt from Federal income tax in the opinion of bond counsel for the issuer. The Portfolio will purchase only securities having a remaining maturity of one year or less. Under normal circumstances, the Portfolio will invest at least 80% of its assets in tax-exempt municipal securities. Additionally, the Portfolio will not purchase private activity bonds, the interest from which is subject to alternative minimum tax. Interest on tax-exempt municipal securities may be subject to state and local taxes. The Portfolio's average maturity (on a dollar-weighted basis) will not exceed 90 days. The Portfolio is expected to maintain a net asset value of $1.00 per share. There can be no assurance, however, that the Portfolio will be successful in maintaining a net asset value of $1.00 per share.
The seven day yield and seven day effective yield (assumes an annualization of the current yield with all dividends reinvested) for the Municipal Money Market Portfolio as of June 30, 1996 were 3.10% and 3.15%, respectively. The seven day taxable equivalent yield and the seven day taxable equivalent effective yield for Municipal Money Market Portfolio at June 30, 1996, assuming Federal income tax rate of 39.6% (maximum rate) were 5.15% and 5.22%, respectively. The seven day yields are not necessarily indicative of future performance.
During the first half of the year, the taxable market experienced a dramatic sell-off triggered by investors' concerns regarding the relative strength of the economy and the potential for an increase in inflation. These events in the economy and the taxable sectors of the market had little effect on the municipal money market sector during the first half of 1996. Because the municipal money market is driven by supply and demand, this sector typically functions independently of the rest of the fixed income markets. The flat yield curve shape that had characterized the municipal money market for much of 1995 continued throughout most of the first quarter. In March, rates in the overnight to six month sectors increased approximately 20 basis points while the remainder of the curve remained flat. The adjustment in the short end of the curve did occur in response to the increase in rates in the taxable sector. As the Federal tax deadline approached in mid-April, the market sold off as bond funds were forced to sell short securities to meet redemptions. This increase in supply caused the curve
~~------Municipal Money Market Portfolio~~
~~134~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
OVERVIEW ------THE MUNICIPAL MONEY MARKET PORTFOLIO (CONT.) to shift to a positive slope which persisted for the balance of the second quarter. Rates across the municipal money market curve increased during May creating a parallel shift.
The Portfolio experienced tremendous growth during the first half of 1996 with the net asset size increasing 71%. The portfolio finished June 1996 with net assets of $770 million. Much of the growth occurred during April, which was fortuitous as April represented a buying opportunity. Overall, the asset allocation throughout the first half of the year remained consistent with commercial paper ranging from 30-40%, tax-exempt notes ranged from 3-4%, and daily and weekly variable rate puttable issues fluctuating between 50% and 60% of the Portfolio. The weighted average maturity of the portfolio ranged from 15 to 40 days and ended June with a weighted average maturity of 31 days.
~~Gerald P. Barth PORTFOLIO MANAGER~~
~~Abigail Jones Feder PORTFOLIO MANAGER~~
~~July 1996~~
~~------Municipal Money Market Portfolio~~
~~135~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document [LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------
~~THE MUNICIPAL MONEY MARKET PORTFOLIO~~
~~------~~
FACE AMORTIZED AMOUNT COST (000) (000) ------ TAX-EXEMPT INSTRUMENTS (96.9%) FIXED RATE INSTRUMENTS (37.6%) NOTES (6.0%) $ 2,000 Broward County, Florida, General Obligation Bonds, 7.88%, 1/01/12, Prerefunded 7/01/96 at 102...... $ 2,061 1,000 City of San Antonio, Texas, Revenue Bonds, 7.90%, 5/01/14, Prerefunded 5/01/97 at 101.5...... 1,049 1,500 Delaware State, General Obligation Bonds, Series A, 4.25%, 3/01/97...... 1,506 2,445 Hawaii State, General Obligation Bonds, Series BK, 6.60%, 4/01/99, Prerefunded 4/01/97 at 101.5...... 2,531 5,000 Idaho State, 4.50%, 6/30/97, TANS...... 5,029 1,500 Los Angeles, California, Unified School District, 4.50%, 6/30/97, TRANS...... 1,510 2,500 Maine State, 4.50%, 6/27/97, TANS...... 2,515 4,130 Massachusetts State, General Obligation Bonds, Series A, 4.25%, 6/10/97...... 4,146 1,000 Metropolitan Transportation Authority, New York, Series F, 8.38%, 7/01/05, Prerefunded 7/01/96 at 102...... 1,020 9,000 Michigan State, General Obligation Bonds, 4.00%, 9/30/96...... 9,011 1,000 Orlando & Orange County, Florida, Expressway Authority Revenue Bonds, 7.25%, 7/01/14, Prerefunded 7/01/96 at 102...... 1,020 2,000 Shelby County, Tennessee, General Obligation Bonds, 6.40%, 8/01/96...... 2,005 7,500 Texas State, Series 95A, 4.75%, 8/30/96, TRANS.... 7,511 2,000 Washington State, General Obligation Bonds, Series R-94A, 3.70%, 8/01/96...... 2,000 3,575 Wisconsin State, Series B, 7.25%, 5/01/08, Prerefunded 5/01/97 at 101...... 3,710 ------46,624 ------COMMERCIAL PAPER (31.6%) 10,000 Baltimore County, Maryland, 3.55%, 10/02/96...... 10,000 3,000 Beaver County, Pennsylvania, Industrial Development Authority, Duquesne Light, Series 90, 3.15%, 8/09/96...... 3,000 350 Burke County, Georgia, Development Authority, Oglethorpe, Series 92A, 3.35%, 7/09/96...... 350 4,675 Burke County, Georgia, Development Authority, Oglethorpe, Series 92A, 3.70%, 7/09/96...... 4,675 6,000 Burlington, Kansas, Kansas City Power & Light Co., Series 89A, 3.70%, 8/14/96...... 6,000 6,000 City & County of Honolulu, Hawaii, 3.55%, 9/12/96...... 6,000 3,500 City of Austin, Texas, Series A, 3.40%, 9/09/96... 3,500
FACE AMORTIZED AMOUNT COST (000) (000) ------ $ 4,530 City of Dallas, Texas, Series A, 3.60%, 10/22/96...... $ 4,530 City of Mount Vernon, Indiana, General Electric, Series 89A, 4,000 3.20%, 8/12/96...... 4,000 4,000 3.55%, 10/18/96...... 4,000 City of San Antonio, Texas, 1,900 3.15%, 8/09/96...... 1,900 1,500 3.45%, 10/23/96...... 1,500 3,000 3.70%, 10/23/96...... 3,000
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 1,200 Converse County, Wyoming, Series 88, 3.60%, 8/14/96...... 1,200 Gainsville, Florida, 1,598 3.20%, 8/08/96...... 1,598 2,525 3.45%, 9/09/96, Series C...... 2,525 4,000 Georgia Municipal Gas Authority, 3.65%, 10/16/96...... 4,000 Houston, Texas, Series A, 4,700 3.70%, 9/10/96...... 4,700 6,000 5.70%, 10/17/96...... 6,000 2,000 Illinois Development Finance Authority, Series 93A, 3.60%, 10/23/96...... 2,000 2,100 Illinois Health & Educational Facilities, Series 89A, 3.65%, 10/09/96...... 2,100 4,000 Independence, Missouri, Water Utility Revenue, 3.70%, 7/10/96...... 4,000 Intermountain Power Agency, Utah, Series E, 2,400 3.80%, 7/01/96...... 2,400 200 3.85%, 7/01/96...... 200 2,900 3.55%, 11/13/96...... 2,900 Jacksonville, Florida, Electric Authority, 3,100 3.55%, 9/18/96...... 3,100 7,700 3.60%, 10/23/96...... 7,700 Jasper County, Indiana, 3,600 3.65%, 8/19/96, Series 88B...... 3,600 2,000 3.65%, 8/19/96, Series 88C...... 2,000 1,100 Lehigh County, Pennsylvania, Series A, 3.45%, 9/09/96...... 1,100 6,600 Massachusetts Health & Education Facilities Authority, Harvard University, Series L, 3.55%, 10/22/96...... 6,600 10,000 Michigan State, Underground Storage Tank Financial Assurance Authority, Series I, 3.45%, 8/15/96... 10,000 3,000 Montgomery County, Maryland, Series 95, 3.65%, 8/16/96...... 3,000 3,000 Montgomery County, Pennsylvania, 3.50%, 7/12/96... 3,000 6,020 Montgomery, Alabama, Industrial Development Board, General Electric Series, 3.60%, 8/06/96...... 6,020 7,300 Nashville & Davidson County, Tennessee, 3.70%, 8/01/96...... 7,300 New York City, New York, Water Finance Authority, 800 3.75%, 8/08/96...... 800 6,900 3.60%, 9/10/96...... 6,900
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Municipal Money Market Portfolio~~
~~136~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE MUNICIPAL MONEY MARKET PORTFOLIO (CONT.) ------~~
FACE AMORTIZED AMOUNT COST (000) (000) ------
~~FIXED RATE INSTRUMENTS (CONT.)~~
$ 4,025 North Carolina Eastern Municipal Power, 3.60%, 7/09/96...... $ 4,025 300 Northeastern Pennsylvania Hospital Authority, Series B, 3.60%, 10/18/96...... 300 2,990 Omaha, Nebraska, Public Power District, 3.60%, 10/18/96...... 2,990 1,000 Peninsula Ports Authority, Virginia, Series 92, 3.55%, 8/20/96...... 1,000 3,000 Petersburg, Indiana, Indiana Power & Light, Series 91, 3.60%, 10/18/96...... 3,000 2,200 Platte River Authority, Colorado, 3.10%,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 8/13/96...... 2,200 8,000 Puerto Rico Industrial, Medical & Environmental Pollution Control Authority Revenue Bonds, 3.55%, 10/10/96...... 8,000 Rochester, Minnesota, Health Facilities, Mayo Clinic, 1,000 3.65%, 10/24/96, Series B...... 1,000 1,500 3.65%, 10/24/96, Series C...... 1,500 1,065 3.65%, 10/24/96, Series E...... 1,065 1,500 3.65%, 10/16/96, Series F...... 1,500 2,800 Salt Lake City, Utah, 3.60%, 9/11/96...... 2,800 Salt River, Arizona, 4,600 3.30%, 8/07/96...... 4,600 2,006 3.20%, 8/08/96...... 2,006 5,000 3.30%, 8/08/96...... 5,000 2,000 3.15%, 8/09/96...... 2,000 6,000 3.60%, 10/15/96...... 6,000 5,750 State of Louisiana, General Obligation Bonds, 3.65%, 10/16/96...... 5,750 Sunrise State, Florida, Government Finance Authority, 4,470 3.45%, 10/08/96...... 4,470 3,750 3.45%, 10/09/96...... 3,750 Sunshine State, Florida, Government Finance Authority, Series 86, 9,850 3.70%, 8/15/96...... 9,850 2,000 3.45%, 9/09/96...... 2,000 5,000 Sweetwater County, Wyoming, Series 88A, 3.70%, 8/15/96...... 5,000 2,000 Texas Municipal Power Agency, 3.55%, 10/22/96..... 2,000 Trimble County, Kentucky, Louisville Gas & Electric Series, 5,000 3.25%, 8/07/96...... 5,000 1,000 3.60%, 10/18/96...... 1,000 5,500 University of Minnesota, Series A, 3.60%, 10/22/96...... 5,500 2,500 Vanderbilt University, Tennessee, Series 89A, 3.55%, 10/22/96...... 2,500 ------243,004 ------TOTAL FIXED RATE INSTRUMENTS...... 289,628 ------
FACE AMORTIZED AMOUNT COST (000) (000) ------ VARIABLE/FLOATING RATE INSTRUMENTS (59.3%) DAILY VARIABLE RATE BONDS (41.4%) $ 1,500 Ascension Parish, Louisiana, Pollution Control Revenue Bonds, Shell Oil Project, 3.60%, 9/01/23...... $ 1,500 2,400 Birmingham, Alabama, Medical Clinic Board Revenue Bonds, University of Alabama Hospital Services Fund, 3.80%, 12/01/26...... 2,400 Burke County, Georgia, Development Authority, 5,500 3.60%, 7/01/24...... 5,500 7,300 3.70%, 4/01/25...... 7,300 5,500 3.75%, 7/01/24, Series 94...... 5,500 California Pollution Control Financing Authority, Southern Edison, 8,100 3.45%, 2/28/08, Series 86A...... 8,100 2,000 3.45%, 2/28/08, Series 86B...... 2,000 3,400 3.45%, 2/28/08, Series 86C...... 3,400 4,735 3.45%, 2/28/08, Series 87D...... 4,735 4,000 Chattanooga-Hamilton County, Tennessee, Hospital Authority Revenue Bonds, Erlanger Medical Center 3.80%, 10/01/17...... 4,000 Chicago, Illinois, O'Hare International Airport Special Facilities Revenue Bonds, American Airlines, Inc. Project, 4,200 3.70%, 12/01/17, Series A...... 4,200 4,200 3.70%, 12/01/17, Series B...... 4,200 4,200 3.70%, 12/01/17, Series C...... 4,200 4,200 3.70%, 12/01/17, Series D...... 4,200 3,500 Dade County, Florida, Industrial Development Authority, Florida Light & Power Co., 3.60%, 6/01/21...... 3,500 2,800 Delaware County, Pennsylvania, Industrial Development Authority, Series 95, 3.70%, 12/01/09...... 2,800 1,700 Delta County, Michigan, Pollution Control Revenue Bonds, Mead Corp., 3.60%, 12/01/23...... 1,700
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 600 District of Columbia, Revenue Bonds, 3.65%, 10/01/22...... 600 4,200 East Baton Rouge Parish, Louisiana, Pollution Control Revenue Bonds, Exxon Project, 3.60%, 11/01/19...... 4,200 4,900 Farmington, New Mexico, Pollution Control Revenue Bonds, Series A, 3.60%, 5/01/24...... 4,900 1,400 Gulf Coast Waste Disposal Authority, Texas Pollution Control Revenue Bonds, Exxon Project, 3.55%, 6/01/20...... 1,400 5,000 Hapeville, Georgia, Industrial Development Authority, Series 85, 3.60%, 11/01/15...... 5,000 13,800 Harris County, Texas, Health Facilities Development Corp., Methodist Hospital, 3.70%, 12/01/25...... 13,800
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Municipal Money Market Portfolio~~
~~137~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE MUNICIPAL MONEY MARKET PORTFOLIO (CONT.) ------~~
FACE AMORTIZED AMOUNT COST (000) (000) ------
~~VARIABLE/FLOATING RATE INSTRUMENTS (CONT.)~~
Harris County, Texas, Health Facilities Development Corp., St. Lukes Episcopal Series, $ 3,700 3.70%, 2/15/16...... $ 3,700 2,600 3.70%, 2/15/21...... 2,600 Harris County, Texas, Industrial Development, Pollution Control Revenue Bonds, Exxon Project, 2,600 3.60%, 3/01/24, Series 84A...... 2,600 2,600 3.60%, 3/01/24, Series 84B...... 2,600 5,700 Hurley, New Mexico, Pollution Control Revenue Bonds, 3.60%, 12/01/15...... 5,700 15,000 Jackson County, Mississippi, Port Facility, Chevron Project, Series 93, 3.55%, 6/01/23...... 15,000 900 Kansas City, Kansas, Industrial Development Authority, Revenue Bonds, PQ Corp., 3.70%, 8/01/15...... 900 2,000 Lake Charles, Louisiana, Harbor & Terminal District Port Facilities, Series 84, 3.60%, 11/01/11...... 2,000 Lincoln County, Wyoming, Pollution Control Revenue Bonds, Exxon Project, 2,000 3.60%, 11/01/14, Series 84A...... 2,000 4,400 3.55%, 8/01/15, Series 84A...... 4,400 2,500 3.60%, 11/01/14, Series 84B...... 2,500 2,500 3.60%, 11/01/14, Series 84C...... 2,500 2,500 3.60%, 11/01/14, Series 84D...... 2,500 3,120 Louisiana Public Facilities Authority, Industrial Development, Kenner Hotel Series, 3.60%, 12/01/15...... 3,120 Maricopa County, Arizona, Pollution Control Revenue Bonds, Arizona Public Service Co., 4,500 3.55%, 5/01/29, Series B...... 4,500 4,600 3.60%, 5/01/29, Series C...... 4,600 3,500 3.60%, 5/01/29, Series E...... 3,500 3,600 3.70%, 5/01/29, Series F...... 3,600 1,000 Marshall County, West Virginia, Pollution Control Revenue Bonds, Mountaineer Carbon Co., 3.70%, 12/01/20...... 1,000 Massachusetts Health & Education Facilities Authority,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 4,800 3.35%, 7/01/05, Series B...... 4,800 6,100 3.35%, 7/01/05, Series C...... 6,100 6,700 Michigan State Strategic Fund, Consumers Power, Series 88A, 3.55%, 4/15/18...... 6,700 Missouri State Health & Educational Facilities Authority Revenue Bonds, Washington University, 2,000 3.60%, 9/01/30, Series A...... 2,000 3,500 3.60%, 9/01/30, Series B...... 3,500 Monroe County, Georgia, Pollution Control Revenue Bonds, Georgia Power Co., 4,500 3.70%, 7/01/25, Series 1...... 4,500 3,700 3.75%, 7/01/25, Series 2...... 3,700
FACE AMORTIZED AMOUNT COST (000) (000) ------ $ 4,100 New York City, New York, Cultural Resources, 3.45%, 12/01/15...... $ 4,100 New York City, New York, General Obligation Bonds, 5,000 3.60%, 8/15/23, Series B, Subseries B4...... 5,000 1,500 3.60%, 8/15/18, Series B, Subseries B7...... 1,500 1,500 3.60%, 8/01/15, Subseries A-5...... 1,500 New York City, New York, Water Finance Authority, Water & Sewer System Revenue Bonds, 11,000 3.60%, 6/15/23, Series 92C...... 11,000 10,000 3.60%, 6/15/22, Series 94C...... 10,000 6,000 New York State, Dormitory Authority Revenue Bonds, Cornell University, Series B, 3.45%, 7/01/25.... 6,000 2,500 New York State, Thruway Authority Revenue Bonds, 3.50%, 1/01/24...... 2,500 1,000 Nueces River Authority, Texas, Pollution Control Revenue Bonds, Series 85, 3.80%, 12/01/99...... 1,000 3,000 Ohio State Air Quality Development Authority Revenue Bonds, Series 85A, 3.75%, 12/01/15...... 3,000 4,100 Ohio State Air Quality Development Authority Revenue Bonds, Cincinnati Gas & Electric, Series B, 3.55%, 9/01/30...... 4,100 2,800 Parrish, Alabama, Industrial Development Board, Pollution Control Revenue Bonds, Alabama Power Co. Project, 3.70%, 6/01/15...... 2,800 2,400 Peninsula Ports Authority, Virginia, Coal Revenue Bonds, 3.60%, 7/01/16...... 2,400 Pennsylvania Higher Education Authority Revenue Bonds, Carnegie Mellon University, 4,300 3.70%, 11/01/27, Series 95B...... 4,300 4,500 3.70%, 11/01/29, Series 95C...... 4,500 5,700 3.70%, 11/01/30, Series 95D...... 5,700 2,200 Philadelphia, Pennsylvania, Childrens Hospital, Series 92B, 3.60%, 3/01/27...... 2,200 7,700 Philadelphia, Pennsylvania, Hospitals & Higher Educational Facilities Authority Revenue Bonds, Children's Hospital Project, Series A, 3.70%, 3/01/27...... 7,700 Platte County, Wyoming, Pollution Control Revenue Bonds, 3,800 3.70%, 7/01/14, Series A...... 3,800 1,000 3.70%, 7/01/14, Series B...... 1,000 Port of Saint Helens, Oregon, Pollution Control Revenue Bonds, Portland General Electric Co., 2,000 3.55%, 4/01/10, Series A...... 2,000 1,600 3.55%, 6/01/10, Series B...... 1,600 1,400 Saint Charles Parish, Louisiana, Pollution Control Revenue Bonds, Shell Oil Project, 3.55%, 10/01/22...... 1,400
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Municipal Money Market Portfolio~~
~~138~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE MUNICIPAL MONEY MARKET PORTFOLIO (CONT.) ------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document~~
FACE AMORTIZED AMOUNT COST (000) (000) ------
~~VARIABLE/FLOATING RATE INSTRUMENTS (CONT.)~~
$ 5,000 Salt Lake County, Utah, Pollution Control Revenue Bonds, British Petroleum Co., 3.60%, 2/01/08.... $ 5,000 5,900 Salt Lake County, Utah, Pollution Control Revenue Bonds, SVC Station Holdings, 3.70%, 8/01/07..... 5,900 4,900 Southwest, Texas, Higher Education Authority Revenue Bonds, Southern Methodist University, Series 85, 3.55%, 7/01/15...... 4,900 1,200 Sublette County, Wyoming, Pollution Control Revenue Bonds, Exxon Project, 3.55%, 11/01/14... 1,200 1,100 Sweetwater County, Wyoming, Series 88B, 3.75%, 1/01/14...... 1,100 1,300 Texas State, Water Development Board Revenue Bonds, Series A, 3.80%, 3/01/15...... 1,300 7,700 Valdez, Alaska, Marine Terminal Authority, Exxon Project, Series 85, 3.55%, 10/01/25...... 7,700 3,000 West Side Calhoun County, Texas, Pollution Control Revenue Bonds, 3.70%, 12/01/15...... 3,000 ------318,955 ------WEEKLY VARIABLE RATE BONDS (17.9%) 1,000 Albuquerque, New Mexico, Revenue Bonds, Series A, 3.40%, 7/01/22...... 1,000 2,700 Allegheny County, Pennsylvania, Hospital Development Authority, Series B, 3.25%, 9/01/20...... 2,700 Beaver County, Pennsylvania, Industrial Development Authority, Duquesne Light, 1,000 3.25%, 8/01/20, Series A...... 1,000 1,000 3.25%, 8/01/09, Series B...... 1,000 1,000 Brunswick & Glynn County, Georgia, Development Authority, Series 85, 3.55%, 12/01/15...... 1,000 7,400 Burke County, Georgia, Development Authority, Oglethorpe, Series 93A, 3.30%, 1/01/16...... 7,400 400 California Health Facilities Authority, Series A, 3.15%, 1/01/16...... 400 5,800 Charlotte, North Carolina, Airport, Series 93A, 3.30%, 7/01/16...... 5,800 1,000 City of Baltimore, Maryland, Pollution Control Revenue Bonds, General Motors Corp., 3.35%, 2/01/00...... 1,000 2,500 City of Columbia, Missouri, Special Revenue Bonds, Series 88A, 3.40%, 6/01/08...... 2,500 1,500 City of Columbia, Missouri, Water & Electric Revenue Bonds, Series 85B, 3.40%, 12/01/15...... 1,500
FACE AMORTIZED AMOUNT COST (000) (000) ------ City of Forsyth, Montana, Pollution Control Revenue Bonds, $ 300 3.30%, 6/01/13, Series B...... $ 300 700 3.30%, 6/01/13, Series D...... 700 2,600 City of Midlothian, Texas, Industrial Development Corp., Pollution Control Revenue Bonds, Box-Crow Cement Co., 4.10%, 12/01/09...... 2,600 1,000 City of Minnetonka, Minnesota, Multifamily, Cliffs Ridgedale, 3.45%, 9/15/25...... 1,000 1,600 City of San Antonio, Texas, Higher Education Authority, Trinity University, 3.45%, 4/01/04... 1,600 Clark County, Nevada, Airport Revenue Bonds, 16,800 3.30%, 7/01/12, Series 93A...... 16,800 2,700 3.30%, 7/01/25, Series 95-A1...... 2,700 4,000 Clark County, Nevada, Industrial Development Corp., Nevada Power Co., Series C, 3.15%, 10/01/30...... 4,000 3,900 Clarksville, Tennessee, Public Building Authority, Revenue Bonds, 3.30%, 12/01/00...... 3,900 180 Clear Creek County, Colorado, Revenue Bonds, Colorado Finance Pool Program, 3.40%, 6/01/98... 180 600 Colorado Student Obligation Bond Authority,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Student Loan Revenue Bonds, Series 91-C1, 3.30%, 8/01/00...... 600 5,700 Connecticut State, Special Tax Obligation Revenue Bonds, Series 1, 3.20%, 12/01/10...... 5,700 1,800 Dade County, Florida, Health Facilities Authority Revenue Bonds, Miami Children's Hospital Project, 3.30%, 9/01/25...... 1,800 16,800 Dade County, Florida, Water & Sewer Revenue Bonds, 3.30%, 10/05/22...... 16,800 3,000 Foothill/Eastern California Toll Road Revenue Bonds, Series 95C, 3.10%, 1/02/35...... 3,000 2,000 Franklin County, Ohio, Series 95, 3.20%, 6/01/16...... 2,000 Harris County, Texas, 5,000 3.35%, 8/01/20, Series 94G...... 5,000 5,000 3.35%, 8/01/20, Series 94H...... 5,000 2,200 Huntsville, Alabama, Health Care Facilities Authority, Series B, 3.30%, 6/01/24...... 2,200 300 Illinois Development Finance Authority, A.E. Staley Manufacturing, Series 85, 3.30%, 12/01/05...... 300 4,000 Jefferson Parish, Louisiana, Hospital Service District No. 001 Revenue Bonds, West Jefferson Medical Center, 3.50%, 1/01/26...... 4,000
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Municipal Money Market Portfolio~~
~~139~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996 ------~~
~~THE MUNICIPAL MONEY MARKET PORTFOLIO (CONT.) ------~~
FACE AMORTIZED AMOUNT COST (000) (000) ------
~~VARIABLE/FLOATING RATE INSTRUMENTS (CONT.)~~
$ 1,000 Lehigh County, Pennsylvania, Allegheny Electric Cooperative, 3.55%, 12/01/15...... $ 1,000 1,500 Louisiana Public Facilities Authority, Hospital Revenue Bonds, Series 85, 3.10%, 12/01/00...... 1,500 1,800 Missouri State Health & Educational Facilities Authority, Revenue Bonds, Washington University Project, 3.35%, 9/01/09...... 1,800 1,000 Massachusetts Health & Education Facilities Authority, Series G-1, 3.00%, 1/01/19...... 1,000 3,900 Nueces County, Texas, Health Facilities, Driscoll Children's Foundation, 3.15%, 7/01/15...... 3,900 1,500 Person County, North Carolina, Carolina Power & Light, 3.25%, 11/01/19...... 1,500 Pinellas County, Florida, Health Facilities, Bayfront Medical Center, 235 3.35%, 6/01/98...... 235 1,000 3.35%, 6/01/09...... 1,000 400 Polk County, Iowa, Hospital Equipment & Improvement Authority, 3.10%, 12/01/05...... 400 800 Port Development Corporation Marine Terminal, Texas, Series 89, 3.30%, 1/15/14...... 800 1,500 Port of Corpus Christi, Texas, Marine Terminal, R.J. Reynolds Metals Series, 3.55%, 9/01/14..... 1,500 600 Putnam County, Florida, Development Authority, Seminole Electric, Series 84-H1, 3.15%, 3/15/14...... 600 1,000 Rapides Parish, Louisiana, Central Louisiana Electric Series, 3.25%, 7/01/18...... 1,000 700 Sheboygan, Wisconsin, Wisconsin Power & Light Series, 3.55%, 8/01/14...... 700
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 4,500 Tennessee State, General Obligation Bonds, BANS, Series C, 3.40%, 7/02/01...... 4,500 4,490 Texas State, Veterans Housing Assistance-Fund I, 3.30%, 12/01/16...... 4,490 1,100 University of North Carolina, Chapel Hill Fund, Inc., Certificates of Participation, 3.05%, 10/01/09...... 1,100 Washington State Public Power Supply Revenue Bonds, 2,000 3.25%, 7/01/17, Series 93-1A3...... 2,000 3,300 3.35%, 7/01/17, Series 1A-2...... 3,300 ------137,805 ------TOTAL VARIABLE/FLOATING RATE INSTRUMENTS...... 456,760 ------TOTAL TAX-EXEMPT INSTRUMENTS (Cost $746,388)...... 746,388 ------TAXABLE INSTRUMENTS (3.9%) U.S. AGENCY OBLIGATIONS (3.9%) Federal Farm Credit Bank Discount Notes 16,900 5.22%, 7/15/96...... 16,866 2,835 5.28%, 7/25/96...... 2,626
FACE AMORTIZED AMOUNT COST (000) (000) ------ $ 11,065 Federal Home Loan Bank Discount Notes 5.31%, 9/25/96...... $ 10,924 ------TOTAL U.S. AGENCY OBLIGATIONS...... 30,416 ------TOTAL TAXABLE INSTRUMENTS (Cost $30,416)...... 30,416 ------TOTAL INVESTMENTS (100.8%) (Cost $776,804)...... 776,804 ------
OTHER ASSETS (0.5%) Cash...... $ 146 Interest Receivable...... 3,653 Other...... 19 3,818 ------LIABILITIES (-1.3%) Payable for Investments Purchased...... (9,054) Dividends Payable...... (836) Investment Advisory Fees Payable...... (474) Administrative Fees Payable...... (90) Custodian Fees Payable...... (16) Directors' Fees and Expenses Payable...... (9) Other Liabilities...... (78) (10,557) ------NET ASSETS (100%)...... $770,065 ------

NET ASSETS CONSIST OF: Paid in Capital...... $ 770,076 Accumulated Net Realized Loss...... (11) ------NET ASSETS...... $770,065 ------NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 770,050,538 outstanding $0.001 par value shares (authorized 4,000,000,000 shares)...... $1.00 ------

~~------~~
BANS -- Bond Anticipation Notes TANS -- Tax Anticipation Notes TRANS -- Tax & Revenue Anticipation Notes
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document

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 and are secured by a letter of credit or other support agreements.
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 Treasury escrow.
Maturity dates disclosed for Variable/Floating Rate Instruments are the ultimate maturity dates. The effective maturity dates for such securities are the next interest reset dates which are seven days or less.
~~Interest rates disclosed for U.S. Government & Agency Obligations represent effective yields at June 30, 1996.~~
At June 30, 1996, approximately 13% of the net assets were invested in Texas municipal securities. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers to pay the required principal and interest payments of the municipal securities.
~~The accompanying notes are an integral part of the financial statements. (Pages 182-188)~~
~~------Municipal Money Market Portfolio~~
~~140~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF OPERATIONS (UNAUDITED) ------~~
ACTIVE COUNTRY ASIAN EMERGING EUROPEAN GLOBAL ALLOCATION EQUITY MARKETS EQUITY EQUITY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS ENDED JUNE ENDED JUNE ENDED JUNE ENDED JUNE ENDED JUNE 30, 30, 30, 30, 30, 1996 1996 1996 1996 1996 (000) (000) (000) (000) (000) ------ INVESTMENT INCOME: Dividends $ 2,067 $ 3,939 $ 18,462 $ 2,228 $ 1,041 Interest 317 624 2,200 255 45 Less: Foreign Taxes Withheld (257) (340) (1,129) (305) (96) ------Total Income 2,127 4,223 19,533 2,178 990 ------EXPENSES: Investment Advisory Fees: Basic Fees -- Adviser 579 1,673 7,076 413 303 Less: Fees Waived (278) (491) -- (108) (71) ------Investment Advisory Fees -- Net 301 1,182 7,076 305 232 Administrative Fees 180 328 884 89 65 Sub-Administrative Fees 3 -- 93 -- -- Custodian Fees 122 416 1,441 45 18 Filing and Registration Fees 32 87 137 45 23 Insurance 4 8 28 2 2 Directors' Fees and Expenses 4 9 47 2 2 Professional Fees 27 37 78 21 25 Shareholder Reports 35 18 67 6 6 Foreign Tax Expense -- 1 24 -- -- Distribution Fees on Class B Shares 1 11 11 1 2 Other Expenses 14 17 135 3 4 ------Total Expenses 723 2,114 10,021 519 379 ------NET INVESTMENT INCOME 1,404 2,109 9,512 1,659 611 ------NET REALIZED GAIN (LOSS): Investments Sold 6,246 11,041 27,844* (285) 3,624 Foreign Currency Transactions 11,507 (185) (996) 81 (73) ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Total Net Realized Gain (Loss) 17,753 10,856 26,848 (204) 3,551 ------CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments 172 4,544 167,720 9,938 5,037 Foreign Currency Translations (5,406) (140) (3,919) 75 347 ------Total Net Change in Unrealized Appreciation (Depreciation) (5,234) 4,404 163,801 10,013 5,384 ------TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 12,519 15,260 190,649 9,809 8,935 ------Net Increase in Net Assets Resulting from Operations $ 13,923 $ 17,369 $ 200,161 $ 11,468 $ 9,546 ------
~~------*Net of foreign tax of $35,000 on net realized gains.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------~~
~~141~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF OPERATIONS (UNAUDITED) ------~~
JAPANESE GOLD INTERNATIONAL INTERNATIONAL INTERNATIONAL EQUITY PORTFOLIO EQUITY MAGNUM SMALL CAP PORTFOLIO SIX MONTHS PORTFOLIO SIX PORTFOLIO MARCH PORTFOLIO SIX SIX MONTHS ENDED JUNE MONTHS ENDED 15, 1996* TO MONTHS ENDED ENDED JUNE 30, 1996 JUNE 30, 1996 JUNE 30, 1996 JUNE 30, 1996 30, 1996 (000) (000) (000) (000) (000) ------ INVESTMENT INCOME: Dividends $ 60 $ 32,636 $ 190 $ 2,891 $ 754 Interest 101 2,815 59 183 421 Less: Foreign Taxes Withheld (1) (4,152) (25) (357) (113) ------Total Income 160 31,299 224 2,717 1,062 ------EXPENSES: Investment Advisory Fees: Basic Fees -- Adviser 64 7,409 56 1,010 745 Basic Fees -- Sub Adviser 42 ------Less: Fees Waived -- Adviser (38) (340) (56) (97) (86) Fees Waived -- Sub Adviser (25) ------Investment Advisory Fees -- Net 43 7,069 -- 913 659 Administrative Fees 20 1,443 13 172 151 Sub-Administrative Fees ------Custodian Fees 13 303 34 64 25 Filing and Registration Fees 26 174 27 15 57 Insurance -- 42 -- 5 1 Directors' Fees and Expenses 1 38 -- 6 4 Professional Fees 18 92 8 33 22 Shareholder Reports 10 73 12 11 9 Distribution Fees on Class B Shares -- 3 1 -- 4 Other Expenses 2 17 2 4 6 Expenses Reimbursed by Adviser -- -- (24) ------Total Expenses 133 9,254 73 1,223 938 ------NET INVESTMENT INCOME 27 22,045 151 1,494 124 ------NET REALIZED GAIN (LOSS): Investments Sold 1,105 51,067 (4) 1,733 714 Foreign Currency Transactions 9 (3,391) (11) (610) 6,272 ------Total Net Realized Gain (Loss) 1,114 47,676 (15) 1,123 6,986 ------CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments (1,639) 110,114 959 26,712 3,682 Foreign Currency Translations (1) 18,827 241 1,243 3,440
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------Total Net Change in Unrealized Appreciation (Depreciation) (1,640) 128,941 1,200 27,955 7,122 ------TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (526) 176,617 1,185 29,078 14,108 ------Net Increase (Decrease) in Net Assets Resulting from Operations $ (499) $ 198,662 $ 1,336 $ 30,572 $ 14,232 ------
LATIN AMERICAN PORTFOLIO SIX MONTHS ENDED JUNE 30, 1996 (000) ------ INVESTMENT INCOME: Dividends $ 404 Interest 83 Less: Foreign Taxes Withheld (16) ------Total Income 471 ------EXPENSES: Investment Advisory Fees: Basic Fees -- Adviser 122 Basic Fees -- Sub Adviser -- Less: Fees Waived -- Adviser (49) Fees Waived -- Sub Adviser ------Investment Advisory Fees -- Net 73 Administrative Fees 22 Sub-Administrative Fees 2 Custodian Fees 36 Filing and Registration Fees 26 Insurance -- Directors' Fees and Expenses 1 Professional Fees 24 Shareholder Reports 2 Distribution Fees on Class B Shares 1 Other Expenses 3 Expenses Reimbursed by Adviser ------Total Expenses 190 ------NET INVESTMENT INCOME 281 ------NET REALIZED GAIN (LOSS): Investments Sold 1,886 Foreign Currency Transactions (11) ------Total Net Realized Gain (Loss) 1,875 ------CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments 4,045 Foreign Currency Translations (1) ------Total Net Change in Unrealized Appreciation (Depreciation) 4,044 ------TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 5,919 ------Net Increase (Decrease) in Net Assets Resulting from Operations $ 6,200 ------
~~------*Commencement of operations.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------~~
~~142~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document [LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF OPERATIONS (UNAUDITED) ------~~
SMALL CAP AGGRESSIVE EMERGING EQUITY VALUE U.S. REAL VALUE EQUITY GROWTH GROWTH EQUITY ESTATE EQUITY BALANCED PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS ENDED JUNE ENDED JUNE ENDED JUNE ENDED JUNE ENDED JUNE ENDED JUNE ENDED JUNE 30, 1996 30, 1996 30, 1996 30, 1996 30, 1996 30, 1996 30, 1996 (000) (000) (000) (000) (000) (000) (000) ------ INVESTMENT INCOME: Dividends $ 430 $ 65 $ 1,504 $ 815 $ 1,877 $ 2,375 $ 165 Interest 87 117 338 54 203 127 288 ------Total Income 517 182 1,842 869 2,080 2,502 453 ------EXPENSES: Investment Advisory Fees: Basic Fees -- Adviser 158 561 519 223 397 375 50 Less: Fees Waived (52) (29) (91) (59) (92) (51) (50) ------Investment Advisory Fees -- Net 106 532 428 164 305 324 -- Administrative Fees 33 90 138 45 79 120 20 Custodian Fees 11 14 34 10 30 13 10 Filing and Registration Fees 22 19 40 17 37 30 22 Insurance 1 4 4 1 2 4 1 Directors' Fees and Expenses 1 4 4 2 2 4 1 Professional Fees 15 16 19 14 15 16 12 Shareholder Reports 6 17 20 6 23 10 4 Distribution Fees on Class B Shares 4 4 4 1 3 1 2 Other Expenses 7 4 4 3 3 4 3 Expenses Reimbursed by Adviser ------(3) ------Total Expenses 206 704 695 263 499 526 72 ------NET INVESTMENT INCOME (LOSS) 311 (522) 1,147 606 1,581 1,976 381 ------NET REALIZED GAIN: Investments Sold 6,695 20,685 21,397 2,943 6,539 7,167 979 Securities Sold Short 81 ------Total Net Realized Gain 6,776 20,685 21,397 2,943 6,539 7,167 979 ------CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 697 (12,546) 3,533 1,396 2,394 3,057 (539) ------TOTAL NET REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 7,473 8,139 24,930 4,339 8,933 10,224 440 ------Net Increase in Net Assets Resulting from Operations $ 7,784 $ 7,617 $ 26,077 $ 4,945 $ 10,514 $ 12,200 $ 821 ------
~~The accompanying notes are an integral part of the financial statements.~~
~~------~~
~~143~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF OPERATIONS (UNAUDITED) ------~~
EMERGING MARKETS
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document DEBT GLOBAL FIXED MUNICIPAL PORTFOLIO FIXED INCOME INCOME HIGH YIELD BOND INCOME MONEY MARKET SIX MONTHS PORTFOLIO SIX PORTFOLIO SIX PORTFOLIO SIX PORTFOLIO SIX PORTFOLIO SIX ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1996 1996 1996 1996 1996 1996 (000) (000) (000) (000) (000) (000) ------ INVESTMENT INCOME: Dividends $ -- $ -- $ -- $ 3 $ -- $ -- Interest 14,292 5,501 3,304 3,979 1,075 28,137 Less: Foreign Taxes Withheld -- -- (40) ------Total Income 14,292 5,501 3,264 3,982 1,075 28,137 ------EXPENSES: Investment Advisory Fees: Basic Fees -- Adviser 903 286 208 193 72 1,561 Less: Fees Waived -- (136) (127) (38) (60) ------Investment Advisory Fees -- Net 903 150 81 155 12 1,561 Administrative Fees 145 134 84 64 36 804 Custodian Fees 119 14 27 8 3 54 Filing and Registration Fees 30 28 31 29 17 112 Insurance 5 5 3 2 1 25 Interest Expense 1,090 ------Directors' Fees and Expenses 27 4 3 2 2 20 Professional Fees 33 15 20 17 15 32 Shareholder Reports 14 10 7 6 3 17 Distribution Fees on Class B Shares 2 1 2 2 -- -- Other Expenses 193 7 6 6 3 13 ------Total Expenses 2,561 368 264 291 92 2,638 ------NET INVESTMENT INCOME 11,731 5,133 3,000 3,691 983 25,499 ------NET REALIZED GAIN (LOSS): Investments Sold 21,337 1,276 1,030 1,095 (100) (474) Foreign Currency Transactions (2,108) 442 731 ------Securities Sold Short (1,595) ------Written Options (567) ------Total Net Realized Gain (Loss) 17,067 1,718 1,761 1,095 (100) (474) ------CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments 2,333 (8,269) (3,908) (1,570) (1,066) -- Foreign Currency Translations (78) (249) (423) ------Securities Sold Short 545 ------Total Net Change in Unrealized Appreciation (Depreciation) 2,800 (8,518) (4,331) (1,570) (1,066) ------TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 19,867 (6,800) (2,570) (475) (1,166) (474) ------Net Increase (Decrease) in Net Assets Resulting from Operations $ 31,598 $ (1,667) $ 430 $ 3,216 $ (183) $ 25,025 ------
MUNICIPAL MONEY MARKET PORTFOLIO SIX MONTHS ENDED JUNE 30, 1996 (000) ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document INVESTMENT INCOME: Dividends $ -- Interest 9,964 Less: Foreign Taxes Withheld ------Total Income 9,964 ------EXPENSES: Investment Advisory Fees: Basic Fees -- Adviser 833 Less: Fees Waived ------Investment Advisory Fees -- Net 833 Administrative Fees 441 Custodian Fees 34 Filing and Registration Fees 77 Insurance 14 Interest Expense -- Directors' Fees and Expenses 10 Professional Fees 22 Shareholder Reports 16 Distribution Fees on Class B Shares -- Other Expenses 8 ------Total Expenses 1,455 ------NET INVESTMENT INCOME 8,509 ------NET REALIZED GAIN (LOSS): Investments Sold (2) Foreign Currency Transactions -- Securities Sold Short -- Written Options ------Total Net Realized Gain (Loss) (2) ------CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments -- Foreign Currency Translations -- Securities Sold Short ------Total Net Change in Unrealized Appreciation (Depreciation) ------TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (2) ------Net Increase (Decrease) in Net Assets Resulting from Operations $ 8,507 ------
~~The accompanying notes are an integral part of the financial statements.~~
~~------~~
~~144~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
ACTIVE COUNTRY ALLOCATION
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 1,404 $ 2,074 Net Realized Gain (Loss) 17,753 (1,123) Change in Unrealized Appreciation (Depreciation) (5,234) 15,675 ------Net Increase in Net Assets Resulting from Operations 13,923 16,626 ------DISTRIBUTIONS: CLASS A: Net Investment Income -- (3,492) In Excess of Net Investment Income -- (1,308) Net Realized Gain -- (12,502) ------Total Distributions -- (17,302) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 39,413 88,081 Distributions Reinvested -- 15,283 Redeemed (48,271) (115,002) CLASS B+: Subscribed 862 -- Redeemed (192) ------Net Increase (Decrease) in Capital Share Transactions (8,188) (11,638) ------Total Increase (Decrease) in Net Assets 5,735 (12,314) NET ASSETS: Beginning of Period 170,663 182,977 ------End of Period $ 176,398 $ 170,663 ------End of period net assets consisted of accumulated undistributed (overdistributed) net investment income $ (6,378) $ (7,782) ------
(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 3,258 7,883 Shares Issued on Distributions Reinvested -- 1,346 Shares Redeemed (3,969) (10,268) ------Net Increase (Decrease) in Class A Shares Outstanding (711) (1,039) ------CLASS B+: Shares Subscribed 73 -- Shares Redeemed (16) ------Net Increase in Class B Shares Outstanding 57 ------
ASIAN EQUITY PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 2,109 $ 2,796 Net Realized Gain (Loss) 10,856 12,459 Change in Unrealized Appreciation (Depreciation) 4,404 7,852 ------Net Increase in Net Assets Resulting from Operations 17,369 23,107 ------DISTRIBUTIONS: CLASS A: Net Investment Income -- (4,866) In Excess of Net Investment Income -- (3) Net Realized Gain -- (40,469) ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Total Distributions -- (45,338) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 204,101 472,587 Distributions Reinvested -- 41,003 Redeemed (107,354) (453,381) CLASS B+: Subscribed 16,888 -- Redeemed (3,494) ------Net Increase (Decrease) in Capital Share Transactions 110,141 60,209 ------Total Increase (Decrease) in Net Assets 127,510 37,978 NET ASSETS: Beginning of Period 314,884 276,906 ------End of Period $ 442,394 $ 314,884 ------End of period net assets consisted of accumulated undistributed (overdistributed) net investment income $ 2,106 $ (3) ------(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 9,844 24,613 Shares Issued on Distributions Reinvested -- 2,138 Shares Redeemed (5,193) (23,439) ------Net Increase (Decrease) in Class A Shares Outstanding 4,651 3,312 ------CLASS B+: Shares Subscribed 823 -- Shares Redeemed (169) ------Net Increase in Class B Shares Outstanding 654 ------
~~+ Each Portfolio began offering Class B shares on January 2, 1996.~~
~~The accompanying notes are an integral part of the financial statements. ------~~
~~145~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
EMERGING MARKETS PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 9,512 $ 5,513 Net Realized Gain (Loss) 26,848 (34,234) Change in Unrealized Appreciation (Depreciation) 163,801 (97,017) ------Net Increase (Decrease) in Net Assets Resulting from Operations 200,161 (125,738) ------DISTRIBUTIONS: CLASS A: Net Investment Income -- (3,978) Net Realized Gain -- (66,711) ------Total Distributions -- (70,689) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 339,297 379,789 Distributions Reinvested -- 67,401 Redeemed (77,366) (303,810) CLASS B+:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Subscribed 14,043 -- Redeemed (610) ------Net Increase in Capital Share Transactions 275,364 143,380 ------Total Increase (Decrease) in Net Assets 475,525 (53,047) NET ASSETS: Beginning of Period 876,591 929,638 ------End of Period $ 1,352,116 $ 876,591 ------End of period net assets consisted of accumulated undistributed net investment income $ 9,679 $ 167 ------
(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 23,234 27,709 Shares Issued on Distributions Reinvested -- 4,586 Shares Redeemed (5,352) (22,595) ------Net Increase in Class A Shares Outstanding 17,882 9,700 ------CLASS B+: Shares Subscribed 978 -- Shares Redeemed (41) ------Net Increase in Class B Shares Outstanding 937 ------
EUROPEAN EQUITY PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 1,659 $ 714 Net Realized Gain (Loss) (204) 643 Change in Unrealized Appreciation (Depreciation) 10,013 3,042 ------Net Increase (Decrease) in Net Assets Resulting from Operations 11,468 4,399 ------DISTRIBUTIONS: CLASS A: Net Investment Income -- (738) Net Realized Gain -- (3,017) ------Total Distributions -- (3,755) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 69,844 56,209 Distributions Reinvested -- 3,468 Redeemed (10,995) (18,372) CLASS B+: Subscribed 2,579 -- Redeemed (634) ------Net Increase in Capital Share Transactions 60,794 41,305 ------Total Increase (Decrease) in Net Assets 72,262 41,949 NET ASSETS: Beginning of Period 69,583 27,634 ------End of Period $ 141,845 $ 69,583 ------End of period net assets consisted of accumulated undistributed net investment income $ 1,683 $ 24 ------(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 4,724 4,104 Shares Issued on Distributions Reinvested -- 264 Shares Redeemed (748) (1,350) ------Net Increase in Class A Shares Outstanding 3,976 3,018 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document CLASS B+: Shares Subscribed 175 -- Shares Redeemed (43) ------Net Increase in Class B Shares Outstanding 132 ------
~~+ Each Portfolio began offering Class B shares on January 2, 1996.~~
~~The accompanying notes are an integral part of the financial statements. ------~~
~~146~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
GLOBAL EQUITY PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ 611 $ 960 Net Realized Gain 3,551 5,807 Change in Unrealized Appreciation (Depreciation) 5,384 7,195 ------Net Increase (Decrease) in Net Assets Resulting from Operations 9,546 13,962 ------DISTRIBUTIONS: CLASS A: Net Investment Income -- (1,202) Net Realized Gain -- (7,032) ------Total Distributions -- (8,234) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 6,091 30,429 Distributions Reinvested -- 8,198 Redeemed (28,192) (31,615) CLASS B+: Subscribed 1,929 -- Redeemed (181) ------Net Increase (Decrease) in Capital Share Transactions (20,353) 7,012 ------Total Increase (Decrease) in Net Assets (10,807) 12,740 NET ASSETS: Beginning of Period 91,675 78,935 ------End of Period $ 80,868 $ 91,675 ------End of period net assets consisted of accumulated undistributed net investment income $ 611 $ ------
(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 394 2,175 Shares Issued on Distributions Reinvested -- 583 Shares Redeemed (1,938) (2,239) ------Net Increase (Decrease) in Class A Shares Outstanding (1,544) 519 ------CLASS B+: Shares Subscribed 130 -- Shares Redeemed (12) ------Net Increase in Class B Shares Outstanding 118 --
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------
GOLD PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ 27 $ (57) Net Realized Gain 1,114 876 Change in Unrealized Appreciation (Depreciation) (1,640) 2,423 ------Net Increase (Decrease) in Net Assets Resulting from Operations (499) 3,242 ------DISTRIBUTIONS: CLASS A: Net Investment Income -- (37) Net Realized Gain -- (2,066) ------Total Distributions -- (2,103) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 37,853 21,820 Distributions Reinvested -- 1,913 Redeemed (9,173) (47,706) CLASS B+: Subscribed 1,231 -- Redeemed (106) ------Net Increase (Decrease) in Capital Share Transactions 29,805 (23,973) ------Total Increase (Decrease) in Net Assets 29,306 (22,834) NET ASSETS: Beginning of Period 7,409 30,243 ------End of Period $ 36,715 $ 7,409 ------End of period net assets consisted of accumulated undistributed net investment income $ 27 $ ------(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 3,161 2,403 Shares Issued on Distributions Reinvested -- 222 Shares Redeemed (769) (5,071) ------Net Increase (Decrease) in Class A Shares Outstanding 2,392 (2,446) ------CLASS B+: Shares Subscribed 103 -- Shares Redeemed (9) ------Net Increase in Class B Shares Outstanding 94 ------
~~+ Each Portfolio began offering Class B shares on January 2, 1996.~~
~~The accompanying notes are an integral part of the financial statements. ------~~
~~147~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
INTERNATIONAL EQUITY PORTFOLIO INTERNATIONAL
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document MAGNUM PORTFOLIO ------PERIOD FROM MARCH 15, SIX MONTHS ENDED 1996* TO JUNE JUNE 30, 1996 YEAR ENDED 30, 1996 (UNAUDITED) DECEMBER 31, 1995 (UNAUDITED) (000) (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 22,045 $ 19,813 $ 151 Net Realized Gain (Loss) 47,676 88,470 (15) Change in Unrealized Appreciation 128,941 50,978 1,200 ------Net Increase in Net Assets Resulting from Operations 198,662 159,261 1,336 ------DISTRIBUTIONS: CLASS A: Net Investment Income -- (5,969) -- Net Realized Gain -- (168,582) ------Total Distributions -- (174,551) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 310,864 276,622 60,436 Distributions Reinvested 275 167,795 -- Redeemed (80,757) (135,367) -- CLASS B+: Subscribed 4,590 -- 1,596 Redeemed (167) ------Net Increase in Capital Share Transactions 234,805 309,050 62,032 ------Total Increase in Net Assets 433,467 293,760 63,368 NET ASSETS: Beginning of Period 1,598,530 1,304,770 ------End of Period $ 2,031,997 $ 1,598,530 $ 63,368 ------End of period net assets consisted of accumulated undistributed net investment income $ 35,264 $ 13,219 $ 151 ------
(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 19,546 18,165 5,916 Shares Issued on Distributions Reinvested 18 11,272 -- Shares Redeemed (4,975) (8,961) ------Net Increase (Decrease) in Class A Shares Outstanding 14,589 20,476 5,916 ------CLASS B+: Shares Subscribed 295 -- 156 Shares Redeemed (10) ------Net Increase (Decrease) in Class B Shares Outstanding 285 -- 156 ------
* Commencement of Operations. + The International Equity Portfolio began offering Class B shares on January 2, 1996.
~~The accompanying notes are an integral part of the financial statements. ------~~
~~148~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
INTERNATIONAL SMALL CAP PORTFOLIO ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 1,494 $ 3,256 Net Realized Gain (Loss) 1,123 7,677 Change in Unrealized Appreciation (Depreciation) 27,955 (6,811) ------Net Increase in Net Assets Resulting from Operations 30,572 4,122 ------DISTRIBUTIONS: CLASS A: Net Investment Income -- (2,947) In Excess of Net Investment Income -- -- Net Realized Gain -- (4,763) ------Total Distributions -- (7,710) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 19,581 59,699 Distributions Reinvested -- 6,777 Redeemed (16,359) (24,320) CLASS B+: Subscribed -- -- Redeemed ------Net Increase in Capital Share Transactions 3,222 42,156 ------Total Increase in Net Assets 33,794 38,568 NET ASSETS: Beginning of Period 198,669 160,101 ------End of Period $ 232,463 $ 198,669 ------End of period net assets consisted of accumulated undistributed (overdistributed) net investment income $ 2,209 $ 715 ------
(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 1,188 3,865 Shares Issued on Distributions Reinvested -- 453 Shares Redeemed (1,037) (1,584) ------Net Increase in Class A Shares Outstanding 151 2,734 ------CLASS B+: Shares Subscribed -- -- Shares Redeemed ------Net Increase in Class B Shares Outstanding ------
JAPANESE EQUITY PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 124 $ 90 Net Realized Gain (Loss) 6,986 (2,999) Change in Unrealized Appreciation (Depreciation) 7,122 5,934 ------Net Increase in Net Assets Resulting from Operations 14,232 3,025 ------DISTRIBUTIONS: CLASS A: Net Investment Income -- -- In Excess of Net Investment Income -- (2,539) Net Realized Gain ------Total Distributions -- (2,539) ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 106,327 132,973 Distributions Reinvested 1 2,277 Redeemed (13,586) (66,790) CLASS B+: Subscribed 6,710 -- Redeemed (1,508) ------Net Increase in Capital Share Transactions 97,944 68,460 ------Total Increase in Net Assets 112,176 68,946 NET ASSETS: Beginning of Period 119,278 50,332 ------End of Period $ 231,454 $ 119,278 ------End of period net assets consisted of accumulated undistributed (overdistributed) net investment income $ (2,586) $ (2,710) ------(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 11,161 15,121 Shares Issued on Distributions Reinvested -- 245 Shares Redeemed (1,422) (7,618) ------Net Increase in Class A Shares Outstanding 9,739 7,748 ------CLASS B+: Shares Subscribed 706 -- Shares Redeemed (155) ------Net Increase in Class B Shares Outstanding 551 ------
~~+ The Japanese Equity Portfolio began offering Class B shares on January 2, 1996.~~
~~The accompanying notes are an integral part of the financial statements. ------~~
~~149~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
LATIN AMERICAN PORTFOLIO ------SIX MONTHS ENDED PERIOD FROM JUNE 30, 1996 JANUARY 18, 1995* TO (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 281 $ 82 Net Realized Gain (Loss) 1,875 (543) Change in Unrealized Appreciation 4,044 208 ------Net Increase (Decrease) in Net Assets Resulting from Operations 6,200 (253) ------DISTRIBUTIONS: CLASS A: Net Investment Income -- (74) Net Realized Gain -- -- Return of Capital -- (49) CLASS B: Net Investment Income ------Total Distributions -- (123) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 8,370 21,860 Distributions Reinvested -- 108
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Redeemed (2,790) (6,216) CLASS B+: Subscribed 799 -- Distributions Reinvested -- -- Redeemed (83) ------Net Increase in Capital Share Transactions 6,296 15,752 ------Total Increase in Net Assets 12,496 15,376 NET ASSETS: Beginning of Period 15,376 ------End of Period $ 27,872 $ 15,376 ------End of period net assets consisted of accumulated undistributed net investment income $ 281 $ ------
(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 781 2,375 Shares Issued on Distributions Reinvested -- 12 Shares Redeemed (258) (690) ------Net Increase in Class A Shares Outstanding 523 1,697 ------CLASS B+: Shares Subscribed 75 -- Shares Issued on Distributions Reinvested -- -- Shares Redeemed (8) ------Net Increase in Class B Shares Outstanding 67 ------
AGGRESSIVE EQUITY PORTFOLIO ------SIX MONTHS ENDED PERIOD FROM MARCH JUNE 30, 1996 8, 1995* TO (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 311 $ 266 Net Realized Gain (Loss) 6,776 4,041 Change in Unrealized Appreciation 697 1,860 ------Net Increase (Decrease) in Net Assets Resulting from Operations 7,784 6,167 ------DISTRIBUTIONS: CLASS A: Net Investment Income (138) (268) Net Realized Gain -- (3,617) Return of Capital -- -- CLASS B: Net Investment Income (14) ------Total Distributions (152) (3,885) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 12,639 26,611 Distributions Reinvested 125 3,556 Redeemed (5,669) (3,901) CLASS B+: Subscribed 5,120 -- Distributions Reinvested 14 -- Redeemed (78) ------Net Increase in Capital Share Transactions 12,151 26,266 ------Total Increase in Net Assets 19,783 28,548 NET ASSETS: Beginning of Period 28,548 ------End of Period $ 48,331 $ 28,548 ------End of period net assets consisted of accumulated undistributed net investment income $ 159 $ ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 941 2,360 Shares Issued on Distributions Reinvested 9 293 Shares Redeemed (420) (308) ------Net Increase in Class A Shares Outstanding 530 2,345 ------CLASS B+: Shares Subscribed 379 -- Shares Issued on Distributions Reinvested 1 -- Shares Redeemed (5) ------Net Increase in Class B Shares Outstanding 375 ------
* Commencement of operations. + Each Portfolio began offering Class B shares on January 2, 1996.
~~The accompanying notes are an integral part of the financial statements. ------~~
~~150~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
EMERGING GROWTH PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ (522) $ (1,009) Net Realized Gain 20,685 11,225 Change in Unrealized Appreciation (Depreciation) (12,546) 27,942 ------Net Increase in Net Assets Resulting from Operations 7,617 38,158 ------DISTRIBUTIONS: CLASS A: Net Investment Income -- -- Net Realized Gain -- -- CLASS B: Net Investment Income ------Total Distributions ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 15,336 100,167 Distributions Reinvested -- -- Redeemed (45,647) (136,616) CLASS B+: Subscribed 5,398 -- Distributions Reinvested -- -- Redeemed (586) ------Net Increase (Decrease) in Capital Share Transactions (25,499) (36,449) ------Total Increase (Decrease) in Net Assets (17,882) 1,709 NET ASSETS: Beginning of Period 119,378 117,669 ------End of Period $ 101,496 $ 119,378 ------End of period net assets consisted of accumulated undistributed (overdistributed) net investment income $ (522) $ ------
(1) CAPITAL SHARE TRANSACTIONS: CLASS A:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Shares Subscribed 695 5,737 Shares Issued on Distributions Reinvested -- -- Shares Redeemed (2,055) (7,483) ------Net Increase (Decrease) in Class A Shares Outstanding (1,360) (1,746) ------CLASS B+: Shares Subscribed 243 -- Shares Issued on Distributions Reinvested -- -- Shares Redeemed (26) ------Net Increase in Class B Shares Outstanding 217 ------
EQUITY GROWTH PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $ 1,147 $ 2,169 Net Realized Gain 21,397 32,477 Change in Unrealized Appreciation (Depreciation) 3,533 15,685 ------Net Increase in Net Assets Resulting from Operations 26,077 50,331 ------DISTRIBUTIONS: CLASS A: Net Investment Income (556) (2,636) Net Realized Gain -- (26,092) CLASS B: Net Investment Income (13) ------Total Distributions (569) (28,728) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 48,353 78,470 Distributions Reinvested 478 26,785 Redeemed (45,293) (66,005) CLASS B+: Subscribed 4,841 -- Distributions Reinvested 12 -- Redeemed (260) ------Net Increase (Decrease) in Capital Share Transactions 8,131 39,250 ------Total Increase (Decrease) in Net Assets 33,639 60,853 NET ASSETS: Beginning of Period 158,112 97,259 ------End of Period $ 191,751 $ 158,112 ------End of period net assets consisted of accumulated undistributed (overdistributed) net investment income $ 578 $ ------(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 3,179 5,794 Shares Issued on Distributions Reinvested 34 1,955 Shares Redeemed (3,032) (4,657) ------Net Increase (Decrease) in Class A Shares Outstanding 181 3,092 ------CLASS B+: Shares Subscribed 314 -- Shares Issued on Distributions Reinvested 1 -- Shares Redeemed (17) ------Net Increase in Class B Shares Outstanding 298 ------
~~+ Each Portfolio began offering Class B shares on January 2, 1996.~~
~~The accompanying notes are an integral part of the financial statements. ------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 151~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
SMALL CAP U.S. VALUE REAL ESTATE PORTFOLIO PORTFOLIO ------SIX MONTHS ENDED SIX MONTHS ENDED PERIOD FROM JUNE 30, 1996 YEAR ENDED JUNE 30, 1996 FEBRUARY 24, 1995* TO (UNAUDITED) DECEMBER 31, 1995 (UNAUDITED) DECEMBER 31, 1995 (000) (000) (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 606 $ 1,223 $ 1,581 $ 1,526 Net Realized Gain 2,943 1,546 6,539 3,495 Change in Unrealized Appreciation 1,396 5,880 2,394 3,896 ------Net Increase in Net Assets Resulting from Operations 4,945 8,649 10,514 8,917 ------DISTRIBUTIONS: CLASS A: Net Investment Income (305) (1,519) (1,121) (1,405) Net Realized Gain -- (2,511) -- (2,504) CLASS B: Net Investment Income (6) -- (33) ------Total Distributions (311) (4,030) (1,154) (3,909) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 7,327 18,293 44,905 67,651 Distributions Reinvested 280 3,611 982 3,148 Redeemed (17,327) (14,637) (4,813) (6,298) CLASS B+: Subscribed 1,546 -- 5,310 -- Distributions Reinvested 6 -- 27 -- Redeemed (128) -- (768) ------Net Increase (Decrease) in Capital Share Transactions (8,296) 7,267 45,643 64,501 ------Total Increase (Decrease) in Net Assets (3,662) 11,886 55,003 69,509 NET ASSETS: Beginning of Period 51,919 40,033 69,509 ------End of Period $ 48,257 $ 51,919 $ 124,512 $ 69,509 ------End of period net assets consisted of accumulated undistributed net investment income $ 295 $ -- $ 548 $ 121 ------
(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 594 1,631 3,784 6,381 Shares Issued on Distributions Reinvested 22 324 83 279 Shares Redeemed (1,379) (1,304) (405) (573) ------Net Increase (Decrease) in Class A Shares Outstanding (763) 651 3,462 6,087 ------CLASS B+: Shares Subscribed 126 -- 444 -- Shares Issued on Distributions Reinvested -- -- 2 -- Shares Redeemed (10) (62) ------Net Increase in Class B Shares Outstanding 116 -- 384 ------
* Commencement of operations.
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document + Each Portfolio began offering Class B shares on January 2, 1996.~~
~~The accompanying notes are an integral part of the financial statements. ------~~
~~152~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
VALUE EQUITY PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 1,976 $ 3,434 Net Realized Gain 7,167 10,276 Change in Unrealized Appreciation (Depreciation) 3,057 17,116 ------Net Increase in Net Assets Resulting from Operations 12,200 30,826 ------DISTRIBUTIONS: CLASS A: Net Investment Income (972) (4,042) Net Realized Gain -- (6,330) CLASS B: Net Investment Income (11) ------Total Distributions (983) (10,372) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 25,552 70,393 Distributions Reinvested 859 9,289 Redeemed (50,616) (26,177) CLASS B+: Subscribed 2,079 -- Distributions Reinvested 11 -- Redeemed (197) ------Net Increase (Decrease) in Capital Share Transactions (22,312) 53,505 ------Total Increase (Decrease) in Net Assets (11,095) 73,959 NET ASSETS: Beginning of Period 147,365 73,406 ------End of Period $ 136,270 $ 147,365 ------End of period net assets consisted of accumulated undistributed net investment income $ 1,001 $ 8 ------
(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 1,764 5,522 Shares Issued on Distributions Reinvested 58 731 Shares Redeemed (3,457) (2,068) ------Net Increase (Decrease) in Class A Shares Outstanding (1,635) 4,185 ------CLASS B+: Shares Subscribed 142 -- Shares Issued on Distributions Reinvested 1 -- Shares Redeemed (13) ------Net Increase in Class B Shares Outstanding 130 ------
BALANCED PORTFOLIO ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 381 $ 868 Net Realized Gain 979 1,158 Change in Unrealized Appreciation (Depreciation) (539) 2,413 ------Net Increase in Net Assets Resulting from Operations 821 4,439 ------DISTRIBUTIONS: CLASS A: Net Investment Income (173) (1,080) Net Realized Gain -- (1,047) CLASS B: Net Investment Income (25) ------Total Distributions (198) (2,127) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 1,179 3,530 Distributions Reinvested 128 1,695 Redeemed (11,355) (3,387) CLASS B+: Subscribed 2,573 -- Distributions Reinvested 24 -- Redeemed (285) ------Net Increase (Decrease) in Capital Share Transactions (7,736) 1,838 ------Total Increase (Decrease) in Net Assets (7,113) 4,150 NET ASSETS: Beginning of Period 22,642 18,492 ------End of Period $ 15,529 $ 22,642 ------End of period net assets consisted of accumulated undistributed net investment income $ 185 $ 2 ------(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 118 380 Shares Issued on Distributions Reinvested 13 182 Shares Redeemed (1,117) (358) ------Net Increase (Decrease) in Class A Shares Outstanding (986) 204 ------CLASS B+: Shares Subscribed 255 -- Shares Issued on Distributions Reinvested 2 -- Shares Redeemed (27) ------Net Increase in Class B Shares Outstanding 230 ------
~~+ Each Portfolio began offering Class B shares on January 2, 1996.~~
~~The accompanying notes are an integral part of the financial statements. ------~~
~~153~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
EMERGING MARKETS DEBT PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 11,731 $ 25,020 Net Realized Gain 17,067 9,187 Change in Unrealized Appreciation (Depreciation) 2,800 15,290 ------Net Increase (Decrease) in Net Assets Resulting from Operations 31,598 49,497 ------DISTRIBUTIONS: CLASS A: Net Investment Income -- (33,418) Net Realized Gain -- (7,508) CLASS B: Net Investment Income ------Total Distributions -- (40,926) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 34,758 147,278 Distributions Reinvested -- 29,155 Redeemed (55,920) (148,075) CLASS B+: Subscribed 2,795 -- Distributions Reinvested -- -- Redeemed (59) ------Net Increase (Decrease) in Capital Share Transactions (18,426) 28,358 ------Total Increase (Decrease) in Net Assets 13,172 36,929 NET ASSETS: Beginning of Period 181,878 144,949 ------End of Period $ 195,050 $ 181,878 ------End of period net assets consisted of accumulated undistributed (overdistributed) net investment income $ 10,230 $ (1,501) ------
(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 3,834 18,475 Shares Issued on Distributions Reinvested -- 3,468 Shares Redeemed (6,121) (17,651) ------Net Increase (Decrease) in Class A Shares Outstanding (2,287) 4,292 ------CLASS B+: Shares Subscribed 309 -- Shares Issued on Distributions Reinvested -- -- Shares Redeemed (6) ------Net Increase in Class B Shares Outstanding 303 ------
FIXED INCOME PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 5,133 $ 12,208 Net Realized Gain 1,718 5,921 Change in Unrealized Appreciation (Depreciation) (8,518) 13,125 ------Net Increase (Decrease) in Net Assets Resulting from Operations (1,667) 31,254 ------DISTRIBUTIONS: CLASS A: Net Investment Income (3,578) (13,570) Net Realized Gain -- -- CLASS B: Net Investment Income (15) ------Total Distributions (3,593) (13,570)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 28,810 67,883 Distributions Reinvested 2,875 10,529 Redeemed (34,863) (139,900) CLASS B+: Subscribed 1,637 -- Distributions Reinvested 14 -- Redeemed (371) ------Net Increase (Decrease) in Capital Share Transactions (1,898) (61,488) ------Total Increase (Decrease) in Net Assets (7,158) (43,804) NET ASSETS: Beginning of Period 165,527 209,331 ------End of Period $ 158,369 $ 165,527 ------End of period net assets consisted of accumulated undistributed (overdistributed) net investment income $ 1,550 $ 10 ------(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 2,737 6,668 Shares Issued on Distributions Reinvested 272 1,022 Shares Redeemed (3,329) (13,696) ------Net Increase (Decrease) in Class A Shares Outstanding (320) (6,006) ------CLASS B+: Shares Subscribed 156 -- Shares Issued on Distributions Reinvested 1 -- Shares Redeemed (36) ------Net Increase in Class B Shares Outstanding 121 ------
~~+ Each Portfolio began offering Class B shares on January 2, 1996.~~
~~The accompanying notes are an integral part of the financial statements. ------~~
~~154~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
GLOBAL FIXED INCOME PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 3,000 $ 6,508 Net Realized Gain (Loss) 1,761 15 Change in Unrealized Appreciation (Depreciation) (4,331) 10,191 ------Net Increase in Net Assets Resulting from Operations 430 16,714 ------DISTRIBUTIONS: CLASS A: Net Investment Income (1,606) (9,003) CLASS B: Net Investment Income (30) ------Total Distributions (1,636) (9,003) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 40,076 36,622 Distributions Reinvested 1,439 7,887
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Redeemed (26,783) (80,043) CLASS B+: Subscribed 2,001 -- Distributions Reinvested 26 -- Redeemed (406) ------Net Increase (Decrease) in Capital Share Transactions 16,353 (35,534) ------Total Increase (Decrease) in Net Assets 15,147 (27,823) NET ASSETS: Beginning of Period 102,852 130,675 ------End of Period $ 117,999 $ 102,852 ------End of period net assets consisted of accumulated undistributed net investment income $ 1,673 $ 309 ------
(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 3,652 3,346 Shares Issued on Distributions Reinvested 132 737 Shares Redeemed (2,428) (7,623) ------Net Increase (Decrease) in Class A Shares Outstanding 1,356 (3,540) ------CLASS B+: Shares Subscribed 181 -- Shares Issued on Distributions Reinvested 2 -- Shares Redeemed (37) ------Net Increase in Class B Shares Outstanding 146 ------
HIGH YIELD PORTFOLIO ------SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 3,691 $ 7,477 Net Realized Gain (Loss) 1,095 (3,145) Change in Unrealized Appreciation (Depreciation) (1,570) 9,886 ------Net Increase in Net Assets Resulting from Operations 3,216 14,218 ------DISTRIBUTIONS: CLASS A: Net Investment Income (2,981) (8,122) CLASS B: Net Investment Income (66) ------Total Distributions (3,047) (8,122) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 36,286 59,247 Distributions Reinvested 2,270 6,088 Redeemed (13,083) (106,409) CLASS B+: Subscribed 4,907 -- Distributions Reinvested 50 -- Redeemed (1,443) ------Net Increase (Decrease) in Capital Share Transactions 28,987 (41,074) ------Total Increase (Decrease) in Net Assets 29,156 (34,978) NET ASSETS: Beginning of Period 62,245 97,223 ------End of Period $ 91,401 $ 62,245 ------End of period net assets consisted of accumulated undistributed net investment income $ 730 $ 86 ------(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 3,438 5,865
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Shares Issued on Distributions Reinvested 214 609 Shares Redeemed (1,231) (10,704) ------Net Increase (Decrease) in Class A Shares Outstanding 2,421 (4,230) ------CLASS B+: Shares Subscribed 466 -- Shares Issued on Distributions Reinvested 5 -- Shares Redeemed (137) ------Net Increase in Class B Shares Outstanding 334 ------
~~+ Each Portfolio began offering Class B shares on January 2, 1996.~~
~~The accompanying notes are an integral part of the financial statements. ------~~
~~155~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
MUNICIPAL BOND PORTFOLIO ------SIX MONTHS ENDED PERIOD FROM JUNE 30, 1996 JANUARY 18, 1995* TO (UNAUDITED) DECEMBER 31, 1995 (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 983 $ 1,963 Net Realized Gain (Loss) (100) 193 Change in Unrealized Appreciation (Depreciation) (1,066) 1,635 ------Net Increase (Decrease) in Net Assets Resulting from Operations (183) 3,791 ------DISTRIBUTIONS: CLASS A: Net Investment Income (826) (1,963) In Excess of Net Investment Income (15) Net Realized Gain -- (193) CLASS B: Net Investment Income (2) ------Total Distributions (828) (2,171) ------CAPITAL SHARE TRANSACTIONS: (1) CLASS A: Subscribed 8,809 61,800 Distributions Reinvested 777 2,060 Redeemed (22,576) (19,611) CLASS B+: Subscribed 171 -- Distributions Reinvested 2 -- Redeemed (4) ------Net Increase (Decrease) in Capital Share Transactions (12,821) 44,249 ------Total Increase (Decrease) in Net Assets (13,832) 45,869 NET ASSETS: Beginning of Period 45,869 ------End of Period $ 32,037 $ 45,869 ------End of period net assets consisted of accumulated undistributed (overdistributed) net investment income $ 140 $ (15) ------
(1) CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 854 6,134
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Shares Issued on Distributions Reinvested 76 200 Shares Redeemed (2,215) (1,912) ------Net Increase (Decrease) in Class A Shares Outstanding (1,285) 4,422 ------CLASS B+: Shares Subscribed 17 ------Net Increase in Class B Shares Outstanding 17 ------
* Commencement of operations. + The Portfolio began offering Class B Shares on January 2, 1996.
~~The accompanying notes are an integral part of the financial statements. ------~~
~~156~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------~~
~~STATEMENT OF CHANGES IN NET ASSETS ------~~
MUNICIPAL MONEY MONEY MARKET MARKET PORTFOLIO PORTFOLIO ------SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 YEAR ENDED (UNAUDITED) 1995 (UNAUDITED) DECEMBER 31, 1995 (000) (000) (000) (000) ------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $ 25,499 $ 44,657 $ 8,509 $ 13,579 Net Realized Gain (Loss) (474) 79 (2) (1) ------Net Increase in Net Assets Resulting from Operations 25,025 44,736 8,507 13,578 ------DISTRIBUTIONS: Net Investment Income (25,499) (44,657) (8,509) (13,579) ------CAPITAL SHARE TRANSACTIONS: (1) Subscribed 6,205,074 8,093,985 2,717,683 3,169,110 Distributions Reinvested 23,713 41,765 7,921 13,182 Redeemed (6,002,622) (7,989,639) (2,407,056) (3,090,216) ------Net Increase in Capital Share Transactions 226,165 146,111 318,548 92,076 ------Total Increase in Net Assets 225,691 146,190 318,546 92,075 NET ASSETS: Beginning of Period 836,693 690,503 451,519 359,444 ------End of Period $ 1,062,384 $ 836,693 $ 770,065 $ 451,519 ------
(1) CAPITAL SHARE TRANSACTIONS: Shares Subscribed 6,205,074 8,093,987 2,717,683 3,169,110 Shares Issued on Distributions Reinvested 23,713 41,765 7,921 13,182 Shares Redeemed (6,002,622) (7,989,639) (2,407,056) (3,090,216) ------Net Increase in Shares Outstanding 226,165 146,113 318,548 92,076 ------
~~The accompanying notes are an integral part of the financial statements. ------~~
~~157~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE ACTIVE COUNTRY ALLOCATION PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS ENDED JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) 1995 1994 1993 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 11.63 $ 11.65 $ 12.21 $ 9.59 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.07 0.17 0.19 0.13 Net Realized and Unrealized Gain (Loss) on Investments 0.88 1.00 (0.25) 2.75 ------Total from Investment Operations 0.95 1.17 (0.06) 2.88 ------DISTRIBUTIONS Net Investment Income -- (0.25) (0.14) (0.09) In Excess of Net Investment Income -- (0.10) -- (0.08) Net Realized Gain -- (0.84) (0.36) -- In Excess of Net Realized Gain ------(0.09) ------Total Distributions -- (1.19) (0.50) (0.26) ------NET ASSET VALUE, END OF PERIOD $ 12.58 $ 11.63 $ 11.65 $ 12.21 ------TOTAL RETURN 8.17% 10.57% (0.52)% 30.72% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $175,678 $170,663 $182,977 $150,854 Ratio of Expenses to Average Net Assets (1) 0.80%** 0.80% 0.80% 0.80% Ratio of Net Investment Income to Average Net Assets (1) 1.58%** 1.26% 1.43% 1.29% Portfolio Turnover Rate %34 %72 %51 %53 Average Commission Rate# $0.0021 N/A N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.05 $0.03 $0.05 Ratios before expense limitation: Expenses to Average Net Assets 1.12%** 1.18% 1.00% 1.33% Net Investment Income to Average Net Assets 1.26%** 0.88% 1.23% 0.76% ------
PERIOD FROM TWO MONTHS JANUARY 17, ENDED 1992* TO DECEMBER 31, OCTOBER 31, 1992 1992 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 9.37 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.02 0.11 Net Realized and Unrealized Gain (Loss) on Investments 0.20 (0.74) ------Total from Investment Operations 0.22 (0.63) ------DISTRIBUTIONS Net Investment Income -- -- In Excess of Net Investment Income -- -- Net Realized Gain -- -- In Excess of Net Realized Gain ------Total Distributions ------NET ASSET VALUE, END OF PERIOD $ 9.59 $ 9.37
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------TOTAL RETURN 2.35% (6.30)% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $50,234 $47,534 Ratio of Expenses to Average Net Assets (1) 0.80%** 0.88%** Ratio of Net Investment Income to Average Net Assets (1) 1.22%** 2.32%** Portfolio Turnover Rate % 2 %62 Average Commission Rate# N/A N/A ------(1) Effect of voluntary expense limitati Per share benefit to net investment income $0.01 $0.03 Ratios before expense limitation: Expenses to Average Net Assets 1.70%** 1.58%** Net Investment Income to Average Net Assets 0.32%** 1.62%** ------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 11.66 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.07 Net Realized and Unrealized Gain (Loss) on Investments 0.84 ------Total from Investment Operations 0.91 ------NET ASSET VALUE, END OF PERIOD $ 12.57 ------TOTAL RETURN 7.80% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 720 Ratio of Expenses to Average Net Assets (2) 1.05%** Ratio of Net Investment Income to Average Net Assets (2) 1.84%** Portfolio Turnover Rate 34% Average Commission Rate $0.0021 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.37%** Net Investment Income to Average Net Assets 1.52%**
~~------~~
*Commencement of operations.
**Annualized
***The Portfolio began offering Class B shares on January 2, 1996. #Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.
~~The accompanying notes are an integral part of the financial statements.~~
~~------158~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document THE ASIAN EQUITY PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS ENDED TWO MONTHS JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED ENDED 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) 1995 1994 1993 1992 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 19.48 $ 21.54 $ 26.20 $ 13.11 $ 13.63 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.10 0.18 0.11 0.10 0.01 Net Realized and Unrealized Gain (Loss) on Investments 1.02 1.11 (4.15) 13.38 (0.53) ------Total from Investment Operations 1.12 1.29 (4.04) 13.48 (0.52) ------DISTRIBUTIONS Net Investment Income -- (0.34) (0.09) (0.01) -- In Excess of Net Investment Income -- (0.00)+ -- (0.13) -- Net Realized Gain -- (3.01) (0.53) (0.12) -- In Excess of Net Realized Gain ------(0.13) ------Total Distributions -- (3.35) (0.62) (0.39) ------NET ASSET VALUE, END OF PERIOD $ 20.60 $ 19.48 $ 21.54 $ 26.20 $ 13.11 ------TOTAL RETURN 5.75% 6.87% (15.81)% 105.71% (3.82)% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $428,915 $314,884 $276,906 $287,136 $41,978 Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00% 1.00% 1.00% 1.00%** Ratio of Net Investment Income to Average Net Assets (1) 1.01%** 0.97% 0.52% 0.83% 0.61%** Portfolio Turnover Rate %26 %42 %47 %18 %10 Average Commission Rate# $0.0117 N/A N/A N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.02 $0.03 $0.04 $0.05 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.24%** 1.18% 1.20% 1.38% 2.02%** Net Investment Income (Loss) to Average Net Assets 0.77%** 0.79% 0.32% 0.45% (0.41)%** ------
PERIOD FROM JULY 1, 1991* YEAR ENDED TO OCTOBER 31, OCTOBER 31, 1992 1991 ------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.67 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.14 0.03 Net Realized and Unrealized Gain (Loss) on Investments 3.86 (0.36) ------Total from Investment
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Operations 4.00 (0.33) ------DISTRIBUTIONS Net Investment Income (0.04) -- In Excess of Net Investment Income -- -- Net Realized Gain -- -- In Excess of Net Realized Gain ------Total Distributions (0.04) ------NET ASSET VALUE, END OF PERIOD $ 13.63 $ 9.67 ------TOTAL RETURN 41.50% (3.30)% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $41,017 $10,719 Ratio of Expenses to Average Net Assets (1) 1.00% 1.00%** Ratio of Net Investment Income to Average Net Assets (1) 1.53% 1.13%** Portfolio Turnover Rate %33 % 2 Average Commission Rate# N/A N/A ------(1) Effect of voluntary expens Per share benefit to net investment income $0.06 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.63% 2.52%** Net Investment Income (Loss) to Average Net Assets 0.90% (0.39)%** ------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 19.55 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.08 Net Realized and Unrealized Gain (Loss) on Investments 0.96 ------Total from Investment Operations 1.04 ------NET ASSET VALUE, END OF PERIOD $ 20.59 ------TOTAL RETURN 5.32% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $13,479 Ratio of Expenses to Average Net Assets (2) 1.25%** Ratio of Net Investment Income to Average Net Assets (2) 1.10%** Portfolio Turnover Rate 26% Average Commission Rate $0.0117 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.52%** Net Investment Income to Average Net Assets 0.83%**
~~------~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document *Commencement of operations. **Annualized~~
***The Portfolio began offering Class B shares on January 2, 1996.
~~+Amount is less than $0.01 per share.~~
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------159~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE EMERGING MARKETS PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS TWO MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED JUNE 30, 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) 1995 1994 1993 1992 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 13.14 $ 16.30 $ 19.00 $ 10.22 $ 10.11 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (1) 0.11 0.08 (0.04) (0.01) -- Net Realized and Unrealized Gain (Loss) on Investments 2.56 (2.05) (1.69) 8.79 0.11 ------Total from Investment Operations 2.67 (1.97) (1.73) 8.78 0.11 ------DISTRIBUTIONS Net Investment Income -- (0.06) ------Net Realized Gain -- (1.13) (0.97) ------Total Distributions -- (1.19) (0.97) ------NET ASSET VALUE, END OF PERIOD $ 15.81 $ 13.14 $ 16.30 $ 19.00 $ 10.22 ------TOTAL RETURN 20.32% (12.77)% (9.63)% 85.91% 1.09% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $1,337,315 $876,591 $929,638 $735,352 $74,219 Ratio of Expenses to Average Net Assets (1) 1.75%** 1.72% 1.75% 1.75% 1.75%** Ratio of Net Investment Income (Loss) to Average Net Assets (1) 1.68%** 0.60% (0.26)% (0.06)% (0.33)%** Portfolio Turnover Rate %25 %54 %32 %52 % 2 Average Commision Rate# $0.0009 N/A N/A N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income N/A N/A N/A $0.01 $0.00 Ratios before expense limitation: Expenses to Average Net Assets N/A N/A N/A 1.79% 2.48%** Net Investment Loss to Average Net Assets N/A N/A N/A (0.10)% (1.06)%** ------
PERIOD FROM SEPTEMBER 25, 1992* TO OCTOBER 31,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 1992 ------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (1) -- Net Realized and Unrealized Gain (Loss) on Investments 0.11 ------Total from Investment Operations 0.11 ------DISTRIBUTIONS Net Investment Income -- Net Realized Gain ------Total Distributions ------NET ASSET VALUE, END OF PERIOD $ 10.11 ------TOTAL RETURN 1.10% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $28,806 Ratio of Expenses to Average Net Assets (1) 1.75%** Ratio of Net Investment Income (Loss) to Average Net Assets (1) (0.53)%** Portfolio Turnover Rate % 0 Average Commision Rate# N/A ------(1) Effect of voluntary expense lim Per share benefit to net investment income $0.02 Ratios before expense limitation: Expenses to Average Net Assets 4.82%** Net Investment Loss to Average Net Assets (3.60)%** ------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 13.25 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.07 Net Realized and Unrealized Gain (Loss) on Investments 2.47 ------Total from Investment Operations 2.54 ------NET ASSET VALUE, END OF PERIOD $ 15.79 ------TOTAL RETURN 19.17% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $14,801 Ratio of Expenses to Average Net Assets (2) 2.00%** Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.56%** Portfolio Turnover Rate 25% Average Commision Rate $0.0009 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income N/A
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Ratios before expense limitation: Expenses to Average Net Assets N/A Net Investment Loss to Average Net Assets N/A
~~------~~
*Commencement of operations.
**Annualized
***The Portfolio began offering Class B shares on January 2, 1996.
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------160~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE EUROPEAN EQUITY PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS ENDED JUNE 30, YEAR ENDED YEAR ENDED 1996 DECEMBER 31, DECEMBER 31, (UNAUDITED) 1995 1994 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 13.92 $ 13.94 $ 12.91 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.18 0.14 0.08 Net Realized and Unrealized Gain on Investments 1.47 1.37 1.29 ------Total from Investment Operations 1.65 1.51 1.37 ------DISTRIBUTIONS Net Investment Income -- (0.15) (0.09) Net Realized Gain -- (1.38) (0.25) ------Total Distributions -- (1.53) (0.34) ------NET ASSET VALUE, END OF PERIOD $ 15.57 $ 13.92 $ 13.94 ------TOTAL RETURN 11.85% 11.85% 10.88% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $139,785 $69,583 $27,634 Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00% 1.00% Ratio of Net Investment Income to Average Net Assets (1) 3.19%** 1.37% 0.87% Portfolio Turnover Rate % 8 %13 %79 Average Commission Rate# $0.0218 N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.03 $0.06 Ratios before expense limitation: Expenses to Average Net Assets 1.21%** 1.25% 1.62% Net Investment Income (Loss) to Average Net Assets 2.98%** 1.12% 0.25% ------
PERIOD FROM APRIL 2, 1993* TO DECEMBER 31, 1993 ------
~~NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.08 Net Realized and Unrealized Gain on Investments 2.83 ------Total from Investment Operations 2.91 ------DISTRIBUTIONS Net Investment Income -- Net Realized Gain ------Total Distributions ------NET ASSET VALUE, END OF PERIOD $ 12.91 ------TOTAL RETURN 29.10% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $12,681 Ratio of Expenses to Average Net Assets (1) 1.00%** Ratio of Net Investment Income to Average Net Assets (1) 1.23%** Portfolio Turnover Rate %15 Average Commission Rate# N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.09 Ratios before expense limitation: Expenses to Average Net Assets 2.43%** Net Investment Income (Loss) to Average Net Assets (0.21)%** ------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 14.05 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.15 Net Realized and Unrealized Gain on Investments 1.36 ------Total from Investment Operations 1.51 ------NET ASSET VALUE, END OF PERIOD $ 15.56 ------TOTAL RETURN 10.75% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $2,060 Ratio of Expenses to Average Net Assets (2) 1.25%** Ratio of Net Investment Income to Average Net Assets (2) 3.88%** Portfolio Turnover Rate 8% Average Commission Rate $0.0218 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.46%** Net Investment Income (Loss) to Average Net Assets 3.67%**
~~------~~
*Commencement of operations.
**Annualized
***The Portfolio began offering Class B shares on January 2, 1996.
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The accompanying notes are an integral part of the financial statements.~~
~~------161~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE GLOBAL EQUITY PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS ENDED TWO MONTHS PERIOD FROM JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED ENDED JULY 15, 1992* 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, TO OCTOBER 31, (UNAUDITED) 1995 1994 1993 1992 1992 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 14.31 $ 13.40 $ 13.87 $ 9.75 $ 9.35 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.12 0.18 0.08 0.08 0.01 0.02 Net Realized and Unrealized Gain (Loss) on Investments 1.80 2.26 0.79 4.18 0.39 (0.67) ------Total from Investment Operations 1.92 2.44 0.87 4.26 0.40 (0.65) ------DISTRIBUTIONS Net Investment Income -- (0.22) (0.12) (0.02) -- -- In Excess of Net Investment Income ------(0.03) -- -- Net Realized Gain -- (1.31) (1.22) (0.09) ------Total Distributions -- (1.53) (1.34) (0.14) ------NET ASSET VALUE, END OF PERIOD $ 16.23 $ 14.31 $ 13.40 $ 13.87 $ 9.75 $ 9.35 ------TOTAL RETURN 13.42% 18.66% 6.95% 44.24% 4.28% (6.50)% ------RATIO AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $78,960 $91,675 $78,935 $19,918 $11,739 $11,257 Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00% 1.00% 1.00% 1.00%** 1.00%** Ratio of Net Investment Income to Average Net Assets (1) 1.61%** 1.17% 0.87% 0.84% 0.69%** 1.00%** Portfolio Turnover Rate 11% 28% 12% 42% 5% 10% Average Commission Rate# $0.0382 N/A N/A N/A N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.02 $0.02 $0.01 $0.02 $0.08 Ratios before expense limitation: Expenses to Average Net Assets 1.19%** 1.13% 1.24% 1.66% 2.49%** 5.22%** Net Investment Income (Loss) to Average Net Assets 1.42%** 1.04% 0.63% 0.18% (0.80)%** (3.22)%**
------
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document~~
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 14.36 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.10 Net Realized and Unrealized Gain (Loss) on Investments 1.75 ------Total from Investment Operations 1.85 ------NET ASSET VALUE, END OF PERIOD $ 16.21 ------TOTAL RETURN 12.88% ------RATIO AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $1,908 Ratio of Expenses to Average Net Assets (2) 1.25%** Ratio of Net Investment Income to Average Net Assets (2) 1.94%** Portfolio Turnover Rate 11% Average Commission Rate $0.0382 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.43%** Net Investment Income to Average Net Assets 1.76%**
~~------~~
*Commencement of operations.
**Annualized
***The Portfolio began offering Class B shares on January 2, 1996.
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------162~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE GOLD PORTFOLIO~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------~~
CLASS A ------SIX MONTHS ENDED PERIOD FROM JUNE 30, YEAR ENDED FEBRUARY 1, 1994* 1996 DECEMBER 31, TO DECEMBER 31, (UNAUDITED) 1995 1994 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 8.55 $ 9.13 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (1) 0.01 (0.07) 0.03 Net Realized and Unrealized Gain (Loss) on Investments++ 2.39 1.22 (0.88) ------Total from Investment Operations 2.40 1.15 (0.85) ------DISTRIBUTIONS Net Investment Income -- (0.01) (0.02) Net Realized Gain -- (1.72) ------Total Distributions -- (1.73) (0.02) ------NET ASSET VALUE, END OF PERIOD $ 10.95 $ 8.55 $ 9.13 ------TOTAL RETURN 28.07% 13.21% (8.49)% ------RATIO AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $35,688 $7,409 $30,243 Ratio of Expenses to Average Net Assets (1) 1.25%** 1.25% 1.25%** Ratio of Net Investment Income (Loss) to Average Net Assets (1) 0.26%** (0.31)% 0.41%** Portfolio Turnover Rate 21% 47% 56% Average Commission Rate# $0.0241 N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.02 $0.11 $0.04 Ratios before expense limitation: Expenses to Average Net Assets 1.84%** 1.76% 1.72%** Net Investment Loss to Average Net Assets (0.33)%** (0.82)% (0.06)%**
------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 8.81 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (2) -- Net Realized and Unrealized Gain (Loss) on Investments++ 2.13 ------Total from Investment Operations 2.13 ------NET ASSET VALUE, END OF PERIOD $ 10.94 ------TOTAL RETURN 24.18% ------RATIO AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 1,027 Ratio of Expenses to Average Net Assets (2) 1.50%** Ratio of Net Investment Income (Loss) to Average Net Assets (2) (0.16)%**
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Portfolio Turnover Rate 21% Average Commission Rate $0.0241 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 Ratios before expense limitation: Expenses to Average Net Assets 2.06%** Net Investment Loss to Average Net Assets (0.72)%**
~~------~~
*Commencement of operations.
**Annualized
***The Portfolio began offering Class B shares on January 2, 1996.
++The amount shown for the six months ended June 30, 1996 for a share outstanding throughout the period does not agree with the amount of aggregate net losses on investments because of the timing of sales and repurchases of the Portfolio shares in relation to fluctuating market value of the investments in the Portfolio.
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------163~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE INTERNATIONAL EQUITY PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS ENDED TWO MONTHS JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED ENDED 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) 1995 1994 1993 1992 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 15.15 $ 15.34 $ 14.09 $ 9.98 $ 9.83 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.17 0.16 0.16 0.15 0.01 Net Realized and Unrealized Gain (Loss) on Investments 1.55 1.55 1.54 4.36 0.14 ------Total from Investment Operations 1.72 1.71 1.70 4.51 0.15 ------DISTRIBUTIONS Net Investment Income -- (0.06) (0.18) (0.01) -- In Excess of Net Investment Income ------(0.13) -- Net Realized Gain -- (1.84) (0.27) (0.26) ------Total Distributions -- (1.90) (0.45) (0.40) ------NET ASSET VALUE, END OF PERIOD $ 16.87 $ 15.15 $ 15.34 $ 14.09 $ 9.98 ------TOTAL RETURN 11.35% 11.77% 12.39% 46.50% 1.53% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $2,027,199 $1,598,530 $1,304,770 $947,045 $510,727 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) 2.38%** 1.38% 1.12% 1.25% 0.68%** Portfolio Turnover Rate 9% 27% 16% 23% 5%
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Average Commission Rate# $0.0225 N/A N/A N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ $0.003 $0.004 $0.01 $0.00 Ratios before expense limitation: Expenses to Average Net Assets 1.04%** 1.03% 1.03% 1.06% 1.14%** Net Investment Income to Average Net Assets 2.34%** 1.35% 1.09% 1.19% 0.54%**
------
YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, 1992 1991 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 10.52 $ 10.05 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.12 0.12 Net Realized and Unrealized Gain (Loss) on Investments (0.59) 0.58 ------Total from Investment Operations (0.47) 0.70 ------DISTRIBUTIONS Net Investment Income (0.17) (0.15) In Excess of Net Investment Income -- -- Net Realized Gain (0.05) (0.08) ------Total Distributions (0.22) (0.23) ------NET ASSET VALUE, END OF PERIOD $ 9.83 $ 10.52 ------TOTAL RETURN (4.56)% 7.17% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $486,836 $283,776 Ratio of Expenses to Average Net Assets (1) 1.00% 1.00% Ratio of Net Investment Income to Average Net Assets (1) 1.46% 2.27% Portfolio Turnover Rate 12% 22% Average Commission Rate# N/A N/A ------(1) Effect of voluntary expense limitati the period: Per share benefit to net investment income $0.00 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.02% 1.09% Net Investment Income to Average Net Assets 1.44% 2.18% ------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $15.24 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.17 Net Realized and Unrealized Gain (Loss) on Investments 1.44 ------Total from Investment Operations 1.61 ------NET ASSET VALUE, END OF PERIOD $ 16.85 ------TOTAL RETURN 10.56%
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 4,798 Ratio of Expenses to Average Net Assets (2) 1.25%** Ratio of Net Investment Income to Average Net Assets (2) 3.32%** Portfolio Turnover Rate 9% Average Commission Rate $0.0225 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ Ratios before expense limitation: Expenses to Average Net Assets 1.28%** Net Investment Income to Average Net Assets 3.29%**
~~------~~
**Annualized
***The Portfolio began offering Class B shares on January 2, 1996.
~~+Amount is less than $0.01 per share.~~
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------164~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE INTERNATIONAL MAGNUM PORTFOLIO~~
~~------~~
CLASS A ------PERIOD FROM MARCH 15, 1996* TO JUNE 30, 1996 (UNAUDITED) ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.02 Net Realized and Unrealized Gain on Investments 0.42 ------Total from Investment Operations 0.44 ------NET ASSET VALUE, END OF PERIOD $ 10.44 ------TOTAL RETURN 4.40% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $61,738 Ratio of Expenses to Average Net Assets (1) 1.00%** Ratio of Net Investment Income to Average Net Assets (1) 2.07%** Portfolio Turnover Rate 2% Average Commission Rate $0.0425 ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document income $0.01 Ratios before expense limitation: Expenses to Average Net Assets 2.09%** Net Investment Income to Average Net Assets 0.98%**
------
CLASS B ------PERIOD FROM MARCH 15, 1996* TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.03 Net Realized and Unrealized Gain on Investments 0.39 ------Total from Investment Operations 0.42 ------NET ASSET VALUE, END OF PERIOD $ 10.42 ------TOTAL RETURN 4.20% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 1,630 Ratio of Expenses to Average Net Assets (2) 1.25%** Ratio of Net Investment Income to Average Net Assets (2) 2.25%** Portfolio Turnover Rate 2% Average Commission Rate $0.0425 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.02 Ratios before expense limitation: Expenses to Average Net Assets 2.84%** Net Investment Income to Average Net Assets 0.66%**
~~------~~
*Commencement of operations.
**Annualized
~~The accompanying notes are an integral part of the financial statements.~~
~~------165~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE INTERNATIONAL SMALL CAP PORTFOLIO~~
~~------~~
SIX MONTHS PERIOD FROM ENDED DECEMBER 15, JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED 1992* TO 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) 1995 1994 1993++ 1992 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document NET ASSET VALUE, BEGINNING OF PERIOD $ 14.94 $ 15.15 $ 14.64 $ 10.09 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.11 0.24 0.14 0.09 0.01 Net Realized and Unrealized Gain on Investments (2) 2.23 0.15 0.62 4.48 0.08 ------Total from Investment Operations 2.34 0.39 0.76 4.57 0.09 ------DISTRIBUTIONS Net Investment Income -- (0.23) (0.03) 0.00 -- In Excess of Net Investment Income ------(0.02) -- Net Realized Gain -- (0.37) (0.22) ------Total Distributions -- (0.60) (0.25) (0.02) ------NET ASSET VALUE, END OF PERIOD $ 17.28 $ 14.94 $ 15.15 $ 14.64 $ 10.09 ------TOTAL RETURN 15.66% 2.60% 5.25% 45.34% 0.90% ------RATIO AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $232,463 $198,669 $160,101 $52,834 $3,824 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) 1.40%** 1.72% 1.18% 0.66% 1.37%** Portfolio Turnover Rate 19% 24% 8% 14% 0% Average Commission Rate# $0.0145 N/A N/A N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.01 $0.02 $0.10 $0.16 Ratios before expense limitation: Expenses to Average Net Assets 1.24%** 1.24% 1.29% 1.86% 21.67%** Net Investment Income (Loss) to Average Net Assets 1.31%** 1.63% 1.04% (0.05)% (19.15)%** (2) Includes a 1% transaction fee on purchases and redemptions of capital shares.
~~------~~
*Commencement of operations.
**Annualized
~~++Per share amounts for the year ended December 31, 1993 are based on average outstanding shares.~~
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------166~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE JAPANESE EQUITY PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS ENDED PERIOD FROM JUNE 30, YEAR ENDED APRIL 25, 1994* 1996 DECEMBER 31, TO DECEMBER 31, (UNAUDITED) 1995 1994 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document NET ASSET VALUE, BEGINNING OF PERIOD $ 9.27 $ 9.83 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (1) 0.10 0.04 (0.01) Net Realized and Unrealized Gain (Loss) on Investments++ 0.62 (0.40) (0.16) ------Total from Investment Operations 0.72 (0.36) (0.17) ------DISTRIBUTIONS In Excess of Net Investment Income -- (0.20) ------NET ASSET VALUE, END OF PERIOD $ 9.99 $ 9.27 $ 9.83 ------TOTAL RETURN 7.77% (3.64)% (1.70)% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $225,965 $119,278 $50,332 Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00% 1.00%** Ratio of Net Investment Income (Loss) to Average Net Assets (1) 0.14%** 0.15% (0.10)%** Portfolio Turnover Rate 4% 52% 1% Average Commission Rate# $0.0599 N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.07 $0.06 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.09%** 1.20% 1.27%** Net Investment Income (Loss) to Average Net Assets 0.05%** (0.05)% (0.37)%**
------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 9.25 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (2) -- Net Realized and Unrealized Gain on Investments 0.72 ------Total from Investment Operations 0.72 ------NET ASSET VALUE, END OF PERIOD $ 9.97 ------TOTAL RETURN 7.78% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $5,489 Ratio of Expenses to Average Net Assets (2) 1.25%** Ratio of Net Investment Loss to Average Net Assets (2) (0.01)%** Portfolio Turnover Rate 4% Average Commission Rate $0.0599 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ Ratios before expense limitation: Expenses to Average Net Assets 1.34%** Net Investment Loss to Average Net Assets (0.10)%**
------*Commencement of operations. **Annualized ***The Portfolio began offering Class B shares on January 2, 1996. +Amount is less than $0.01 per share. ++The amount shown for the year ended December 31, 1995 for a share outstanding
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document throughout the period does not agree with the amount of aggregate net gains on investments for the year because of the timing of sales and repurchases of the Portfolio shares in relation to fluctuating market value of the investments in the Portfolio. #Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.
~~The accompanying notes are an integral part of the financial statements.~~
~~------167~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE LATIN AMERICAN PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS PERIOD FROM ENDED JANUARY 18, JUNE 30, 1995* 1996 TO DECEMBER 31, (UNAUDITED) 1995 ------NET ASSET VALUE, BEGINNING OF PERIOD $ 9.06 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.12 0.05 Net Realized and Unrealized Gain (Loss) on Investments 3.01 (0.92) ------Total from Investment Operations 3.13 (0.87) ------DISTRIBUTIONS Net Investment Income -- (0.04) Return of Capital -- (0.03) ------Total Distributions -- (0.07) ------NET ASSET VALUE, END OF PERIOD $ 12.19 $ 9.06 ------TOTAL RETURN 34.55% (8.68)% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $27,055 $15,376 Ratio of Expenses to Average Net Assets (1) 1.70%** 1.70%** Ratio of Net Investment Income to Average Net Assets (1) 2.52%** 0.62%** Portfolio Turnover Rate 67% 137% Average Commission Rate# $0.0003 N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.02 $0.09 Ratios before expense limitation: Expenses to Average Net Assets 2.14%** 3.13%** Net Investment Income (Loss) to Average Net Assets 2.08%** (0.48)%**
------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------NET ASSET VALUE, BEGINNING OF PERIOD $ 9.44 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.10 Net Realized and Unrealized Gain on Investments 2.63 ------Total from Investment Operations 2.73 ------NET ASSET VALUE, END OF PERIOD $ 12.17 ------TOTAL RETURN 28.92% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $817 Ratio of Expenses to Average Net Assets (2) 1.95%** Ratio of Net Investment Income to Average Net Assets (2) 2.80%** Portfolio Turnover Rate 67% Average Commission Rate $0.0003 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 Ratios before expense limitation: Expenses to Average Net Assets 2.37%** Net Investment Income to Average Net Assets 2.38%**
~~------~~
*Commencement of operations.
**Annualized
***The Portfolio began offering Class B shares on January 2, 1996.
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------168~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE AGGRESSIVE EQUITY PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS PERIOD FROM ENDED MARCH 8, 1995* JUNE 30, TO 1996 DECEMBER 31, (UNAUDITED) 1995 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 12.17 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.10 0.15 Net Realized and Unrealized Gain on Investments 2.65 3.95 ------Total from Investment Operations 2.75 4.10 ------DISTRIBUTIONS Net Investment Income (0.05) (0.15) Net Realized Gain -- (1.78) ------Total Distributions (0.05) (1.93) ------NET ASSET VALUE, END OF PERIOD $ 14.87 $ 12.17 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------TOTAL RETURN 22.63% 41.25% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $42,760 $28,548 Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00%** Ratio of Net Investment Income to Average Net Assets (1) 1.58%** 1.64%** Portfolio Turnover Rate 211% 309% Average Commission Rate# $0.0521 N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.02 $0.06 Ratios before expense limitation: Expenses to Average Net Assets 1.29%** 1.59%** Net Investment Income to Average Net Assets 1.29%** 1.05%**
------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 12.25 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.07 Net Realized and Unrealized Gain on Investments 2.59 ------Total from Investment Operations 2.66 ------DISTRIBUTIONS Net Investment Income (0.05) ------NET ASSET VALUE, END OF PERIOD $ 14.86 ------TOTAL RETURN 21.75% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $5,571 Ratio of Expenses to Average Net Assets (2) 1.25%** Ratio of Net Investment Income to Average Net Assets (2) 1.51%** Portfolio Turnover Rate 211% Average Commission Rate $0.0521 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $ 0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.48%** Net Investment Income to Average Net Assets 1.28%**
~~------~~
*Commencement of operations.
**Annualized
***The Portfolio began offering Class B shares on January 2, 1996.
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------169~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document [LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------
~~THE EMERGING GROWTH PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS ENDED TWO MONTHS JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31, (UNAUDITED) 1995 1994 1993 1992 1992 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 21.49 $ 16.12 $ 16.22 $ 16.22 $ 14.97 $ 16.18 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Loss (1) (0.12) (0.18) (0.09) (0.11) (0.01) (0.09) Net Realized and Unrealized Gain (Loss) on Investments 1.64 5.55 (0.01) 0.11 1.26 (1.12) ------Total from Investment Operations 1.52 5.37 (0.10) 0.00 1.25 (1.21) ------DISTRIBUTIONS Net Investment Income ------NET ASSET VALUE, END OF PERIOD $ 23.01 $ 21.49 $ 16.12 $ 16.22 $ 16.22 $ 14.97 ------TOTAL RETURN 7.07% 33.31% (0.62)% 0.00% 8.35% (7.48)% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $96,512 $119,378 $117,669 $103,621 $94,161 $80,156 Ratio of Expenses to Average Net Assets (1) 1.25%** 1.25% 1.25% 1.25% 1.25%** 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (1) (0.93)%** (0.76)% (0.61)% (0.77)% (0.68)%** (0.66)% Portfolio Turnover Rate 18% 25% 24% 25% 1% 17% Average Commission Rate# $0.0492 N/A N/A N/A N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment loss $0.01 $0.003 $0.002 $0.01 $0.00 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.30%** 1.26% 1.26% 1.31% 1.36%** 1.29% Net Investment Loss to Average Net Assets (0.98)%** (0.77)% (0.62)% (0.83)% (0.79)%** (0.71)%
------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document YEAR ENDED OCTOBER 31, 1991++ ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 9.03 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Loss (1) -- Net Realized and Unrealized Gain (Loss) on Investments 7.19 ------Total from Investment Operations 7.19 ------DISTRIBUTIONS Net Investment Income (0.04) ------NET ASSET VALUE, END OF PERIOD $ 16.18 ------TOTAL RETURN 79.84% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $54,364 Ratio of Expenses to Average Net Assets (1) 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 0.00% Portfolio Turnover Rate 2% Average Commission Rate# N/A ------(1) Effect of volunt period: Per share benefit to net investment loss $0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.39% Net Investment Loss to Average Net Assets (0.14)% ------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 21.47 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Loss (2) (0.09) Net Realized and Unrealized Gain (Loss)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document on Investments 1.60 ------1.51 ------NET ASSET VALUE, END OF PERIOD $ 22.98 ------TOTAL RETURN 7.03% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $4,984 Ratio of Expenses to Average Net Assets (2) 1.50%** Ratio of Net Investment Income (Loss) to Average Net Assets (2) (1.13)%** Portfolio Turnover Rate 18% Average Commission Rate $0.0492 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment loss $0.00+ Ratios before expense limitation: Expenses to Average Net Assets 1.55%** Net Investment Loss to Average Net Assets (1.18)%**
------**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 October 31, 1991 are based on average outstanding shares. #Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.
~~The accompanying notes are an integral part of the financial statements.~~
~~------170~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE EQUITY GROWTH PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS ENDED JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED TWO MONTHS YEAR ENDED 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED DECEMBER OCTOBER 31, (UNAUDITED) 1995 1994 1993 31, 1992 1992 ------NET ASSET VALUE, BEGINNING OF PERIOD $ 14.14 $ 12.02 $ 12.14 $ 11.88 $ 11.44 $ 10.66 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.10 0.22 0.17 0.22 0.03 0.16 Net Realized and Unrealized Gain on Investments 2.25 4.93 0.21 0.28 0.41 0.82 ------Total from Investment Operations 2.35 5.15 0.38 0.50 0.44 0.98 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document DISTRIBUTIONS Net Investment Income (0.05) (0.28) (0.13) (0.23) -- (0.20) In Excess of Net Investment Income ------(0.01) -- -- Net Realized Gain -- (2.75) (0.37) ------Total Distributions (0.05) (3.03) (0.50) (0.24) -- (0.20) ------NET ASSET VALUE, END OF PERIOD $ 16.44 $ 14.14 $ 12.02 $ 12.14 $ 11.88 $ 11.44 ------TOTAL RETURN 16.64% 45.02% 3.26% 4.33% 3.85% 9.26% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $186,848 $158,112 $97,259 $73,789 $45,985 $36,558 Ratio of Expenses to Average Net Assets (1) 0.80%** 0.80% 0.80% 0.80% 0.80%** 0.80% Ratio of Net Investment Income to Average Net Assets (1) 1.33%** 1.57% 1.44% 1.59% 1.93%** 1.73% Portfolio Turnover Rate 119% 186% 146% 172% 1% 38% Average Commission Rate# $0.0549 N/A N/A N/A N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.01 $0.01 $0.02 $0.01 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 0.90%** 0.88% 0.89% 0.93% 1.11%** 1.01% Net Investment Income to Average Net Assets 1.23%** 1.49% 1.35% 1.46% 1.62%** 1.52% ------
PERIOD FROM APRIL 2, 1991* TO OCTOBER 31, 1991 ------NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.05 Net Realized and Unrealized Gain on Investments 0.61 ------Total from Investment Operations 0.66 ------DISTRIBUTIONS Net Investment Income -- In Excess of Net Investment Income -- Net Realized Gain ------Total Distributions ------NET ASSET VALUE, END OF PERIOD $ 10.66 ------TOTAL RETURN 6.60% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $18,139 Ratio of Expenses to Average Net Assets (1) 0.80%** Ratio of Net Investment Income to Average Net
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Assets (1) 2.34%** Portfolio Turnover Rate 3% Average Commission Rate# N/A ------(1) Effect of voluntary e Per share benefit to net investment income $0.03 Ratios before expense limitation: Expenses to Average Net Assets 1.37%** Net Investment Income to Average Net Assets 1.77%** ------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 14.22 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.07 Net Realized and Unrealized Gain on Investments 2.19 ------Total from Investment Operations 2.26 ------DISTRIBUTIONS Net Investment Income (0.05) ------NET ASSET VALUE, END OF PERIOD $ 16.43 ------TOTAL RETURN 15.91% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $4,903 Ratio of Expenses to Average Net Assets (2) 1.05%** Ratio of Net Investment Income to Average Net Assets (2) 1.35%** Portfolio Turnover Rate 119% Average Commission Rate $0.0549 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ Ratios before expense limitation: Expenses to Average Net Assets 1.14%** Net Investment Income to Average Net Assets 1.26%**
~~------~~
*Commencement of operations.
**Annualized
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ***The Portfolio began offering Class B shares on January 2, 1996.~~
~~+Amount is less than $0.01 per share.~~
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------171~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE SMALL CAP VALUE EQUITY PORTFOLIO~~
~~------~~
CLASS A ------PERIOD FROM SIX MONTHS DECEMBER 17, ENDED JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED 1992* TO 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) 1995 1994 1993 1992 ------ NET ASSET VALUE, BEGINNING OF PERIOD $11.91 $10.80 $11.10 $10.14 $10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.15 0.30 0.28 0.24 0.01 Net Realized and Unrealized Gain (Loss) on Investments 1.01 1.82 (0.01) 0.90 0.13 ------Total from Investment Operations 1.16 2.12 0.27 1.14 0.14 ------DISTRIBUTIONS Net Investment Income (0.07) (0.38) (0.27) (0.18) -- Net Realized Gain -- (0.63) (0.30) ------Total Distributions (0.07) (1.01) (0.57) (0.18) ------NET ASSET VALUE, END OF PERIOD $ 13.00 $ 11.91 $ 10.80 $ 11.10 $10.14 ------TOTAL RETURN 9.76% 20.63% 2.53% 11.33% 1.40% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $46,746 $51,919 $40,033 $26,775 $5,974 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) 2.32%** 2.60% 2.67% 2.56% 1.64%** Portfolio Turnover Rate 13% 36% 22% 29% 0% Average Commission Rate # $0.0404 N/A N/A N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.02 $0.03 $0.06 $0.13 Ratios before expense limitation: Expenses to Average Net Assets 1.23%** 1.21% 1.26% 1.68% 23.14%** Net Investment Income (Loss) to Average Net Assets 2.09%** 2.39% 2.41% 1.88% (20.50)%**
------
CLASS B ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 11.95 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.09 Net Realized and Unrealized Gain on Investments 1.02 ------Total from Investment Operations 1.11 ------DISTRIBUTIONS Net Investment Income (0.07) ------NET ASSET VALUE, END OF PERIOD $ 12.99 ------TOTAL RETURN 9.31% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $1,511 Ratio of Expenses to Average Net Assets (2) 1.25%** Ratio of Net Investment Income to Average Net Assets (2) 2.16%** Portfolio Turnover Rate 13% Average Commission Rate $0.0404 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.49%** Net Investment Income to Average Net Assets 1.92%**
~~------~~
*Commencement of operations.
**Annualized
***The Portfolio began offering Class B shares on January 2, 1996.
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------172~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE U.S. REAL ESTATE PORTFOLIO~~
~~------~~
CLASS A ------PERIOD FROM SIX MONTHS FEBRUARY 24, ENDED JUNE 30, 1995* TO 1996 DECEMBER 31, (UNAUDITED) 1995 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document NET ASSET VALUE, BEGINNING OF PERIOD $ 11.42 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.28 0.26 Net Realized and Unrealized Gain on Investments 0.98 1.84 ------Total from Investment Operations 1.26 2.10 ------DISTRIBUTIONS Net Investment Income (0.14) (0.24) Net Realized Gain -- (0.44) ------Total Distributions (0.14) (0.68) ------NET ASSET VALUE, END OF PERIOD $ 12.54 $ 11.42 ------TOTAL RETURN 11.10% 21.07% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $119,709 $69,509 Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00%** Ratio of Net Investment Income to Average Net Assets (1) 5.21%** 4.04%** Portfolio Turnover Rate 93% 158% Average Commission Rate# $0.0564 ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.19%** 1.33%** Net Investment Income to Average Net Assets 5.02%** 3.71%**
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CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 11.50 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.25 Net Realized and Unrealized Gain on Investments 0.91 ------Total from Investment Operations 1.16 ------DISTRIBUTIONS Net Investment Income (0.14) ------NET ASSET VALUE, END OF PERIOD $ 12.52 ------TOTAL RETURN 10.15% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $4,803 Ratio of Expenses to Average Net Assets (2) 1.25%** Ratio of Net Investment Income to Average Net Assets (2) 6.24%** Portfolio Turnover Rate 93% Average Commission Rate $0.0564 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.41%** Net Investment Income to Average Net Assets 6.08%**
~~------~~
*Commencement of operations.
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document **Annualized~~
***The Portfolio began offering Class B shares on January 2, 1996.
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------173~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE VALUE EQUITY PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS ENDED TWO MONTHS JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31, (UNAUDITED) 1995 1994 1993 1992 1992 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 13.94 $ 11.50 $ 12.63 $ 11.31 $ 10.71 $ 10.24 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.20 0.38 0.40 0.37 0.08 0.38 Net Realized and Unrealized Gain (Loss) on Investments 0.99 3.30 (0.55) 1.31 0.52 0.48 ------Total from Investment Operations 1.19 3.68 (0.15) 1.68 0.60 0.86 ------DISTRIBUTIONS Net Investment Income (0.09) (0.47) (0.40) (0.36) -- (0.39) Net Realized Gain -- (0.77) (0.58) ------Total Distributions (0.09) (1.24) (0.98) (0.36) -- (0.39) ------Net Asset Value, End of Period $ 15.04 $ 13.94 $ 11.50 $ 12.63 $ 11.31 $ 10.71 ------TOTAL RETURN 8.55% 33.69% (1.29)% 15.14% 5.60% 8.51% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $134,316 $147,365 $73,406 $54,598 $27,541 $25,013 Ratio of Expenses to Average Net Assets (1) 0.70%** 0.70% 0.70% 0.70% 0.70%** 0.70% Ratio of Net Investment Income to Average Net Assets (1) 2.64%** 3.01% 3.37% 3.23% 4.41%** 3.72% Portfolio Turnover Rate 15% 43% 33% 51% 9% 56% Average Commission Rate# $0.0458 N/A N/A N/A N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.01 $0.01 $0.03 $0.01 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 0.77%** 0.77% 0.80% 0.95% 1.20%** 0.84% Net Investment Income to Average Net
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Assets 2.57%** 2.94% 3.27% 2.98% 3.91%** 3.58%
------
YEAR ENDED OCTOBER 31, 1991 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 8.59 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.46 Net Realized and Unrealized Gain (Loss) on Investments 1.67 ------Total from Investment Operations 2.13 ------DISTRIBUTIONS Net Investment Income (0.48) Net Realized Gain ------Total Distributions (0.48) ------Net Asset Value, End of Period $ 10.24 ------TOTAL RETURN 25.34% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $16,304 Ratio of Expenses to Average Net Assets (1) 0.70% Ratio of Net Investment Income to Average Net Assets (1) 4.57% Portfolio Turnover Rate 90% Average Commission Rate# N/A ------(1) Effect of voluntary e limitation during the Per share benefit to net investment income $0.02 Ratios before expense limitation: Expenses to Average Net Assets 0.87% Net Investment Income to Average Net Assets 4.40% ------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 14.06 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.10 Net Realized and Unrealized Gain on
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Investments 0.95 ------Total from Investment Operations 1.05 ------DISTRIBUTIONS Net Investment Income (0.09) ------Net Asset Value, End of Period $ 15.02 ------TOTAL RETURN 7.48% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $1,954 Ratio of Expenses to Average Net Assets (2) 0.95%** Ratio of Net Investment Income to Average Net Assets (2) 2.22%** Portfolio Turnover Rate 15% Average Commission Rate $0.0458 ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ Ratios before expense limitation: Expenses to Average Net Assets 1.01%** Net Investment Income to Average Net Assets 2.16%**
~~------~~
**Annualized ***The Portfolio began offering Class B shares on January 2, 1996. +Amount is less than $0.01. #Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.
~~The accompanying notes are an integral part of the financial statements.~~
~~------174~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE BALANCED PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS ENDED JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED TWO MONTHS YEAR ENDED 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED DECEMBER OCTOBER 31, (UNAUDITED) 1995 1994 1993 31, 1992 1992 ------ NET ASSET VALUE, BEGINNING OF PERIOD $9.98 $8.96 $ 11.13 $ 11.31 $ 11.00 $ 10.61 ------INCOME FROM INVESTMENT OPERATIONS Net
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Investment Income (1) 0.24 0.39 0.42 0.44 0.10 0.58 Net Realized and Unrealized Gain (Loss) on Investments 0.15 1.62 (0.64) 0.79 0.21 0.42 ------Total from Investment Operations 0.39 2.01 (0.22) 1.23 0.31 1.00 ------DISTRIBUTIONS Net Investment Income (0.10) (0.50) (0.49) (0.41) -- (0.58) In Excess of Net Investment Income ------(0.08) -- -- Net Realized Gain -- (0.49) (1.46) (0.06) -- (0.03) In Excess of Net Realized Gain ------(0.86) ------Total Distributions (0.10) (0.99) (1.95) (1.41) -- (0.61) ------NET ASSET VALUE, END OF PERIOD $ 10.27 $ 9.98 $ 8.96 $ 11.13 $ 11.31 $ 11.00 ------TOTAL RETURN 3.92% 23.63% (2.32)% 12.09% 2.82% 9.57% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $13,173 $22,642 $18,492 $29,684 $39,984 $40,332 Ratio of Expenses to Average Net Assets (1) 0.70%** 0.70% 0.70% 0.70% 0.70%** 0.70% Ratio of Net Investment Income to Average Net Assets (1) 3.88%** 4.10% 4.13% 3.88% 5.29%** 5.21% Portfolio Turnover Rate 6% 26% 44% 136% 4% 40% Average Commission Rate# $0.0385 N/A N/A N/A N/A N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.03 $0.03 $0.03 $0.04 $0.01 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.24%** 1.02% 0.95% 1.02% 1.00%** 0.79% Net Investment Income to Average Net Assets 3.34%** 3.78% 3.88% 3.56% 4.99%** 5.12%
------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document
YEAR ENDED OCTOBER 31, 1991 ------ NET ASSET VALUE, BEGINNING OF PERIOD $9.62 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.59 Net Realized and Unrealized Gain (Loss) on Investments 1.03 ------Total from Investment Operations 1.62 ------DISTRIBUTIONS Net Investment Income (0.63) In Excess of Net Investment Income -- Net Realized Gain -- In Excess of Net Realized Gain ------Total Distributions (0.63) ------NET ASSET VALUE, END OF PERIOD $ 10.61 ------TOTAL RETURN 17.31% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $51,334 Ratio of Expenses to Average Net Assets (1) 0.70% Ratio of Net Investment Income to Average Net Assets (1) 5.99% Portfolio Turnover Rate 67% Average Commission Rate# N/A ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document income $0.01 Ratios before expense limitation: Expenses to Average Net Assets 0.78% Net Investment Income to Average Net Assets 5.91% ------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 10.02 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.12 Net Realized and Unrealized Gain on Investments 0.22 ------Total from Investment Operations 0.34 ------DISTRIBUTIONS Net Investment Income (0.10) ------NET ASSET VALUE, END OF PERIOD $ 10.26 ------TOTAL RETURN 3.40% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $2,356 Ratio of Expenses to Average Net Assets (2) 0.95%** Ratio of Net Investment Income to Average Net Assets (2) 3.56%** Portfolio Turnover Rate 6% Average Commission Rate $0.0385 ------(2) Effect of voluntary expense limitation
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document during the period: Per share benefit to net investment income $ 0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.48%** Net Investment Income to Average Net Assets 3.03%**
~~------~~
**Annualized
***The Portfolio began offering Class B shares on January 2, 1996.
~~#Beginning with fiscal year 1996, the Portfolio is required to disclose the average commission rate per share it paid for portfolio trades, on which commissions were charged, during the period.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------175~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE EMERGING MARKETS DEBT PORTFOLIO~~
~~------~~
CLASS A ------PERIOD FROM SIX MONTHS FEBRUARY 1, ENDED 1994* JUNE 30, YEAR ENDED TO DECEMBER 1996 DECEMBER 31, 31, (UNAUDITED) 1995 1994 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 8.59 $ 8.59 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.61 1.36 0.50 Net Realized and Unrealized Gain (Loss) on Investments 0.97 0.91 (1.91) ------Total from Investment Operations 1.58 2.27 (1.41) ------DISTRIBUTIONS Net Investment Income -- (1.86) -- Net Realized Gain -- (0.41) ------Total Distributions -- (2.27) ------NET ASSET VALUE, END OF PERIOD $10.17 $8.59 $8.59 ------TOTAL RETURN 18.39% 28.23% (14.10)% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $191,976 $181,878 $144,949 Ratio of Expenses to Average Net Assets 2.84%** 1.76% 1.49%** Ratio of Net Investment Income to Average Net Assets 12.99%** 14.70% 9.97%** Portfolio Turnover Rate 316% 406% 273% Ratio of Expenses to Average Net Assets
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Excluding Dividend and Interest Expenses 1.49%** 1.75% N/A
------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 8.68 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.33 Net Realized and Unrealized Gain on Investments 1.14 ------Total from Investment Operations 1.47 ------NET ASSET VALUE, END OF PERIOD $ 10.15 ------TOTAL RETURN 16.94% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $3,074 Ratio of Expenses to Average Net Assets 2.77%** Ratio of Net Investment Income to Average Net Assets 13.59%** Portfolio Turnover Rate 316% Ratio of Expenses to Average Net Assets Excluding Dividend and Interest Expenses 1.74%**
~~------*Commencement of operations.~~
**Annualized
***The Portfolio began offering Class B shares on January 2, 1996.
~~The accompanying notes are an integral part of the financial statements.~~
~~------176~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE FIXED INCOME PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS ENDED TWO MONTHS JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31, (UNAUDITED) 1995 1994 1993 1992 1992 ------NET ASSET VALUE, BEGINNING OF PERIOD $ 10.81 $ 9.82 $ 11.05 $ 10.93 $ 10.92 $ 10.55 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.33 0.72 0.59 0.54 0.10 0.69 Net Realized and Unrealized Gain (Loss) on Investments (0.43) 1.06 (0.92) 0.41 0.01 0.39
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------Total from Investment Operations (0.10) 1.78 (0.33) 0.95 0.11 1.08 ------DISTRIBUTIONS Net Investment Income (0.23) (0.79) (0.53) (0.56) (0.10) (0.69) In Excess of Net Investment Income ------(0.01) -- -- Net Realized Gain -- -- (0.37) (0.26) -- (0.02) In Excess of Net Realized Gain -- -- (0.00)+ ------Total Distributions (0.23) (0.79) (0.90) (0.83) (0.10) (0.71) ------NET ASSET VALUE, END OF PERIOD $ 10.48 $ 10.81 $ 9.82 $ 11.05 $ 10.93 $ 10.92 ------TOTAL RETURN (0.92)% 18.76% (3.10)% 9.07% 1.02% 10.61% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $157,098 $165,527 $209,331 $240,668 $154,210 $146,546 Ratio of Expenses to Average Net Assets (1) 0.45%** 0.45% 0.45% 0.45% 0.45%** 0.45% Ratio of Net Investment Income to Average Net Assets (1) 6.29%** 6.85% 5.73% 4.97% 5.56%** 6.59% Portfolio Turnover Rate 122% 172% 388% 240% 15% 105% ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.01 $0.01 $0.02 $0.01 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 0.62%** 0.59% 0.58% 0.60% 0.75%** 0.59% Net Investment Income to Average Net Assets 6.12%** 6.71% 5.60% 4.82% 5.26%** 6.45% ------
PERIOD FROM MAY 15, 1991* TO OCTOBER 31, 1991 ------NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.22 Net Realized and Unrealized Gain (Loss) on Investments 0.49 ------Total from Investment Operations 0.71 ------DISTRIBUTIONS Net Investment Income (0.16) In Excess of Net Investment Income -- Net Realized Gain -- In Excess of Net Realized Gain ------Total Distributions (0.16) ------NET ASSET VALUE, END OF PERIOD $ 10.55 ------TOTAL RETURN 7.12% ------RATIOS AND SUPPLEMENTAL
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document DATA: Net Assets, End of Period (Thousands) $72,326 Ratio of Expenses to Average Net Assets (1) 0.45%** Ratio of Net Investment Income to Average Net Assets (1) 7.29%** Portfolio Turnover Rate 48% ------(1) Effect of voluntary e Per share benefit to net investment income $0.01 Ratios before expense limitation: Expenses to Average Net Assets 0.81%** Net Investment Income to Average Net Assets 6.93%** ------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 10.81 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.31 Net Realized and Unrealized (Loss) on Investments (0.42) ------Total from Investment Operations (0.11) ------DISTRIBUTIONS Net Investment Income (0.23) ------NET ASSET VALUE, END OF PERIOD $ 10.47 ------TOTAL RETURN (1.02)% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $1,271 Ratio of Expenses to Average Net Assets (2) 0.60%** Ratio of Net Investment Income to Average Net Assets (2) 6.19%** Portfolio Turnover Rate 122% ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 Ratios before expense limitation: Expenses to Average Net Assets 0.86%** Net Investment Income to Average Net Assets 5.93%**
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------~~
*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.~~
~~------177~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE GLOBAL FIXED INCOME PORTFOLIO~~
~~------~~
SIX MONTHS ENDED TWO MONTHS PERIOD FROM JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED MAY 1, 1991* 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31, TO OCTOBER 31, (UNAUDITED) 1995 1994 1993 1992 1992 1991 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 11.22 $ 10.29 $ 11.68 $ 11.26 $ 11.41 $ 10.61 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.31 0.76 0.70 0.69 0.14 0.53 0.16 Net Realized and Unrealized Gain (Loss) on Investments (0.29) 1.15 (1.38) 0.90 (0.29) 0.55 0.45 ------Total from Investment Operations 0.02 1.91 (0.68) 1.59 (0.15) 1.08 0.61 ------DISTRIBUTIONS Net Investment Income (0.18) (0.98) (0.40) (0.79) -- (0.27) -- In Excess of Net Investment Income ------(0.22) ------Net Realized Gain -- -- (0.31) (0.16) -- (0.01) ------Total Distributions (0.18) (0.98) (0.71) (1.17) -- (0.28) ------NET ASSET VALUE, END OF PERIOD $ 11.06 $ 11.22 $ 10.29 $ 11.68 $ 11.26 $ 11.41 $ 10.61 ------TOTAL RETURN 0.20% 19.32% (6.08)% 15.34% (1.31)% 10.29% 6.10% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $116,382 $102,852 $130,675 $172,468 $92,897 $94,847 $28,236 Ratio of Expenses to Average Net Assets (1) 0.50%** 0.50% 0.50% 0.50% 0.50%** 0.50% 0.50%** Ratio of Net Investment Income to
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Average Net Assets (1) 5.75%** 6.79% 6.34% 5.99% 6.99%** 6.92% 7.24%** Portfolio Turnover Rate 158% 207% 171% 108% 9% 144% 20% ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.02 $0.02 $0.02 $0.01 $0.03 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 0.75%** 0.71% 0.66% 0.70% 0.90%** 0.86% 1.62%** Net Investment Income to Average Net Assets 5.50%** 6.58% 6.18% 5.79% 6.59%** 6.56% 6.12%**
------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 11.23 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.19 Net Realized and Unrealized Loss on Investments (0.19) ------Total from Investment Operations ------DISTRIBUTIONS Net Investment Income (0.18) ------NET ASSET VALUE, END OF PERIOD $ 11.05 ------TOTAL RETURN 0.02% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $1,617 Ratio of Expenses to Average Net Assets (2) 0.65%** Ratio of Net Investment Income to Average Net Assets (2) 5.55%** Portfolio Turnover Rate 158% ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Ratios before expense limitation: Expenses to Average Net Assets 1.00%** Net Investment Income to Average Net Assets 5.20%**
~~------~~
*Commencement of operations.
**Annualized
***The Portfolio began offering Class B shares on January 2, 1996.
~~The accompanying notes are an integral part of the financial statements.~~
~~------178~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE HIGH YIELD PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS PERIOD FROM ENDED TWO MONTHS SEPTEMBER 28, JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED ENDED 1992* 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, TO OCTOBER 31, (UNAUDITED) 1995 1994 1993 1992 1992 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 10.46 $ 9.55 $ 11.16 $ 9.95 $ 9.77 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.50 1.14 0.97 0.90 0.14 0.08 Net Realized and Unrealized Gain (Loss) on Investments (0.03) 0.97 (1.40) 1.21 0.19 (0.31) ------Total from Investment Operations 0.47 2.11 (0.43) 2.11 0.33 (0.23) ------DISTRIBUTIONS Net Investment Income (0.43) (1.20) (0.97) (0.90) (0.15) -- Net Realized Gain -- -- (0.21) ------Total Distributions (0.43) (1.20) (1.18) (0.90) (0.15) ------NET ASSET VALUE, END OF PERIOD $ 10.50 $ 10.46 $ 9.55 $ 11.16 $ 9.95 $ 9.77 ------TOTAL RETURN 4.47% 23.35% (4.18)% 22.11% 3.41% (2.30)% ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $87,902 $62,245 $97,223 $74,500 $20,194 $16,950 Ratio of Expenses to Average Net Assets (1) 0.75%** 0.75% 0.75% 0.75% 0.75%** 0.75%** Ratio of Net Investment Income to Average Net Assets (1) 9.68%** 11.09% 9.42% 8.70% 8.96%** 9.89%** Portfolio Turnover Rate 63% 90% 74% 104% 24% 9% ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ $0.01 $0.001 $0.02 $0.01 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 0.85%** 0.83% 0.76% 0.96% 1.62%** 1.23%** Net Investment Income to Average Net Assets 9.58%** 11.01% 9.41% 8.49% 8.09%** 9.41%**
------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 10.49 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.47 Net Realized and Unrealized Loss on Investments (0.06) ------Total from Investment Operations 0.41 ------DISTRIBUTIONS Net Investment Income (0.43) Net Realized Gain ------Total Distributions (0.43) ------NET ASSET VALUE, END OF PERIOD $ 10.47 ------TOTAL RETURN 3.89% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $3,499 Ratio of Expenses to Average Net Assets (2) 1.00%** Ratio of Net Investment
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Income to Average Net Assets (2) 9.27%** Portfolio Turnover Rate 63% ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ Ratios before expense limitation: Expenses to Average Net Assets 1.10%** Net Investment Income to Average Net Assets 9.17%**
~~------~~
*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.~~
~~------179~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE MUNICIPAL BOND PORTFOLIO~~
~~------~~
CLASS A ------SIX MONTHS PERIOD FROM ENDED JANUARY 18, JUNE 30, 1995* 1996 TO DECEMBER 31, (UNAUDITED) 1995 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 10.37 $ 10.00 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.25 0.44 Net Realized and Unrealized Gain (Loss) on Investments (0.26) 0.42 ------Total from Investment Operations (0.01) 0.86 ------DISTRIBUTIONS Net Investment Income (0.20) (0.45) In Excess of Net Investment Income -- (0.00)+ Net Realized Gain -- (0.04) ------Total Distributions (0.20) (0.49) ------NET ASSET VALUE, END OF PERIOD $10.16 $10.37 ------TOTAL RETURN (0.09)% 8.80% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $31,869 $45,869 Ratio of Expenses to Average Net Assets (1) 0.45%** 0.45%** Ratio of Net Investment Income to Average Net Assets (1) 4.79%** 4.61%** Portfolio Turnover Rate 38% 180% ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.02 $0.03 Ratios before expense limitation:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Expenses to Average Net Assets 0.74%** 0.73%** Net Investment Income to Average Net Assets 4.50%** 4.33%**
------
CLASS B ------JANUARY 2, 1996*** TO JUNE 30, 1996 (UNAUDITED) ------NET ASSET VALUE, BEGINNING OF PERIOD $ 10.37 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.22 Net Realized and Unrealized Loss on Investments (0.23) ------Total from Investment Operations (0.01) ------DISTRIBUTIONS Net Investment Income (0.20) ------NET ASSET VALUE, END OF PERIOD $ 10.16 ------TOTAL RETURN (0.10)% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $168 Ratio of Expenses to Average Net Assets (2) 0.70%** Ratio of Net Investment Income to Average Net Assets (2) 4.63%** Portfolio Turnover Rate 38% ------(2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.00%** Net Investment Income to Average Net Assets 4.33%**
~~------~~
*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.~~
~~------180~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: ------~~
~~THE MONEY MARKET PORTFOLIO~~
~~------~~
SIX MONTHS TWO MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31, OCTOBER 31, (UNAUDITED) 1995 1994 1993 1992 1992 1991 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.024 0.054 0.040 0.027 0.005 0.039 0.062 ------DISTRIBUTIONS Net Investment Income (0.024) (0.054) (0.040) (0.027) (0.005) (0.039) (0.062) In Excess of Net Investment Income ------0.000+ ------Total Distributions (0.024) (0.054) (0.040) (0.027) (0.005) (0.039) (0.062) ------Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------TOTAL RETURN 2.46% 5.51% 3.84% 2.76% 0.50% 3.77% 6.37% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 1,062,384 $ 836,693 $ 690,503 $ 657,163 $ 599,172 $ 612,968 $ 607,087 Ratio of Expenses to Average Net Assets (1) 0.51%** 0.51% 0.49% 0.53% 0.55%** 0.52% 0.53% Ratio of Net Investment Income to Average Net Assets (1) 4.89%** 5.37% 3.77% 2.71% 3.11%** 3.74% 6.11% ------(1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income N/A N/A N/A $ 0.000+ $ 0.000+ N/A N/A Ratios before expense limitation: Expenses to Average Net Assets N/A N/A N/A 0.54% 0.59%** N/A N/A Net Investment Income to Average Net Assets N/A N/A N/A 2.70% 3.07%** N/A N/A ------**Annualized +Amount is less than $0.001 per share. ------
THE MUNICIPAL MONEY MARKET PORTFOLIO
------SIX MONTHS TWO MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31, OCTOBER 31, (UNAUDITED) 1995 1994 1993 1992 1992 1991 ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.015 0.034 0.020 0.019 0.004 0.026 0.043 ------DISTRIBUTIONS Net Investment Income (0.015) (0.034) (0.020) (0.019) (0.004) (0.026) (0.043)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document In Excess of Net Investment Income ------(0.000)+ ------Total Distributions (0.015) (0.034) (0.020) (0.019) (0.004) (0.026) (0.043) ------NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------TOTAL RETURN 1.51% 3.44% 2.44% 1.91% 0.37% 2.74% 4.35% ------RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $770,065 $451,519 $359,444 $266,524 $208,866 $206,691 $166,953 Ratio of Expenses to Average Net Assets (1) 0.52%** 0.52% 0.51% 0.54% 0.57%** 0.55% 0.56% Ratio of Net Investment Income to Average Net Assets (1) 3.04%** 3.38% 2.42% 1.89% 2.31%** 2.66% 4.18% ------(1)Effect of voluntary expense limitation during the period: Per share benefit to net investment income N/A N/A N/A $ 0.000+ $ 0.000+ N/A N/A Ratios before expense limitation: Expenses to Average Net Assets N/A N/A N/A 0.56% 0.67%** N/A N/A Net Investment Income to Average Net Assets N/A N/A N/A 1.87% 2.21%** N/A N/A
~~------**Annualized +Amount is less than $0.001 per share.~~
~~The accompanying notes are an integral part of the financial statements.~~
~~------181~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1996 ------~~
Morgan Stanley Institutional Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. As of June 30, 1996, the Fund was comprised of 25 separate active, diversified and non-diversified portfolios (individually referred to as the "Portfolio," collectively as the "Portfolios"). During the six months ended June 30, 1996, the International Magnum Portfolio commenced operations on March 15, 1996. On January 2, 1996, each Portfolio (with the exception of the International Small Cap, Money Market and Municipal Money Market Portfolios) began offering an additional class of shares -- Class B. All the shares of these Portfolios outstanding prior to January 2, 1996, were redesignated Class A shares on January 2, 1996. Both classes of shares have identical voting, dividend, liquidation and other rights. Please refer to the manager's reports included elsewhere in this report for a description of each Portfolio's investment objectives.
A. The following significant accounting policies are in conformity with generally accepted accounting principles for investment companies. Such policies are consistently followed by the Fund in the preparation of the financial statements. Generally accepted accounting principles may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
~~1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity securities traded on NASDAQ are valued at the latest quoted sales price on the~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 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 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 which are based primarily on institutional size trading in similar groups of securities. Debt securities purchased with remaining maturities of 60 days or less are valued at amortized cost, if it approximates market value. Securities owned by the Money Market and Municipal Money Market Portfolios are stated at amortized cost, which approximates market value. All other securities and assets for which market values are not readily available, including restricted securities, are valued at fair value as determined in good faith by the Board of Directors, although the actual calculations may be done by others.
2. INCOME TAXES: It is each Portfolio's intention to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for Federal income taxes is required in the financial statements.
A Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation as such income and/or gains is earned.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements, a bank as custodian for the Fund takes possession of the underlying securities, with a market value at least equal to the amount of the repurchase transaction, including principal and accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to determine the adequacy of the collateral. In the event of default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings.
4. REVERSE REPURCHASE AGREEMENTS: In order to leverage the Portfolio, the Emerging Markets Debt Portfolio may enter into reverse repurchase agreements with institutions that the Portfolio's investment adviser has determined are creditworthy. Under a reverse repurchase agreement, the Portfolio sells securities and agrees to repurchase them at a mutually agreed upon date and price. Reverse repurchase agreements involve the risk that the market value of the securities purchased with the proceeds from the sale of securities received by the Portfolio may decline below the price of the securities the Portfolio is obligated to repurchase. Securities subject to repurchase under reverse repurchase agreements are designated as such in the Statement of Net Assets.
~~At June 30, 1996 the Emerging Markets Debt Portfolio had reverse repurchase agreements outstanding as follows:~~
MATURITY IN 30 TO 90 DAYS ------ ~~Maturity Amount...... $16,465,000 ------Market Value of Assets Sold Under Agreements...... 18,879,000 Weighted Average Interest Rate...... 5.875% ------~~
~~------182~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONT.) JUNE 30, 1996 ------~~
~~The average weekly balance of reverse repurchase agreements outstanding during the six months ended June 30, 1996 was approximately $12,450,000, at a weighted average interest rate of 6.065%.~~
5. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the mean of the bid and asked prices of such currencies against U.S. dollars last quoted by a major bank as follows:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document - investments, other assets and liabilities at the prevailing rates of exchange on the valuation date;
~~- investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.~~
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, the Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of the securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. Federal income tax regulations, gains and losses from certain foreign currency transactions 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 forward foreign currency exchange contracts, disposition of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) on the Statement of Net Assets. The change in net unrealized currency gains (losses) for the period is reflected on the Statement of Operations.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
Prior governmental approval for foreign investments may be required under certain circumstances in some countries, and the extent of foreign investment in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violation of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Statement of Net Assets) may be created and offered for investment. The "local" and "foreign" shares' market values may differ.
6. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolios may enter into forward foreign currency exchange contracts to attempt to protect securities and related receivables and payables against changes in future foreign currency exchange rates. A forward 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 using the forward rate and the change in market value is recorded by the Portfolios as unrealized gain or loss. The Portfolio records realized gains or losses when the contract is closed equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risk may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and is generally limited to the amount of the unrealized gain on the contracts, if any, at the date of default. Risks may also arise from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
7. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: Each Portfolio may make forward commitments to purchase or sell securities. Payment and delivery for securities which have been purchased or sold on a forward commitment basis can take place a month or more (not to exceed 120 days) after the date of the transaction. Additionally, certain Portfolios may purchase securities on a when-issued or delayed-delivery basis. Securities purchased on a when-issued or delayed delivery basis are purchased for delivery beyond the normal settlement date at a stated price and yield, and no income accrues to the Portfolio on such securities prior to delivery. When the Portfolio enters into a purchase transaction on a when-issued or delayed delivery basis, it establishes a segregated account in which it maintains liquid assets in an amount at least equal in value to the Portfolio's
~~------183~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONT.) JUNE 30, 1996~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------commitments to purchase such securities. Purchasing securities on a forward commitment or when-issued or delayed-delivery basis may involve a risk that the market price at the time of delivery may be lower than the agreed upon purchase price, in which case there could be an unrealized loss at the time of delivery.
8. LOAN AGREEMENTS: Certain Portfolios may invest in fixed and floating rate loans ("Loans") arranged through private negotiations between an issuer of sovereign debt obligations and one or more financial institutions ("Lenders") deemed to be creditworthy by the investment adviser. The 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. The Portfolio's investment in Participations typically results in the Portfolio having a contractual relationship with only the Lender and not with the borrower. The Portfolio has the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. The Portfolio generally has no right to enforce compliance by the borrower with the terms of the loan agreement. As a result, the Portfolio may be subject to the credit risk of both the borrower and the Lender that is selling the Participation. When the Portfolio purchases Assignments from Lenders, it acquires direct rights against the borrower on the Loan. Because Assignments are arranged through private negotiations between potential assignees and potential assignors, the rights and obligations acquired by the Portfolio as the purchaser of an Assignment may differ from, and be more limited than, those held by the assigning Lender.
9. SHORT SALES: The Aggressive Equity and Emerging Markets Debt Portfolios may sell securities short. A short sale is a transaction in which the Portfolio sells securities it may or may not own, but has borrowed, in anticipation of a decline in the market price of the securities. The 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. The 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 place in a segregated account with its Custodian an amount of cash, U.S. government securities or other liquid high grade debt obligations equal to the difference, if any, between (1) the market value of the securities sold at the time they were sold short and (2) any cash, U.S. government securities or other liquid high grade debt obligations deposited as collateral with the broker in connection with the short sale (not including the proceeds of the short sale). Short sales by the Portfolio involve certain risks and special considerations. Possible losses from short sales differ from losses that could be incurred from a purchase of a security, because losses from short sales may be unlimited, whereas losses from purchases cannot exceed the total amount invested.
10. PURCHASED AND WRITTEN OPTIONS: Certain Portfolios may write covered call and put options on their securities. Premiums are received and are recorded as liabilities, and subsequently adjusted to 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 canceled in closing purchase transactions are offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. By writing a covered call option, a Portfolio foregoes in exchange for the premium the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase. By writing a covered put option, a Portfolio, in exchange for the premium, accepts the risk of a decline in the market value of the underlying security below the exercise price.
Certain Portfolios may purchase call and put options on their portfolio securities. Each Portfolio may purchase call options to protect against an increase in the price of the security it anticipates purchasing. Each Portfolio may purchase put options on their securities to protect against a decline in the value of the security or to close out covered written put positions. Possible losses from purchased options cannot exceed the total amount invested.
11. SECURITY LENDING: Certain Portfolios may lend investment securities to certain qualified institutional investors who borrow securities in order to complete certain transactions. By lending investment securities, a Portfolio attempts to increase its net investment income through the receipt of interest on the loan. Any gain or loss in the market price of the securities loaned that might occur 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 collateral decreases below the value of the securities loaned.
~~Portfolios that lend securities receive cash, securities issued or guaranteed by the U.S. Government, or~~
~~------184~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document [LOGO] Morgan Stanley Institutional Fund, Inc. ------NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONT.) JUNE 30, 1996 ------letters of credit as collateral in an amount equal to or exceeding 100% of the current market value of the loaned securities. Any cash received as collateral is invested in interest bearing repurchase agreements with approved counterparties. A portion of the interest received on the repurchase agreements is retained by the Portfolio and the remainder is rebated to the borrower of the securities. The net amount of interest earned and interest rebated is included in the Statement of Operations as interest income. The value of loaned securities and related collateral outstanding at June 30, 1996 are as follows:
VALUE OF LOANED VALUE OF SECURITIES COLLATERAL PORTFOLIO (000) (000) ------ ~~Active Country Allocation...... $ 33,704 $ 39,595 International Equity...... 223,355 286,019~~
~~Morgan Stanley Trust Company administers the security lending program and has earned fees for its services in the amount of $43,700 during the period ending June 30, 1996.~~
12. STRUCTURED SECURITIES: The Emerging Markets Debt Portfolio may invest in interests in entities organized and operated solely for the purpose of restructuring the investment characteristics of sovereign debt obligations. This type of restructuring involves the deposit with or purchase by an entity of specified instruments and the issuance by that entity of one or more classes of securities ("Structured Securities") backed by, or representing interests in, the underlying instruments. Structured Securities, invested in by the Emerging Markets Debt Portfolio, generally will have credit risk equivalent to that of the underlying instruments. 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.
13. 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). 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 average 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-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 Fund are determined in accordance with Federal income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing book and tax treatments for the timing of the recognition of gains or losses on securities and forward foreign currency exchange contracts, the timing of the deductibility of certain foreign taxes and dividends received from real estate investment trusts.
Permanent book and tax basis differences relating to shareholder distributions may result in reclassifications among undistributed net investment income (loss), accumulated net realized gain (loss) and paid in capital.
Permanent book-tax differences, if any, are not included in ending undistributed (distributions in excess of) net investment income/accumulated net investment loss for the purpose of calculating net investment income (loss) per share in the Financial Highlights.
~~A transaction fee of one percent is charged on subscriptions and redemptions of~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document capital shares of the International Small Cap Portfolio. Such fees are paid to or retained by the Portfolio and included in paid in capital. During the six months ended June 30, 1996, such transaction fees totaled approximately $343,000.
B. ADVISER: Morgan Stanley Asset Management Inc. (the "Adviser" or "MSAM") provides investment advisory services to the Fund under the terms of an Investment Advisory and Management Agreement (the "Agreement") at the annual rates of average daily net assets indicated below. MSAM has agreed to reduce fees payable to it and to reimburse the Portfolios, if
~~------185~~
[LOGO] Morgan Stanley Institutional Fund, Inc. ------NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONT.) JUNE 30, 1996 ------necessary, if the annual operating expenses, as defined, expressed as a percentage of average daily net assets, exceed the maximum ratios indicated as follows:
MAXIMUM EXPENSE RATIO ADVISORY ------PORTFOLIO FEE CLASS A CLASS B ------ Active Country Allocation...... 65% .80% 1.05% Asian Equity...... 80 1.00 1.25 Emerging Markets...... 1.25 1.75 2.00 European Equity...... 80 1.00 1.25 Global Equity...... 80 1.00 1.25 Gold...... 1.00 1.25 1.50 International Equity...... 80 1.00 1.25 International Magnum...... 80 1.00 1.25 International Small Cap...... 95 1.15 N/A Japanese Equity...... 80 1.00 1.25 Latin American...... 1.10 1.70 1.95 Aggressive Equity...... 80 1.00 1.25 Emerging Growth...... 1.00 1.25 1.50 Equity Growth...... 60 .80 1.05 Small Cap Value Equity...... 85 1.00 1.25 U.S. Real Estate...... 80 1.00 1.25 Value Equity...... 50 .70 .95 Balanced...... 50 .70 .95 Emerging Markets Debt...... 1.00 1.75 2.00 Fixed Income...... 35 .45 .60 Global Fixed Income...... 40 .50 .65 High Yield...... 50 .75 1.00 Municipal Bond...... 35 .45 .70 Money Market...... 30 .55 N/A Municipal Money Market...... 30 .57 N/A
Sun Valley Gold Company is the sub-adviser ("Sub-Adviser") of the Gold Portfolio. The Sub-Adviser is entitled to receive an annual sub-advisory fee in an amount equal to .40% of the average daily net assets of the Portfolio. The Sub-Adviser has agreed to a proportionate reduction in its fees if the Adviser is required to waive its fees or to reimburse the Portfolio.
C. ADMINISTRATOR: MSAM 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 MSAM and The Chase Manhattan Bank ("Chase"), through its affiliate Chase Global Funds Services Company, provides certain administrative services to the Fund. For such services, MSAM pays Chase a portion of the fee MSAM receives from the Fund.
D. DISTRIBUTOR: Morgan Stanley & Co., Incorporated (the "Distributor"), serves as the Distributor of the Fund and provides all classes of each Portfolio with distribution services pursuant to separate Distribution Plans (the "Plans") in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the Plans, the Distributor is entitled to receive from each Portfolio, except the International Small Cap Portfolio, Money Market Portfolio and Municipal Money Market 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.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document E. CUSTODIAN: Morgan Stanley Trust Company ("MSTC") acts as custodian for the Fund's assets held outside the United States in accordance with a custodian agreement. Custodian fees are computed and payable monthly based on assets held, investment purchases and sales activity, an account maintenance fee, plus reimbursement for certain out-of-pocket expenses. MSTC, the Adviser and the Distributor are wholly-owned subsidiaries of Morgan Stanley Group, Inc.
~~For the six months ended June 30, 1996, the following Portfolios incurred custody fees and had amounts payable to MSTC at June 30, 1996:~~
MSTC CUSTODY CUSTODY FEES FEES PAYABLE TO INCURRED MSTC (000) (000) ------ Active Country Allocation..... $ 118 $ 83 Asian Equity...... 410 250 Emerging Markets...... 1,352 670 European Equity...... 41 23 Global Equity...... 15 10 Gold...... 7 1 International Equity...... 295 151 International Magnum...... 33 28 International Small Cap...... 60 29 Japanese Equity...... 21 12 Latin American...... 32 26 Emerging Markets Debt...... 117 58 Global Fixed Income...... 21 11
~~In addition, for the six months ended June 30, 1996, the following Portfolios have earned interest income and incurred interest expense on balances with MSTC as follows:~~
INTEREST INCOME INTEREST EXPENSE (000) (000) ------ Active Country Allocation...... $ 1 $ -- Asian Equity...... -- 3 Emerging Markets...... 10 74 European Equity...... 31 -- Global Equity...... 1 -- International Magnum...... -- 1 Japanese Equity...... 1 -- Emerging Markets Debt...... 14 127 Global Fixed Income...... 19 2
~~At June 30, 1996, the Emerging Markets Portfolio owned shares of affiliated funds for which the Portfolio earned dividend income of approximately $60,000.~~
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~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONT.) JUNE 30, 1996 ------~~
~~F. PURCHASES AND SALES: During the six months ended June 30, 1996, purchases and sales of investment securities other than long-term U.S. Government securities and short-term investments were:~~
PURCHASES SALES PORTFOLIO (000) (000) ------ Active Country Allocation...... $ 65,346 $ 56,059 Asian Equity...... 223,601 101,506 Emerging Markets...... 452,594 264,829 European Equity...... 59,633 7,550 Global Equity...... 8,084 14,652 Gold...... 30,865 3,908 International Equity...... 396,026 147,853
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document International Magnum...... 57,482 378 International Small Cap...... 43,749 39,139 Japanese Equity...... 99,029 5,855 Latin American...... 20,626 14,510 Aggressive Equity...... 80,887 74,204 Emerging Growth...... 19,898 45,817 Equity Growth...... 196,244 192,645 Small Cap Value Equity...... 6,816 13,440 U.S. Real Estate...... 129,338 86,284 Value Equity...... 21,464 45,281 Balanced...... 1,063 8,630 Emerging Markets Debt...... 460,972 470,339 Fixed Income...... 184,644 163,508 Global Fixed Income...... 129,067 132,908 High Yield...... 63,351 42,703 Municipal Bond...... 15,338 27,811
~~Purchases and sales during the six months ended June 30, 1996 of long-term U.S. Government securities occurred in the Fixed Income and Global Fixed Income Portfolios only and totaled:~~
PURCHASES SALES PORTFOLIO (000) (000) ------ ~~Fixed Income...... $ 21,888 $ 17,971 Global Fixed Income...... 32,802 21,597~~
~~During the six months ended June 30, 1996, the following Portfolios paid brokerage commissions to Morgan Stanley & Co., Incorporated, an affiliated broker/dealer, of approximately:~~
BROKERAGE COMMISSION PORTFOLIO (000) ------ ~~Asian Equity...... $ 112 Emerging Markets...... 53 European Equity...... 3 Global Equity...... 4 International Equity...... 35 Japanese Equity...... 67 Latin American...... 2~~
~~G. OTHER: At June 30, 1996, cost and unrealized appreciation (depreciation) for U.S. Federal income tax purposes of the investments of each Portfolio were:~~
NET APPREC. COST APPREC. DEPREC. (DEPREC.) PORTFOLIO (000) (000) (000) (000) ------ Active Country Allocation...... $ 161,105 $ 15,840 $ (4,724) $ 11,116 Asian Equity...... 389,990 58,667 (11,193) 47,474 Emerging Markets...... 1,223,212 222,519 (104,240) 118,279 European Equity...... 122,862 14,649 (1,898) 12,751 Global Equity...... 66,721 16,801 (2,883) 13,918 Gold...... 38,642 1,812 (3,838) (2,026) International Equity...... 1,534,637 418,152 (34,695) 383,457 International Magnum...... 63,025 1,628 (668) 960 International Small Cap... 210,041 32,291 (13,046) 19,245 Japanese Equity...... 219,519 12,598 (6,768) 5,830 Latin American...... 23,260 4,712 (458) 4,254 Aggressive Equity...... 45,806 2,903 (346) 2,557 Emerging Growth...... 61,667 41,300 (908) 40,392 Equity Growth...... 171,863 22,047 (2,074) 19,973 Small Cap Value Equity.... 41,498 7,255 (905) 6,350 U.S. Real Estate...... 119,024 7,142 (852) 6,290 Value Equity...... 118,038 22,667 (4,789) 17,878 Balanced...... 14,008 1,682 (304) 1,378 Emerging Markets Debt..... 203,181 17,390 (7,365) 10,025 Fixed Income...... 160,832 1,804 (2,011) (207) Global Fixed Income...... 122,649 1,175 (1,697) (522)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document High Yield...... 91,547 1,836 (4,174) (2,338) Municipal Bond...... 30,587 668 (99) 569 Money Market...... 1,062,158 ------Municipal Money Market.... 776,804 ------
At December 31, 1995, 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:
EXPIRATION DATE DECEMBER 31, (000) ------PORTFOLIO 2001 2002 2003 TOTAL ------ Emerging Markets...... $ -- $ -- $ 33,313 $ 33,313 Japanese Equity...... -- -- 2,666 2,666 Latin American...... -- -- 224 224 Fixed Income...... -- 8,291 -- 8,291 Global Fixed Income...... -- 5,293 1,780 7,073 High Yield...... -- 497 4,145 4,642 Money Market...... -- 13 -- 13 Municipal Money Market...... 1 7 1 9
To the extent that capital loss carryovers are used to offset any future net 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.
~~------187~~
~~[LOGO] Morgan Stanley Institutional Fund, Inc. ------NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONT.) JUNE 30, 1996 ------~~
Net capital and net currency losses incurred after October 31 and within the taxable year are deemed to arise on the first business day of the Portfolio's next taxable year. For the period from November 1, 1995 to December 31, 1995 certain Portfolios incurred and elected to defer until January 1, 1996 for U.S. Federal income tax purposes net capital and net currency losses of approximately:
CAPITAL CURRENCY LOSSES LOSSES PORTFOLIO (000) (000) ------ ~~Emerging Markets...... $ -- $ 64 Global Equity...... -- 2 Latin American...... 2 6 Emerging Markets Debt...... 245 1,501 High Yield...... 73 -- Municipal Money Market...... 1 --~~
~~During the six months ended June 30, 1996, the following Portfolio wrote covered call options as follows:~~
~~COVERED CALL OPTIONS~~
FACE AMOUNT PREMIUM EMERGING MARKETS DEBT PORTFOLIO (000) (000) ------ Options outstanding at December 31, 1995...... $ -- $ -- Options written during the period...... 48,647 721 Options expired during the period...... (32,530) (392) Options exercised during the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document period...... (16,117) (329) ------Options outstanding at June 30, 1996...... $ -- $ ------
At June 30, 1996, 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.
~~Assets and liabilities, including Portfolio securities and foreign currency holdings were translated at the following exchange rates as of June 30, 1996:~~
Argentine Peso...... 0.99963 = $ 1.00 Australian Dollar...... 1.27235 = $ 1.00 Belgian Franc...... 31.30000 = $ 1.00 Brazilian Real...... 1.00395 = $ 1.00 British Pound...... 0.64371 = $ 1.00 Canadian Dollar...... 1.36455 = $ 1.00 Colombian Peso...... 1,067.00000 = $ 1.00 Danish Krone...... 5.85550 = $ 1.00 Deutsche Mark...... 1.52000 = $ 1.00 Finnish Markka...... 4.62905 = $ 1.00 French Franc...... 5.13900 = $ 1.00 Greek Drachma...... 240.47000 = $ 1.00 Hong Kong Dollar...... 7.74075 = $ 1.00 Hungarian Forint...... 150.03500 = $ 1.00 Indonesian Rupiah...... 2,327.50000 = $ 1.00 Irish Pound...... 0.62602 = $ 1.00 Italian Lira...... 1,530.84000 = $ 1.00 Japanese Yen...... 109.32500 = $ 1.00 Korean Won...... 811.20000 = $ 1.00 Malaysian Ringgit...... 2.49450 = $ 1.00 Mexican Peso...... 7.58250 = $ 1.00 Moroccan Dirham...... 8.72285 = $ 1.00 Netherlands Guilder...... 1.70450 = $ 1.00 New Zealand Dollar...... 1.45349 = $ 1.00 Norwegian Krone...... 6.48655 = $ 1.00 Pakistani Rupee...... 35.00500 = $ 1.00 Peruvian Sol...... 2.44300 = $ 1.00 Philippine Peso...... 26.20000 = $ 1.00 Polish Zloty...... 2.71710 = $ 1.00 Portuguese Escudo...... 156.30000 = $ 1.00 Singapore Dollar...... 1.41100 = $ 1.00 Spanish Peseta...... 127.91500 = $ 1.00 Sri Lanka Rupee...... 55.60000 = $ 1.00 Swedish Krona...... 6.61490 = $ 1.00 Swiss Franc...... 1.24950 = $ 1.00 Taiwan Dollar...... 27.52000 = $ 1.00 Thailand Baht...... 25.38500 = $ 1.00 Turkish Lira...... 82,100.00000 = $ 1.00

From time to time, certain Portfolios of the Fund have shareholders that hold a significant portion of a Portfolio's outstanding shares. Investment activities of these shareholders could have a material impact on those Portfolios.
~~------188~~
~~MORGAN STANLEY INSTITUTIONAL FUND, INC.~~
~~------~~
~~DIRECTORS~~
Barton M. Biggs CHAIRMAN OF THE BOARD Chairman and Director, Morgan Stanley Asset Management Inc. and Morgan Stanley Asset Management Limited; Managing Director, Morgan Stanley & Co. Incorporated; Director, Morgan Stanley Group Inc.
~~Frederick B. Whittemore VICE-CHAIRMAN OF THE BOARD Advisory Director, Morgan Stanley & Co., Incorporated~~
~~Warren J. Olsen~~
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document DIRECTOR AND PRESIDENT Principal, Morgan Stanley Asset 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 Chairman and Chief Executive Officer, Rand McNally~~
~~Samuel T. Reeves Chairman of the Board and CEO, Pinacle L.L.C.~~
~~Fergus Reid Chairman and Chief Executive Officer, LumeLite Corporation~~
~~Frederick O. Robertshaw Of Counsel, Bryan, Cave~~
~~INVESTMENT ADVISER AND ADMINISTRATOR~~
~~Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020~~
~~DISTRIBUTOR~~
~~Morgan Stanley & Co., Incorporated 1251 Avenue of the Americas New York, New York 10020~~
~~CUSTODIANS~~
~~The Chase Manhattan Bank 770 Broadway New York, New York 10003~~
~~Morgan Stanley Trust Company One Pierrepont Plaza Brooklyn, New York 11210~~
~~LEGAL COUNSEL~~
~~Morgan, Lewis & Bockius LLP 2000 One Logan Square Philadelphia, Pennsylvania 19103~~
~~INDEPENDENT ACCOUNTANTS~~
~~Price Waterhouse LLP 1177 Avenue of the Americas New York, New York 10036~~
~~OFFICERS~~
~~James W. Grisham VICE PRESIDENT~~
~~Michael F. Klein VICE PRESIDENT~~
~~Harold J. Schaaff, Jr. VICE PRESIDENT~~
~~Joseph P. Stadler VICE PRESIDENT~~
~~Valerie Y. Lewis SECRETARY~~
~~Karl O. Hartmann ASSISTANT SECRETARY~~
~~James R. Rooney TREASURER~~
~~Joanna M. Haigney ASSISTANT TREASURER~~
~~FOR CURRENT PERFORMANCE, CURRENT NET ASSET VALUE, OR FOR ASSISTANCE WITH YOUR ACCOUNT, PLEASE CONTACT THE FUND AT (800) 548-7786.~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------189~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document~~