-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J2br+vsiG1KPSTrHVMrx+o9lFyagRMMBksw00ypk5AUdn0dbF4YI1/3iHEBJemm5 V80b9ce1RHyumwD8/+zOxA== 0000912057-01-007445.txt : 20010312 0000912057-01-007445.hdr.sgml : 20010312 ACCESSION NUMBER: 0000912057-01-007445 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND INC CENTRAL INDEX KEY: 0000836487 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05624 FILM NUMBER: 1565290 BUSINESS ADDRESS: STREET 1: 1221 AVENUE OF THE AMERICAS STREET 2: 8TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 6175578742 MAIL ADDRESS: STREET 1: 1221 AVENUE OF THE AMERICAS STREET 2: 8TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY INSTITUTIONAL FUND INC DATE OF NAME CHANGE: 19920703 N-30D 1 a2039948zn-30d.txt N-30D - ------------------------------------------------------------------------------ MORGAN STANLEY DEAN WITTER [GRAPHIC] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. ANNUAL REPORT DECEMBER 31, 2000 - ------------------------------------------------------------------------------ [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ TABLE OF CONTENTS - ------------------------------------------------------------------------------ President's Letter................................... 2 Performance Summary.................................. 4 Investment Overview and Statements of Net Assets by Portfolio: Global and International Equity Portfolios: Active International Allocation .................. 6 Asian Equity...................................... 16 Asian Real Estate................................. 22 Emerging Markets.................................. 26 European Equity................................... 34 European Real Estate.............................. 38 Global Equity..................................... 43 International Equity.............................. 48 International Magnum.............................. 53 International Small Cap........................... 61 Japanese Equity................................... 66 Latin American 71 U.S. Equity Portfolios: Equity Growth..................................... 77 Focus Equity...................................... 82 Small Company Growth.............................. 87 Technology........................................ 92 U.S. Equity Plus.................................. 96 U.S. Real Estate.................................. 103 Value Equity...................................... 109 Fixed Income Portfolios: Emerging Markets Debt............................. 114 Fixed Income...................................... 119 Global Fixed Income............................... 124 High Yield........................................ 128 Money Market Portfolios: Money Market...................................... 134 Municipal Money Market............................ 138 Statements of Operations............................. 144 Statements of Changes in Net Assets.................. 148 Financial Highlights................................. 160 Notes to Financial Statements........................ 184 Report of Independent Auditors....................... 192 Federal Tax Information.............................. 193 Directors and Officers............................... 194
This report is authorized for distribution only when preceded or accompanied by prospectuses of the Morgan Stanley Dean Witter Institutional Fund, Inc. To receive a prospectus, which contains more complete information such as charges, expenses, risk considerations, and describes in detail each of the Portfolio's investment policies to the prospective investor, please call 1(800) 548-7786. Please read the prospectuses carefully before you invest or send money. - ------------------------------------------------------------------------------- [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- PRESIDENT'S LETTER - ------------------------------------------------------------------------------- Dear Shareholders: We are pleased to present to you the Fund's Annual Report for the year ended December 31, 2000. Our Fund currently offers 25 portfolios providing investors with a full array of global and domestic equity and fixed income products. Together, the Fund's portfolios allow investors to meet specific investment needs or to allocate assets among different portfolios to implement an overall investment strategy. In this Report, you will find portfolio manager commentary, performance statistics and other useful information for each of the Fund's Portfolios. Additionally, we have provided a performance summary for all Portfolios on the pages following this letter. MARKET OVERVIEW After five consecutive years of double-digit gains, equity markets closed 2000 with losses. The strength of 1999's synchronized global recovery gave way to inevitable pressures of growth, as oil prices soared, inflation rekindled, and labor markets became stretched. These conditions, along with the smooth transition of Y2K, led central banks to become more vigilant in fending off inflation and embark on a series of interest rate increases. The tighter monetary environment took its toll on the economy and the markets leading to slower growth and a revaluation of equities. The S&P 500 Index fell 9.1% for the year. MSCI EAFE Index fell 14.2% in U.S. terms, due to weakness in currencies as well as equities. Emerging market equities, which had a banner year in 1999, were hit hard by slower global growth, falling 30.6% for the year. The winners of 2000 were defensive asset categories, including U.S. fixed income (+11.6%), cash (+5.9%), and REITs (+26.4%). The slowing growth in the United States caused investors to rethink growth expectations for the market as a whole and for growth stocks in particular. The reassessment of growth expectations led to a significant adjustment in multiples. In this environment, value stocks and defensive stocks outperformed the previously high flying growth sectors. Technology stocks worldwide fell 39% during the year, while globally, utilities (+27%) and health care (+32%) outperformed. Within the United States, value stocks gained (+7.0%) while growth stocks fell (-22.4%). The anticipation of slower growth in the United States was also reflected in the bond markets. Bond yields peaked in the first quarter, and steadily declined in the latter quarters, pricing in a slowdown which would eventually lead to an easing of monetary conditions by the central bank. The expectation of slower growth also caused high quality to outperform spread products, as perceptions of credit quality deteriorated throughout the year. The Salomon Broad Investment Grade Index returned 11.6% for the year, with Treasuries (+13.5%) outperforming Corporates (+9.3%) and High Yield (-5.2%). Non-U.S. stock market performance was plagued by currency weakness through most of the year. The euro fell as low as $0.83 before rebounding in the fourth quarter, and the yen declined 6.2% for the year. European markets, in local terms, actually outperformed the S&P 500, as Europe's growth was not perceived to be slowing as quickly as the U.S. Japan, on the other hand, disappointed investors with weak economic growth and remains mired in a deflationary trap. The MSCI Japan Index fell 19.7% in local terms and 28.2% in U.S. dollar terms. Asia fared no better than Japan, as investors abandoned the region to seek safe havens during the year. The region's growing emphasis on high tech related production and exports also contributed to stock underperformance. Emerging market equities suffered setbacks in the growth downturn. Although growth indicators for many emerging economies were strong in the first half, investors became wary regarding the sustainability of growth in small emerging economies within a backdrop of slowing global growth. The hardest hit emerging market region was Asia, while Latin America suffered less, due to Mexico's and Venezuela's high exposure to oil. - ------------------------------------------------------------------------------- 2 - ------------------------------------------------------------------------------- [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- PRESIDENT'S LETTER - ------------------------------------------------------------------------------- MARKET OUTLOOK As the synchronized growth of late 1999 and early 2000 has given way to a slowdown, a key consideration for the coming year will be the expected magnitude and duration of the slowdown. The U.S. Federal Reserve has acknowledged the situation, and has opened the door for aggressive rate cuts to prevent the economy from slipping into a recession. The Fed's policy stance will also make way for Europe's central banks to ease interest rates in the next year. We believe that the ensuing period of global central bank easing in 2001 will be more supportive of asset prices and economic performance than market conditions in 2000. Despite our constructive views on interest rates and central bank policy, we remain somewhat cautious regarding market performance. While a decline in growth and the attendant inflationary pressures is positive for bonds, the bond market has already substantially priced in these expectations. Furthermore, as lower interest rates typically take 6-9 months to affect economic performance, corporate profits could remain under pressure for some time, which would be negative for both equities and corporate credits. On the other hand, valuations in the U.S. equity markets and worldwide have become more reasonable over the last year but are not cheap. Given the situation, we expect that the combination of lower interest rates and more reasonable valuations may give equities some bottom support, but that significant capital appreciation in equities is unlikely until profit optimism resumes. We hope you find the enclosed Report informative. As always, we very much appreciate your continued support of the Fund and look forward to a successful 2001. Sincerely, /s/ Harold J. Schaaff, Jr. Harold J. Schaaff, Jr. PRESIDENT January 2001 - ------------------------------------------------------------------------------- 3 - ------------------------------------------------------------------------------- [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- PERFORMANCE SUMMARY DECEMBER 31, 2000 - -------------------------------------------------------------------------------
ONE YEAR INCEPTION DATES TOTAL RETURN ------------------ ---------------------------------- COMPARABLE CLASS A CLASS B CLASS A CLASS B INDICES --------- ------- ------- ------- ----------- GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS: Active International Allocation 1/17/92 1/02/96 -14.97% -15.02% -14.17%(1) Asian Equity 7/01/91 1/02/96 -40.65 -40.74 -36.80 (2) Asian Real Estate 10/01/97 10/01/97 3.44 3.29 -0.23 (3) Emerging Markets 9/25/92 1/02/96 -38.43 -38.60 -30.61 (4) European Equity 4/02/93 1/02/96 7.38 7.08 -8.39 (5) European Real Estate 10/01/97 10/01/97 14.91 14.55 9.05 (6) Global Equity 7/15/92 1/02/96 11.75 11.52 -13.18 (7) International Equity 8/04/89 1/02/96 9.29 8.94 -14.17 (1) International Magnum 3/15/96 3/15/96 -10.50 -10.81 -14.17 (1) International Small Cap 12/15/92 -- -2.92 -- -9.23 (8) Japanese Equity 4/25/94 1/02/96 -23.69 -23.93 -28.16 (9) Latin American 1/18/95 1/02/96 -16.21 -16.42 -16.57(10) U.S. EQUITY PORTFOLIOS: Equity Growth 4/02/91 1/02/96 -11.78 -12.01 -9.12(11) Focus Equity 3/08/95 1/02/96 -11.66 -11.89 -9.12(11) Small Company Growth 11/01/89 1/02/96 -6.64 -6.81 -22.43(12) Technology 9/16/96 9/16/96 -22.67 -22.86 -39.29(13) U.S. Equity Plus 7/31/97 7/31/97 -10.10 -- -9.12(11) U.S. Real Estate 2/24/95 1/02/96 29.65 29.36 26.36(14) Value Equity 1/31/90 1/02/96 18.08 17.92 7.02(15) FIXED INCOME PORTFOLIOS: Emerging Markets Debt 2/01/94 1/02/96 12.81 12.50 14.41(16) Fixed Income 5/15/91 1/02/96 11.16 10.92 11.63(17) Global Fixed Income 5/01/91 1/02/96 1.18 1.07 2.34(18) High Yield 9/28/92 1/02/96 -11.51 -11.77 -5.21(19) MONEY MARKET PORTFOLIOS: Money Market 11/15/88 -- -- -- -- Municipal Money Market 2/10/89 -- -- -- -- - -------------------------------------------------------------------------------
YIELD INFORMATION AS OF DECEMBER 31, 2000 ----------------------------------------- 30 DAY 7 DAY 7 DAY 30 DAY 30 DAY CURRENT YIELD++ CURRENT EFFECTIVE CURRENT COMPARABLE CLASS A CLASS B YIELD+ YIELD+ YIELD++ YIELD ------- ------- ------- --------- ------- ---------- FIXED INCOME PORTFOLIOS: MONEY MARKET PORTFOLIOS: Emerging Markets Debt 11.83% 11.58% Money Market 6.10% 6.29% 6.14% 5.95%(20) Fixed Income 7.11 6.96 Municipal Money Market 4.10 4.13 3.69 3.54 (21) Global Fixed Income 4.43 4.28 High Yield 14.54 14.30
+ The 7 day current yield and 7 day effective yield assume an annualization of the current yield with all dividends reinvested. As with all money market portfolios, yields will fluctuate as market conditions change and the 7 day yields are not necessarily indicative of future performance. ++ The current 30 day yield reflects the net investment income generated by the Portfolio over a specified 30 day period expressed as an annual percentage. Expenses accrued for the 30 day period include any fees charged to all shareholders. Yields will fluctuate as market conditions change and are not necessarily indicative of future performance. - ------------------------------------------------------------------------------- 4
FIVE YEAR TEN YEAR SINCE INCEPTION AVERAGE ANNUAL TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN --------------------------- --------------------------- -------------------------------------------------------- COMPARABLE COMPARABLE COMPARABLE COMPARABLE CLASS A INDICES CLASS A INDICES CLASS A INDICES-CLASS A CLASS B INDICES-CLASS B ------- ---------- ------- ---------- ------- --------------- ------- --------------- 9.24% 7.13%(1) -- -- 8.89% 8.43%(1) 8.98% 7.13%(1) -12.62 -9.60 (2) -- -- 2.30 3.94 (2) -12.94 -9.66 (2) -- -- -- -- -2.93 -9.88 (3) -3.23 -9.88 (3) 0.57 -4.16 (4) -- -- 5.36 3.62 (4) 0.14 -4.30 (4) 12.91 15.39 (5) -- -- 14.91 15.53 (5) 12.41 15.26 (5) -- -- -- -- 3.54 3.64 (6) 3.30 3.64 (6) 15.15 12.12 (7) -- -- 16.38 12.54 (7) 14.74 12.03 (7) 15.57 7.13 (1) 14.89% 8.24%(1) 12.86 5.26 (1) 15.12 7.13 (1) -- -- -- -- 7.00 7.52 (1) 6.71 7.52 (1) 10.38 -3.26 (8) -- -- 12.57 2.65 (8) -- -- 4.01 -4.70 (9) -- -- 2.15 -3.16 (9) 3.66 -4.55 (9) 13.64 6.69 (10) -- -- 9.67 4.18 (10) 12.51 6.19 (10) 20.37 18.32 (11) -- -- 17.38 16.06 (11) 19.95 18.16 (11) 22.89 18.32 (11) -- -- 26.66 20.92 (11) 22.45 18.16 (11) 21.99 7.14 (12) 18.17 12.80 (12) 17.14 9.70 (12) 21.67 7.13 (12) -- -- -- -- 42.42 18.47 (13) 42.13 18.47 (13) -- -- -- -- 9.46 11.45 (11) -- -- (11) 14.81 10.10 (14) -- -- 16.26 11.19 (14) 14.35 10.11 (14) 17.28 16.91 (15) 16.46 17.34 (15) 14.30 15.57 (15) 16.79 16.78 (15) 10.78 13.73 (16) -- -- 9.20 10.11 (16) 10.29 13.47 (16) 6.24 6.46 (17) -- -- 7.64 7.84 (17) 6.07 6.47 (17) 3.00 3.47 (18) -- -- 5.83 7.07 (18) 2.79 3.47 (18) 5.54 4.51 (19) -- -- 8.14 7.01 (19) 5.17 4.49 (19) -- -- -- -- -- -- -- -- -- -- -- -- - ---------------------------------------------------------------------------------------------
INDICES: (1) MSCI EAFE (Europe, Australasia, and Far East) (2) MSCI All-Country Far East Free ex-Japan (3) GPR General Real Estate Securities Index -- Far East (4) MSCI Emerging Markets Free (5) MSCI Europe (6) GPR General Real Estate Securities Index -- Europe (7) MSCI World (8) MSCI EAFE Small Cap (9) MSCI Japan (10) MSCI Emerging Markets Free Latin America (11) S&P 500 (12) Russell 2000 Growth (13) NASDAQ Composite (14) National Association of Real Estate Investment Trusts (NAREIT) Equity Index (15) Russell 1000 Value (16) J.P. Morgan Emerging Markets Global Bond (17) Lehman Aggregate Bond (18) J.P. Morgan Traded Global Bond (19) CS First Boston High Yield (20)IBC Money Fund Comparable Yield (21)IBC Municipal Money Fund Comparable Yield Past performance should not be construed as a guarantee of future performance. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Investments in the Money Market or Municipal Money Market Portfolios are neither insured nor guaranteed by the Federal Deposit Insurance Corporation. Although the Money Market and Municipal Money Market Portfolios seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these portfolios. Please read the Portfolios' prospectuses carefully before you invest or send money. - ------------------------------------------------------------------------------ 5 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - -------------------------------------------------------------------------------- [CHART] United Kingdom (22.3%) Japan (18.0%) France (10.2%) Germany (9.7%) Switzerland (7.3%) Netherlands (6.6%) Italy (3.7%) Spain (3.0%) Sweden (2.1%) China/Hong Kong (1.8%) Other (15.3%)
Of the amount shown above as "Other", a significant portion represents cash equivalents required under regulations to be held as collateral relating to investments in futures contracts. COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ---------------------------------------------------- [GRAPH]
Active International Allocation Portfolio- MSCI EAFE Class A Index (1) ---------------------- ---------- 10/31/92 $ 500,000 $ 500,000 12/31/92 ---------- ---------- 1993 ---------- ---------- 1994 ---------- ---------- 1995 ---------- ---------- 1996 ---------- ---------- 1997 ---------- ---------- 1998 ---------- ---------- 1999 ---------- ---------- 2000 $1,030,635 $1,072,532
* Commenced operations on January 17, 1992 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1) - -------------------------------------------
TOTAL RETURNS(2) ---------------------------- AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION ------ ------ --------- PORTFOLIO -- CLASS A............ -14.97% 9.24% 8.89% PORTFOLIO -- CLASS B............ -15.02 N/A 8.98 INDEX -- CLASS A................ -14.17 7.13 8.43 INDEX -- CLASS B................ -14.17 N/A 7.13
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe, Australasia and the Far East. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The Active International Allocation Portfolio invests in international equity markets, with emphasis placed upon countries and sectors, rather than stock selection. This approach reflects our belief that a diversified selection of securities representing exposure to countries and sectors that we find attractive provides an effective way to increase the return potential and manage the risk associated with international investing. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of - -14.97% for the Class A shares and -15.02% for the Class B shares compared to - -14.17% for the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index"). For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was 9.24% compared to 7.13% for the Index. For the period from inception on January 17, 1992 through December 31, 2000, the average annual total return for the Class A shares was 8.89% compared to 8.43% for the Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 8.98% compared to 7.13% for the Index. The year was dominated by the sharp rotation from growth, which performed strongly from January to mid-March, to value, which has dominated the markets for the remainder of the year. Overall, global equities were disappointing and marked by high volatility. The uncertainty about the pace of the global economic slowdown and the impact on corporate profits overshadowed the likely peak in interest rates. From a currency perspective, the euro was a disaster until it staged a fairly impressive rally in December, gaining over 7% for the month, while the yen lost nearly 4% of its value in the final month of the year. The Portfolio performed in line with its Index for the year. The main drivers of our performance from country selection were our overweight allocations to the U.K. (Index return, 11.5%), Switzerland (+5.9%), and the Netherlands (-4.1%). Our underweight allocation to Belgium (-16.9%) - ------------------------------------------------------------------------------ CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY THE MSCI EAFE INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. 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. - ------------------------------------------------------------------------------ Active International Allocation Portfolio 6 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.) and our above Index allocation to Singapore (-27.7%) detracted from returns. In Japan, our overweight allocation in the first quarter hurt our performance while our sector selection, (underweight technology and telecommunication) was positive. Our significant overweight to the consumer staples sector (1.8 times the Index weight of 5.2%) was a significant contributor to Portfolio performance. Since the second quarter, our considerable underweight (average of one-third of the Index weight) to the diversified telecommunication sector was positive and added to relative returns. Our overweight position in utilities was also a positive for performance as the sector and added to our returns. As of December 31, our relative regional weights were neutral in non-euro Europe and in Asia and underweight in euro Europe and Japan. From our above Index allocation at the start of the year, we steadily trimmed our position in Japan and ended the year underweight relative to our Index. We have become less constructive on the near- to medium-term outlook based upon the continued flow of disappointing economic data and policy news. The most recent releases showed slowing industrial production, the largest annual decline in consumer prices in the survey's 30-year history and falling consumer spending. Additionally, low money growth, bank lending declines and cross shareholding unwinding, particularly for the life insurance companies, continues to weigh on the market. The disappointing leadership shows no sign of an end and the recent cabinet reshuffle did nothing to improve the prospects. We see limited fiscal and monetary policy options. Although Europe will not be immune to a U.S. economic slowdown, it could be a source of relative resilience in an otherwise shaky world. For a number of reasons, Europe could remain more buoyant than the U.S. because of limited trade linkages with the U.S., a small wealth effect and already-enacted tax cuts. However, the euro, which has provided export growth, is likely to appreciate further and put some downward pressure on corporate margins. We remain underweight the region. We might look to increase our allocation to the region, and believe we might get a more opportune time to invest in the first half of 2001. From a sector perspective, we continue to underweight the technology and telecommunication sectors. Although we remain significantly underweight diversified telecommunication stocks, in December we brought our position closer to neutral due to their extended sell-off and materially improved valuations. We continue to underweight technology hardware and equipment because the sector is expensive and we believe that earnings forecasts are still too optimistic. According to the I/B/E/S consensus estimates, analysts are forecasting 29% earnings growth for the sector for this year, which we deem unlikely. In sum, although the surprise cut in interest rates in the U.S. by the Fed is likely to boost confidence and liquidity, it does nothing to alter the outlook for first half 2001 GDP and earnings per share growth forecasts. We expect the coming year to be a dilemma for the markets between disappointing corporate profits and increasing liquidity. We remain cautious. Ann D. Thivierge PORTFOLIO MANAGER Barton M. Biggs PORTFOLIO MANAGER January 2001 - -------------------------------------------------------------------------------- Active International Allocation Portfolio 7 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO - --------------------------------------------------------------------------------
VALUE SHARES (000) - ----------------------------------------------------------------------------------------------------------- COMMON STOCKS (88.4%) AUSTRALIA (1.4%) 51,057 Amcor Ltd. ........................................... $ 149 38,967 AMP Ltd. ............................................. 439 23,224 Australian Gas Light Co., Ltd. ....................... 164 8,731 Brambles Industries Ltd. ............................. 204 102,252 Broken Hill Proprietary Co., Ltd. .................... 1,078 26,004 Coca Cola Amatil Ltd. ................................ 68 44,431 Coles Myer Ltd. ...................................... 172 (c)10,908 Commonwealth Bank of Australia ....................... 188 3,271 CSL Ltd. ............................................. 71 36,814 CSR Ltd. ............................................. 96 3,902 F.H. Faulding & Co., Ltd. ............................ 26 72,233 Fosters Brewing Group Ltd. ........................... 190 59,318 General Property Trust ............................... 91 49,494 Goodman Fielder Ltd. ................................. 35 22,196 ICI Australia Ltd. ................................... 71 10,913 Leighton Holdings Ltd. ............................... 38 22,130 Lend Lease Corp., Ltd. ............................... 206 (c)15,495 Mayne Nickless Ltd. .................................. 50 67,288 MIM Holdings Ltd. .................................... 43 59,030 National Australia Bank Ltd. ......................... 946 75,121 News Corp., Ltd. ..................................... 585 145,058 Normandy Mining Ltd. ................................. 78 11,259 OneSteel Ltd. ........................................ 6 41,844 Pacific Dunlop Ltd. .................................. 35 8,663 PaperlinX Ltd. ....................................... 16 16,956 QBE Insurance Group Ltd. ............................. 93 15,932 Rio Tinto Ltd. ....................................... 261 43,961 Santos Ltd. .......................................... 147 15,673 Schroders Property Fund .............................. 21 25,542 Southcorp Holdings Ltd. .............................. 70 13,009 Stockland Trust Group ................................ 28 (c)12,645 Suncorp-Metway Ltd. .................................. 76 13,015 TABCORP Holdings Ltd. ................................ 80 153,870 Telstra Corp., Ltd. .................................. 550 7,692 Wesfarmers Ltd. ...................................... 69 57,574 Westfield Trust ...................................... 109 (c)75,738 Westpac Banking Corp. ................................ 556 87,723 WMC Ltd. ............................................. 374 46,647 Woolworths Ltd. ...................................... 219 ------------- 7,698 ------------- AUSTRIA (0.2%) 2,389 Austria Tabakwerke AG ................................ 132 3,507 Bank Austria AG ...................................... 193 529 BBag Oest Brau Beteiligungs AG ....................... 23 596 Boehler-Uddeholm AG .................................. 19 980 BWT AG ............................................... 33 408 EA-Generali AG ....................................... 70 1,226 Flughafen Wein AG .................................... 46 120 Lenzing AG ........................................... 9 693 Mayr-Melnhof Karton AG ............................... 31 1,764 Oest Elektrizatswirts AG, Class A .................... 179 2,430 OMV AG ............................................... 188 865 VA Technologie AG .................................... $26 3,984 Wienerberger Baustoffindustrie AG .................... 72 ------------- 1,021 ------------- BELGIUM (0.0%) 1,683 Solvay S.A. .......................................... 94 874 UCB S.A. ............................................. 32 555 Union Miniere Group S.A. ............................. 21 ------------- 147 ------------- CHINA/HONG KONG (1.7%) 70,080 Bank of East Asia Ltd. ............................... 181 162,000 Cathay Pacific Airways Ltd. .......................... 299 110,000 CLP Holdings Ltd. .................................... 549 91,600 Hang Seng Bank Ltd. .................................. 1,233 65,000 Henderson Land Development Co., Ltd. ................. 331 232,570 Hong Kong & China Gas Co., Ltd. ...................... 341 200,200 Hutchison Whampoa Ltd. ............................... 2,496 33,468 Hysan Development Co., Ltd. .......................... 47 274,000 Li & Fung Ltd. ....................................... 499 96,434 New World Development Co., Ltd. ...................... 117 (c)854,062 Pacific Century CyberWorks Ltd. ...................... 553 27,000 Shangri-La Asia Ltd. ................................. 29 238,389 Sino Land Co. ........................................ 125 111,000 Sun Hung Kai Properties Ltd. ......................... 1,107 73,000 Swire Pacific Ltd., Class A .......................... 526 23,000 Television Broadcasts Ltd. ........................... 121 122,600 Wharf Holdings Ltd. .................................. 298 ------------- 8,852 ------------- DENMARK (0.1%) 1,271 Carlsberg ............................................ 70 1,300 Carlsberg A/S ........................................ 77 2,700 Danisco A.S. ......................................... 111 400 Novo-Nordisk A/S ..................................... 72 600 Novozymes A/S ........................................ 12 ------------- 342 ------------- FINLAND (0.9%) 749 Kesko Oyj ............................................ 8 4,989 Metra Oyj, Class B ................................... 92 12,968 Metso Oyj ............................................ 145 (a)49,266 Nokia Oyj ............................................ 2,197 44,981 Nordic Baltic Holding FDR ............................ 355 11,034 Outokumpu Oyj ........................................ 83 5,092 Oyj Hartwell Abp ..................................... 98 800 Pohjola Insurance Co., Class B ....................... 35 17,597 Raisio Group plc ..................................... 32 7,755 Sampo Insurance Co., plc, Class A .................... 419 1 Sanitec Ltd. 23,787 Sonera Oyj ........................................... 431 5,008 Tieto Corp. .......................................... 143 23,649 UPM-Kymmene Oyj ...................................... 812 ------------- 4,850 ------------- FRANCE (10.2%) 10,728 Accor ................................................ 453
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- Active International Allocation Portfolio 8 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
VALUE SHARES (000) - ----------------------------------------------------------------------------------------------------------- FRANCE (CONT.) (a)24,312 Alcatel S.A. ......................................... $1,381 (c)18,879 AXA .................................................. 2,730 10,751 Banque Nationale de Paris ............................ 944 (c)23,740 Bouygues ............................................. 1,076 7,099 Canal Plus ........................................... 25 (c)4,331 Cap Gemini Sogeti .................................... 699 34,908 Carrefour ............................................ 2,193 (c)4,598 Casino Guichard-Perrachon ............................ 464 5,585 Cie de Saint Gobain .................................. 877 (c)1,763 Coflexip ............................................. 224 5,492 Dassault Systemes S.A. ............................... 376 2,844 Eridania Beghin-Say .................................. 247 475 Essilor International ................................ 155 (c)33,049 France Telecom ....................................... 2,853 3,670 Gecina ............................................... 351 19,482 Groupe Danone ........................................ 2,938 588 Imerys ............................................... 67 (c)5,108 Klepierre ............................................ 480 6,816 L'Air Liquide ........................................ 1,017 33,460 L'OREAL .............................................. 2,868 5,427 Lafarge S.A. ......................................... 455 8,498 Lagardere S.C.A. ..................................... 493 25,580 LVMH Moet-Hennessy Louis Vuitton ..................... 1,693 8,802 Lyonnaise des Eaux ................................... 1,607 10,909 Michelin Compagnie Generale des Establissements, Class B 395 7,736 Pechiney ............................................. 354 (c)6,150 Pernod Ricard ........................................ 424 6,916 Pinault-Printemps-Re doute S.A. ...................... 1,486 2,605 PSA Peugeot Citroen .................................. 593 31,463 Rhone-Poulenc, Class A ............................... 2,762 712 Sagem S.A. ........................................... 95 29,502 Sanofi ............................................... 1,967 9,792 Schneider ............................................ 714 1,478 Silic ................................................ 227 5,861 Simco (RFD) .......................................... 405 3,836 Soceite BIC .......................................... 151 7,840 Societe Fonciere Lyonnaise ........................... 212 (a)12,950 Societe Generale, Class A ............................ 805 1,919 Sodexho Alliance ..................................... 356 5,700 Sophia (EX-SFI) ...................................... 161 (a)(c)22,590 STMicroelectronics N.V. .............................. 986 9,567 Thomson CSF .......................................... 459 69,527 TotalFina, Class B ................................... 10,340 5,852 Unibail .............................................. 932 21,728 Usinor Sacilor ....................................... 287 5,284 Valeo ................................................ 236 (c)42,807 Vivendi Universal .................................... 2,817 ------------- 53,830 ------------- GERMANY (9.4%) 19,208 Allianz AG ........................................... 7,250 55,550 BASF AG .............................................. 2,527 63,650 Bayer AG ............................................. 3,341 17,520 Bayerische Vereinsbank AG ............................ 984 11,900 Beiersdorf AG ........................................ 1,235 6,617 Continential AG ...................................... 106 59,234 DaimlerChrysler AG ................................... 2,517 25,950 Deutsche Bank AG ..................................... 2,192 102,508 Deutsche Telekom ..................................... 3,128 5,000 Douglas Holding AG ................................... 184 20,517 Dresdner Bank AG ..................................... 896 1,700 Dyckerhoff AG ........................................ 30 78,048 E. On AG ............................................. 4,748 (a)3,550 EM.TV & Merchandising AG ............................. 19 (c)6,050 Fresenius Medical Care AG ............................ 491 3,850 Gehe AG .............................................. 147 4,605 Heidelberger Zement AG ............................... 210 28,074 IVG Holding AG ....................................... 342 3,750 Kamps AG ............................................. 39 4,800 Karstadt Quelle AG ................................... 147 8,980 Linde AG ............................................. 434 (c)12,000 Lufthansa AG ......................................... 301 (c)8,000 MAN AG ............................................... 202 4,700 Merck KGaA ........................................... 205 21,193 Metro AG ............................................. 973 13,307 Muechener Rueck AG (Registered) ...................... 4,798 11,850 Preussag AG .......................................... 432 47,073 RWE AG ............................................... 2,090 14,241 SAP AG ............................................... 1,658 5,350 Schering AG .......................................... 303 800 SGL Carbon AG ........................................ 42 44,183 Siemens AG ........................................... 5,860 49,900 Thyssen Krupp AG ..................................... 782 19,080 Volkswagen AG ........................................ 1,013 (c)5,400 WCM Beteiligungs & Grundbesi ......................... 83 ------------- 49,709 ------------- IRELAND (0.0%) 8,024 CRH plc .............................................. 149 1,940 Kerry Group plc ...................................... 25 22,320 Smurfit (Jefferson) Group ............................ 44 ------------- 218 ------------- ITALY (3.7%) 72,913 Assicurazioni Generali S.p.A. ........................ 2,896 (c)11,972 Autogrill S.p.A. ..................................... 147 3 Banca Commerciale Italiana (c)120,483 Banca di Roma ........................................ 131 132,882 Banco Ambrosiano Veneto S.p.A. ....................... 639 10,158 Banco Popolare di Milano ............................. 50 (c)97,182 Benetton Group S.p.A. ................................ 203 124,022 Credito Italiano S.p.A. .............................. 649 508,715 Enel S.p.A. .......................................... 1,977 626,870 ENI S.p.A. ........................................... 4,002 (c)10,965 Fiat S.p.A. .......................................... 270 25,616 Impregilo S.p.A. ..................................... 14 39,511 Instituto Bancario San Paolo di Torino ............... 639 5,625 Italcementi S.p.A. ................................... 47 20,532 Italgas S.p.A. ....................................... 191 343 Marzotto (Gaetano) & Figli S.p.A. .................... 4 72,258 Mediaset S.p.A. ...................................... 862
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- Active International Allocation Portfolio 9 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
VALUE SHARES (000) - ----------------------------------------------------------------------------------------------------------- ITALY (CONT.) 17,617 Mediobanca S.p.A. .................................... $200 93,145 Olivetti S.p.A. ...................................... 223 180,091 Parmalat Finanziaria S.p.A. .......................... 292 136,776 Pirelli S.p.A. ....................................... 487 35,762 R.A.S. S.p.A. ........................................ 558 13,088 Rinascente S.p.A. .................................... 77 (a)4,256 Sai-Soc Assic Industriale ............................ 84 3,084 Seat-Pagine Gialle S.p.A. ............................ 7 30,232 Snia S.p.A. .......................................... 65 439,685 Telecom Italia Mobile S.p.A. ......................... 3,509 119,455 Telecom Italia S.p.A. ................................ 1,321 5,540 Telecom Italia S.p.A. (RNC) .......................... 33 ------------- 19,577 ------------- JAPAN (18.0%) 8,200 Acom Co., Ltd. ....................................... 604 3,490 Advantest Corp. ...................................... 326 79,400 Ajinomoto Co., Inc. .................................. 1,030 2,286 Alps Electric Co. .................................... 35 157,900 Asahi Bank Ltd. ...................................... 537 26,000 Asahi Breweries Ltd. ................................. 265 73,000 Asahi Chemical Industry Co., Ltd. .................... 420 118,800 Asahi Glass Co., Ltd. ................................ 979 28,000 Bank of Fukuoka ...................................... 119 60,800 Bank of Yokohama Ltd. ................................ 276 11,000 Benesse Corp. ........................................ 408 49,000 Bridgestone Corp. .................................... 445 30,600 Canon, Inc. .......................................... 1,069 (c)52,800 Casio Computer Co., Ltd. ............................. 445 136 Central Japan Railway Co. ............................ 835 20,600 Chugai Pharmaceuticals Co., Ltd. ..................... 342 (c)33,000 Chuo Mitsui Trust & Banking Co., Ltd. ................ 101 (c)1,900 Credit Saison Co., Ltd. .............................. 41 300 CSK Corp. ............................................ 4 57,600 Dai Nippon Printing Co., Ltd. ........................ 856 (c)65,600 Daiei, Inc. .......................................... 105 4,000 Daiichi Pharmaceutical Co., Ltd. ..................... 119 3,600 Daikin Industries Ltd. ............................... 69 171,000 Daiwa Bank Ltd. ...................................... 279 57,600 Daiwa House Industry Co., Inc. ....................... 357 74,000 Daiwa Securities Co., Ltd. ........................... 771 27,600 Denso Corp. .......................................... 596 298 East Japan Railway Co. ............................... 1,745 (c)37,800 Ebara Corp. .......................................... 410 7,000 Eisai Co., Ltd. ...................................... 245 14,800 Fanuc Ltd. ........................................... 1,005 39,000 Fuji Photo Film Ltd. ................................. 1,629 2,900 Fuji Soft ABC, Inc. .................................. 187 83,200 Fujitsu Ltd. ......................................... 1,224 46,800 Furukawa Electric Co., Ltd. .......................... 816 15,000 Gunma Bank Ltd. ...................................... 73 800 Hirose Electric Co., Ltd. ............................ 77 114,000 Hitachi Ltd. ......................................... 1,014 32,000 Honda Motor Co., Ltd. ................................ 1,191 1,000 Hoya Corp. ........................................... 73 27,000 Ito-Yokado Co., Ltd. ................................. 1,345 (a)1,000 Itochu Corp. ......................................... 5 35,000 Japan Airlines Co., Ltd. ............................. 160 (a)10,000 Japan Energy Corp. ................................... 15 98 Japan Tobacco, Inc. .................................. 759 11,600 Joyo Bank Ltd. ....................................... 37 24,800 Jusco Co., Ltd. ...................................... 537 400 Kadokawa Shoten Publishing Co., Ltd. ................. 11 (c)109,400 Kajima Corp. ......................................... 303 4,000 Kaneka Corp. ......................................... 38 82,900 Kansai Electric Power Co., Ltd. ...................... 1,404 49,000 Kao Corp. ............................................ 1,421 (a)13,000 Kawasaki Heavy Industries Ltd. ....................... 14 102,000 Kawasaki Steel Corp. ................................. 105 3,000 Kinden Corp. ......................................... 17 (c)100,200 Kinki Nippon Railway Co., Ltd ........................ 417 120,400 Kirin Brewery Co., Ltd. .............................. 1,076 96,400 Komatsu Ltd. ......................................... 425 600 Konami Co., Ltd. ..................................... 45 150,000 Kubota Corp. ......................................... 456 4,000 Kuraray Co., Ltd. ................................... 37 7,100 Kyocera Corp. ........................................ 774 6,600 Kyowa Hakko Kogyo Co., Ltd. .......................... 46 1,000 Marubeni Corp. ....................................... 2 18,000 Marui Co., Ltd. ...................................... 271 113,000 Matsushita Electric Industrial Co., Ltd. ............. 2,695 3,000 Minebea Co., Ltd. .................................... 28 104,000 Mitsubishi Chemical Corp. ............................ 274 19,000 Mitsubishi Corp. ..................................... 140 154,800 Mitsubishi Electric Corp. ............................ 951 (c)59,000 Mitsubishi Estate Co., Ltd. .......................... 629 285,000 Mitsubishi Heavy Industries Ltd. ..................... 1,240 72,400 Mitsubishi Materials Corp. ........................... 173 80,000 Mitsubishi Trust & Banking Co. ....................... 549 20,800 Mitsui & Co., Ltd. ................................... 131 5,000 Mitsui Fire & Marine Insurance ....................... 29 37,400 Mitsui Fudosan Co., Ltd. ............................. 371 (c)45,800 Mitsukoshi Ltd. ...................................... 186 311 Mizuho Holding, Inc. ................................. 1,924 9,000 Murata Manufacturing Co., Ltd. ....................... 1,054 (c)18,800 Mycal Corp. .......................................... 40 (c)700 NAMCO Ltd. ........................................... 13 54,400 NEC Corp. ............................................ 993 (c)38,600 NGK Insulators Ltd. .................................. 510 (c)29,000 NGK Spark Plug Co., Ltd. ............................. 423 (c)4,800 Nichiei Co., Ltd. (Kyoto) ............................ 25 (c)2,100 Nidec Corp. .......................................... 99 13,000 Nikon Corp. .......................................... 139 8,100 Nintendo Corp., Ltd. ................................. 1,273 58,800 Nippon Express Co., Ltd. ............................. 354 25,600 Nippon Meat Packers, Inc. ............................ 348 157,800 Nippon Oil Co., Ltd. ................................. 758 9,000 Nippon Paper Industries Co. .......................... 54 484,000 Nippon Steel Co. ..................................... 799 413 Nippon Telegraph & Telephone Corp. (NTT) ............. 2,970
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- Active International Allocation Portfolio 10 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
VALUE SHARES (000) - ----------------------------------------------------------------------------------------------------------- JAPAN (CONT.) 101,000 Nippon Yusen Kabushiki Kaisha ........................ $417 (a)112,600 Nissan Motor Co., Ltd. ............................... 647 1,500 Nissin Food Products Co. ............................. 37 2,000 Nitto Denko Corp. .................................... 54 114,000 Nomura Securities Co., Ltd. .......................... 2,047 7,000 NSK Ltd. ............................................. 43 (c)15,000 Obayashi Corp. ....................................... 64 119,400 Oji Paper Co., Ltd. (New) ............................ 616 3,000 Olympus Optical Co., Ltd. ........................... 52 7,000 Omron Corp. .......................................... 145 19,000 Onward Kashiyama Co., Ltd. ........................... 158 5,400 Oriental Land Co., Ltd. .............................. 361 3,900 Orix Corp. ........................................... 391 180,600 Osaka Gas Co., Ltd. .................................. 548 14,000 Pioneer Electric Corp. ............................... 373 6,500 Promise Co., Ltd ..................................... 460 5,000 Rohm Co., Ltd. ....................................... 948 202,000 Sakura Bank Ltd. ..................................... 1,218 29,800 Sankyo Co., Ltd. ..................................... 713 141,000 Sanyo Electric Co., Ltd. ............................. 1,170 18,800 Secom Co., Ltd. ...................................... 1,224 (c)11,600 Sega Enterprises Ltd. ................................ 113 1,000 Sekisui Chemical Co. ................................. 3 57,600 Sekisui House Co., Ltd ............................... 526 41,200 Sharp Corp. .......................................... 496 200 Shimamura Co., Ltd. .................................. 11 8,200 Shimano, Inc. ........................................ 161 (c)80,600 Shimizu Corp. ........................................ 238 11,000 Shin-Etsu Chemical Co., Ltd. ......................... 423 7,000 Shionogi & Co., Ltd. ................................. 143 25,000 Shiseido Co., Ltd. ................................... 278 50,600 Shizuoka Bank Ltd. ................................... 459 10,000 Showa Shell Sekiyu K.K. .............................. 42 16,000 Skylark Co., Ltd. .................................... 447 4,700 SMC Corp. ............................................ 604 13,900 Softbank Corp. ....................................... 482 42,800 Sony Corp. ........................................... 2,954 139,000 Sumitomo Bank ........................................ 1,425 109,600 Sumitomo Chemical Co., Ltd. .......................... 543 11,400 Sumitomo Corp. ....................................... 82 (c)85,400 Sumitomo Electric Industries ......................... 1,398 400 Sumitomo Forestry Co., Ltd. .......................... 3 3,000 Sumitomo Marine & Fire Insurance Co., Ltd. ........... 19 34,800 Sumitomo Metal & Mining Co. .......................... 182 (a)46,000 Sumitomo Metal Industries ............................ 26 110,400 Taisei Corp., Ltd. ................................... 221 24,800 Taisho Pharmaceutical Co., Ltd. ...................... 670 6,000 Taiyo Yuden Co., Ltd. ................................ 200 (c)2,000 Takara Shuzo ......................................... 35 60,600 Takeda Chemical Industries ........................... 3,579 8,400 Takefuji Corp. ....................................... 528 64,400 Teijin Ltd. .......................................... 332 18,000 Terumo Corp. ......................................... 393 3,000 The 77 Bank, Ltd. .................................... 17 203,000 The Bank of Tokyo-Mitsubushi Ltd. .................... 2,017 59,400 Tobu Railway Co., Ltd. ............................... 174 29,900 Tohoku Electric Power Co., Ltd. ...................... 399 (c)136,800 Tokai Bank Ltd. ...................................... 592 94,000 Tokio Marine & Fire Insurance Co., Ltd. .............. 1,075 16,000 Tokyo Broadcasting System, Inc. ...................... 473 108,000 Tokyo Electric Power Co. ............................. 2,675 5,800 Tokyo Electron Ltd. .................................. 318 175,600 Tokyo Gas Co. ........................................ 519 (c)63,400 Tokyu Corp. .......................................... 341 47,600 Toppan Printing Co., Ltd. ............................ 414 72,100 Toray Industries, Inc. ............................... 271 108,000 Toshiba Corp. ........................................ 721 3,000 Tostem Corp. ......................................... 37 (c)58,600 Toto Ltd. ............................................ 417 3,000 Toyo Seikan Kaisha Ltd. .............................. 49 137,000 Toyota Motor Corp. ................................... 4,369 107,400 Ube Industries Ltd. .................................. 241 1,100 Uni-Charm Corp. ...................................... 56 (c)700 World Co. Ltd. ....................................... 26 22,000 Yamanouchi Pharmaceutical Co. ........................ 950 4,000 Yamato Transport Co., Ltd. .......................... 73 11,000 Yokogawa Electric Corp. .............................. 93 ------------- 95,033 ------------- NETHERLANDS (6.6%) 51,370 ABN Amro Holding N.V. ................................ 1,168 70,167 Aegon N.V. ........................................... 2,903 12,078 Akzo Nobel N.V. ...................................... 649 5,740 ASM Lithography Holding N.V. ......................... 130 5,832 Buhrmann N.V. ........................................ 156 37,970 Elsevier N.V. ........................................ 558 (a)12,282 Getronics NV ......................................... 72 5,521 Hagemeyer N.V. ....................................... 123 43,704 Heineken N.V. ........................................ 2,645 59,099 ING Groep N.V. ....................................... 4,721 37,839 Koninklijke Ahold N.V. ............................... 1,221 79,131 Koninklijke Philips Electronics N.V. ................. 2,899 1,131 Oce N.V. ............................................. 18 16,575 Rodamco Continental Europe N.V. ...................... 632 166,631 Royal Dutch Petroleum Co. ............................ 10,210 19,142 Royal KPN N.V. ....................................... 220 29,995 TNT Post Group N.V. .................................. 726 10,860 Uni Ivest N.V. ....................................... 114 80,707 Unilever N.V. ........................................ 5,107 4,826 Vedior N.V. .......................................... 58 17,816 Wolters Kluwer N.V. .................................. 486 ------------- 34,816 ------------- NEW ZEALAND (0.0%) 61,015 Carter Holt Harvey Ltd. .............................. 44 ------------- NORWAY (0.0%) 2,300 Elkem ASA ............................................ 37 1,400 Norske Skogindustrier ASA, Class A .................. 59 9,900 Orkla ASA ............................................ 195 ------------- 291 ------------- PORTUGAL (0.5%) 50,815 Banco Commercial Portugues (Registered) .............. 270
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- Active International Allocation Portfolio 11 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
VALUE SHARES (000) - ----------------------------------------------------------------------------------------------------------- PORTUGAL (CONT.) 9,463 Banco Espirito Santo e Comercial de Lisboa (Registered) $159 60,305 Banco Portugues de Investimento (New) ................ 189 33,670 Brisa-Auto Estradas de Portugal S.A. ................. 300 1 Cimpor SGPS .......................................... -- 394,600 Electricidade de Portugal S.A. ....................... 1,304 (d)9,119 Jeronimo Martins SGPS ................................ 94 11,996 Portucel Industrial-Empressa ......................... 82 21,889 Portugal Telecom ..................................... 200 (a)103,880 Sonae SGPS S.A. ...................................... 117 ------------- 2,715 ------------- SINGAPORE (1.0%) 93,750 Capitaland Ltd. ..................................... 162 10,000 Chartered Semiconductor Manufacturing Ltd. .......... 27 49,000 City Developments Ltd. .............................. 228 1,450 Creative Technology Ltd. ............................ 17 21,000 Cycle & Carriage Ltd. ............................... 40 88,441 DBS Group Holdings Ltd. ............................. 1,000 21,000 First Capital Corp., Ltd. ........................... 17 23,800 Fraser & Neave Ltd. ................................. 92 61,000 Hotel Properties Ltd. ............................... 52 58,750 Keppel Corp., Ltd. .................................. 115 (a)47,000 Neptune Orient Lines Ltd. (Foreign) ................. 37 84,688 Oversea-Chinese Banking Corp. (Foreign) ............. 630 31,000 Parkway Holdings Ltd. ............................... 57 131,644 Sembcorp Industries Ltd. ............................ 129 87,000 Singapore Airlines Ltd. (Foreign) ................... 863 27,018 Singapore Press Holdings Ltd. ....................... 399 218,000 Singapore Technologies Engineering Ltd. ............. 351 160,500 Singapore Telecommunications Ltd. ................... 249 119,000 United Industrial Corp., Ltd. ....................... 58 68,328 United Overseas Bank Ltd. (Foreign) ................. 512 45,000 United Overseas Land Ltd. ........................... 40 8,000 Venture Manufacturing (Singapore) Ltd. .............. 54 ------------- 5,129 ------------- SPAIN (3.0%) 4,236 Acerinox ............................................ 129 4,981 ACS Actividades ..................................... 117 14,239 Aguas de Barcelona .................................. 174 21,489 Autopistas Concesionaria Espanola ................... 188 2,643 Azucarera Ebro Agricolas ............................ 30 189,856 Banco Bilbao Vizcaya (Registered) ................... 2,825 179,371 Banco Santander ..................................... 1,920 5,977 Corporacion Mapfre .................................. 114 97,009 Endesa .............................................. 1,653 7,584 Fomento Construction y Cantractas ................... 144 44,619 Gas Natural SDG S.A. ................................ 813 14,276 Grupo Dragados, S.A. ................................ 155 89,995 Iberdrola ........................................... 1,128 24,670 Imobiliaria Colonial S.A. ........................... 331 26,946 Inmobiliaria Metropolitana Vasco Central ............ 391 (a)24,739 Prima Immobiliaria S.A. ............................. 256 96,761 Repsol .............................................. 1,546 7,936 SOL Melia S.A. ...................................... 82 16,218 Tabacalera .......................................... 251 135,143 Telefonica .......................................... 2,233 (a)18,386 Telepizza ........................................... 44 29,782 Union Electrica Fenosa .............................. 547 57 Uralita ............................................. -- 103,645 Vallehermoso ........................................ 631 115 Viscofan Envolturas Celulosicas -- 3,981 Zardoya Otis ........................................ 35 ------------- 15,737 ------------- SWEDEN (2.1%) 3,274 Assidoman AB ........................................ 66 9,750 Atlas Copco AB, Class A ............................. 213 5,500 Atlas Copco AB, Class B ............................. 115 44,910 Castellum AB ........................................ 495 52,900 Drott AB, Class B ................................... 728 23,600 Electrolux AB, Series B ............................. 306 59,400 Hennes & Mauritz AB, Class B ........................ 919 18,000 JM AB ............................................... 398 (a)1,333 Netcom Systems AB, Class B .......................... 55 5,500 OM Gruppen AB ....................................... 136 6,600 S.K.F. AB, Class B .................................. 100 (a)21,100 Sandvik AB .......................................... 507 30,140 Securitas AB, Class B ............................... 559 78,600 Skandia Forsakrings AB .............................. 1,278 24,500 Skandinaviska Enskilda Banken, Class A .............. 270 9,600 Skanska AB, Class B ................................. 397 22,272 Svenska Cellulosa AB, Class B ....................... 473 26,500 Svenska Handelsbanken, Class A ...................... 453 5,000 Svenskt Stal AB (SSAB), Series A .................... 48 22,200 Swedish Match AB .................................... 87 (a)248,000 Telefonaktiebolaget LM Ericsson ..................... 2,824 28,400 Telia AB ............................................ 146 10,900 Trelleborg AB, Class B .............................. 78 3,600 Volvo AB, Class A ................................... 59 13,650 Volvo AB, Class B ................................... 226 27,600 Wihlborgs Fastigheter AB ............................ 38 (a)27,500 Wm-Data AB .......................................... 132 ------------- 11,106 ------------- SWITZERLAND (7.3%) 19,348 ABB AG .............................................. 2,062 1,426 Adecco .............................................. 897 9,980 CS Holding AG (Registered) .......................... 1,896 195 Georg Fischer AG .................................... 55 (a)690 Givaudan ............................................ 182 233 Holderbank Financiere Glarus AG ..................... 76 237 Holderbank Financiere Glarus AG, Class B (Bearer) ... 285 61 Lonza AG ............................................ 36 5,648 Nestle (Registered) ................................. 13,171 3,086 Novartis AG (Registered) ............................ 5,454 120 Roche Holding AG (Bearer) ........................... 1,488 327 Roche Holding AG (Registered) ....................... 3,331 83 SAirgroup ........................................... 13 10 SGS Surveillance .................................... 15 340 SMH AG (Bearer) ..................................... 425
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- Active International Allocation Portfolio 12 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
VALUE SHARES (000) - ----------------------------------------------------------------------------------------------------------- SWITZERLAND (CONT.) (a)232 Sulzer AG (Registered) .............................. $167 330 Swatch Group AG ..................................... 86 893 Swiss Reinsurance (Registered) ...................... 2,140 3,236 Swisscom AG (Registered) ............................ 841 4,117 Syngenta AG ......................................... 221 15,357 UBS AG .............................................. 2,506 321 Valora Holding AG ................................... 69 5,117 Zurich Financial Services AG ........................ 3,084 ------------- 38,500 ------------- UNITED KINGDOM (22.3%) 52,981 3I Group plc ........................................ 980 (a)63,087 Abbey National plc .................................. 1,149 50,346 Amvescap plc ........................................ 1,034 (a)52,250 ARM Holdings plc .................................... 395 401 AWG plc ............................................. 4 79,680 BAA plc ............................................. 736 84,658 Barclays plc ........................................ 2,622 81,893 Bass plc ............................................ 892 271,319 BG plc .............................................. 1,062 2,170 BICC plc ............................................ 4 13,456 Blue Circle Industries plc .......................... 89 55,096 BOC Group plc ....................................... 837 55,983 Boots Co. plc ....................................... 510 2,197,935 BP Amoco plc ........................................ 17,738 207,851 British Aerospace plc ............................... 1,187 108,999 British Airways plc ................................. 636 239,352 British American Tobacco plc ........................ 1,823 181,471 British Land Co. plc ................................ 1,288 118,809 British Sky Broadcasting plc ........................ 1,991 536,706 British Telecommunications plc ...................... 4,588 306,232 BTR plc ............................................. 716 7,246 Bunzl plc ........................................... 44 207,628 Cadbury Schweppes plc ............................... 1,437 (a)21,686 Canary Wharf Finance plc ............................ 158 66,783 Capital Group plc ................................... 499 3,009 Caradon plc ......................................... 9 49,919 Carlton Communications plc .......................... 456 258,045 Centrica plc ........................................ 1,000 48,129 Chelsfield plc ...................................... 260 155,075 Commercial Union plc ................................ 2,508 67,260 Corus Group plc ..................................... 71 366,257 Diageo plc .......................................... 4,105 124,823 Dixons Group plc .................................... 418 54,252 EMI Group plc ....................................... 446 101,758 GKN plc ............................................. 1,075 242,031 Glaxosmithkline plc ................................. 6,836 182,740 Granada Compass plc ................................. 1,990 59,270 Grantchester Holdings plc ........................... 180 67,254 Great Portland Estates plc .......................... 294 80,414 Great Universal Stores plc .......................... 632 103,268 Halifax plc ......................................... 1,024 61,530 Hammerson plc ....................................... 426 15,976 Hanson plc .......................................... 110 127,318 Hays plc ............................................ 735 413,052 HSBC Holdings plc ................................... 6,081 112,623 Imperial Chemical Industries plc .................... 929 3,250 Johnson Matthey plc ................................. 51 96,086 Kingfisher plc ...................................... 715 155,215 Ladbroke Group plc .................................. 485 98,489 Land Securities plc ................................. 1,240 3,637 Lasmo plc ........................................... 11 271,319 Lattice Group plc ................................... 612 385,630 Legal & General Group plc ........................... 1,063 233,381 Lloyds TSB Group plc ................................ 2,469 25,174 Logica plc .......................................... 658 90,390 Marconi plc ......................................... 971 206,709 Marks and Spencer plc ............................... 575 45,945 MISYS plc ........................................... 453 102,139 National Grid Group plc ............................. 929 54,641 National Power plc .................................. 205 47,886 Nycomed Amersham plc ................................ 399 43,296 P&O Princess Cruises plc ............................ 183 37,814 Pearson plc ......................................... 899 43,296 Peninsular & Oriental Steam Navigation .............. 205 5,289 Pilkington plc ...................................... 9 126,073 Prudential Corp. plc ................................ 2,029 9,200 Psion plc ........................................... 39 33,172 Railtrack Group plc ................................. 459 2,613 Rank Group plc ...................................... 7 69,981 Reed International plc .............................. 732 140,279 Rentokil Initial plc ................................ 484 98,161 Reuters Group plc ................................... 1,662 9,596 Rexam plc ........................................... 32 99,759 Rio Tinto plc ....................................... 1,756 4,925 RMC Group plc ....................................... 43 108,587 Royal Bank of Scotland Group plc .................... 2,567 130,994 Sainsbury (J) plc ................................... 777 19,014 Schroders plc ....................................... 375 127,263 Scottish Power plc .................................. 1,006 28,645 SEMA Group plc ...................................... 126 90,847 Slough Estates plc .................................. 559 29,103 Smith & Nephew plc .................................. 135 692 Smiths Industries plc ............................... 8 25,866 Tate & Lyle plc ..................................... 96 1,502 Taylor Woodrow plc .................................. 4 480,250 Tesco plc ........................................... 1,958 84,422 The Sage Group plc .................................. 387 308,540 Unilever plc ........................................ 2,642 52,187 United Utilities plc ................................ 519 3,054,851 Vodafone Group plc .................................. 11,208 60,146 WPP Group plc ....................................... 784 69,162 Zeneca Group plc .................................... 3,489 ------------- 118,019 ------------- TOTAL COMMON STOCKS (Cost $481,785) ....................................... 467,634 ------------- PREFERRED STOCKS (0.5%) AUSTRALIA (0.1%) 66,716 News Corp., Ltd. .................................... 475 -------------
The accompanying notes are an integral part of the financial statements - -------------------------------------------------------------------------------- Active International Allocation Portfolio 13 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
VALUE SHARES (000) - ----------------------------------------------------------------------------------------------------------- CHINA/HONG KONG (0.1%) 178,500 Johnson Electric Holdings Ltd. ...................... $275 ------------- GERMANY (0.3%) 1,600 RWE AG .............................................. 52 10,101 SAP AG .............................................. 1,442 3,250 Volkswagen AG ....................................... 99 ------------- 1,593 ------------- ITALY (0.0%) 2,110 Fiat S.p.A. ......................................... 35 ------------- TOTAL PREFERRED STOCKS (Cost $3,039) .......................................... 2,378 ------------- NO. OF WARRANTS - --------- WARRANTS (0.0%) FRANCE (0.0%) 1,644 Simco (CTF), expiring 10/31/03 ...................... 9 ------------- ITALY (0.0%) (a)3 Banca Intesa, expiring 11/15/02...................... -- ------------- TOTAL WARRANTS (Cost $--) ..................................................... 9 ------------- FACE AMOUNT (000) - --------- FIXED INCOME SECURITIES (0.0%) FRANCE (0.0%) $136 Casino Guichard-Perrachon, Series XW 4.50%, 7/12/01 ....... 128 ------------- PORTUGAL (0.0%) 10 Jeronimo Martins SGPS, Zero Coupon, 12/30/04 .................................... 3 ------------- TOTAL FIXED INCOME SECURITIES (Cost $66)....................................... 131 ------------- TOTAL FOREIGN SECURITIES (88.9%)(Cost $484,890) ............................... 470,152 ------------- SHORT-TERM INVESTMENTS (16.9%) SHORT-TERM INVESTMENTS HELD AS COLLATERAL ON LOANED SECURITIES (3.7%) 1,000 AT&T Corp., CP., 6.725%, 7/19/01............................. 1,000 250 Bayerische Landesbank, N.Y.,Yankee CD, 6.68%, 2/22/01........ 250 1,250 Bear Stearns, Yankee CD, 6.72%, 5/04/01...................... 1,250 650 BNP Paribas N.Y., Yankee CD, 6.53%, 1/08/01.................. 650 1,749 CIT Group Holdings, MTN, 6.70%, 5/24/01 ..................... 1,749 991 Citibank Credit Card CP., 6.78%, 1/09/01..................... 991 675 Commerzbank AG, N.Y., Yankee CD, 6.55%, 1/08/01 ............. 675 650 Dexia Bank N.Y., Yankee CD, 6.53%, 1/08/01................... 650 1,750 First Union Bank, CD, 6.68%, 2/20/01......................... 1,750 1,702 Goldman Sachs Group, L.P., MTN, 6.27%, 1/09/01............... 1,702 1,750 Links Finance Corp., MTN, 6.65%, 5/21/01..................... 1,750 1,199 Nordeutsche Landesbank, N.Y., Yankee CD, 6.76%, 2/26/01...... 1,199
FACE AMOUNT VALUE (000) (000) - ----------------------------------------------------------------------------------------------------------- $ 3,241 Salomon Smith Barney, Inc., 6.50%, dated 12/29/00, due 1/02/01 ....................................... $3,241 742 Sheffield Receivable Corp., CP, 6.73%, 1/25/01............... 742 1,199 Svenska Handelsbank, N.Y., Yankee CD, 6.67%, 2/26/01......... 1,199 600 Toyota Motor Credit Corp., MTN, 6.27%, 1/09/00............... 600 ------ TOTAL SECURITIES HELD FOR COLLATERAL ON LOANED SECURITIES........................... 19,398 ----------------- REPURCHASE AGREEMENT (13.2%) (f)69,729 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01(Cost $69,729)................................. 69,729 ----------------- TOTAL SHORT-TERM INVESTMENTS (Cost $89,127)............................................ 89,127 ----------------- FOREIGN CURRENCY (0.0%) 4 Australian Dollar................................................... 2 44 British Pound....................................................... 66 42 Euro................................................................ 39 44 Hong Kong Dollar.................................................... 6 1,044 Japanese Yen........................................................ 9 2 New Zealand Dollar.................................................. 1 82,750 South Korean Won.................................................... 65 ----------------- TOTAL FOREIGN CURRENCY (Cost $196)..................................................... 188 ----------------- TOTAL INVESTMENTS (105.8%) (Cost $574,213)........................................... $559,467 ----------------- OTHER ASSETS (2.0%) Receivable for Investments Sold....................................... $7,291 Due from Broker....................................................... 1,767 Receivable for Portfolio Shares Sold.................................. 642 Dividends Receivable.................................................. 592 Foreign Withholding Tax Reclaim Receivable............................ 268 Net Receivable for Daily Variation on Futures Contracts............... 175 Interest Receivable................................................... 52 Other 26 10,813 ------------- LIABILITIES (-7.8%) Collateral on Securities Loaned....................................... (19,398) Payable for Investments Purchased..................................... (19,342) Bank Overdraft Payable ............................................... (997) Investment Advisory Fees Payable...................................... (756) Net Unrealized Loss on Foreign Currency Exchange Contracts............ (256) Payable for Portfolio Redeemed........................................ (115) Administrative Fees Payable........................................... (95) Custodian Fees Payable................................................ (79) Directors' Fees and Expenses Payable.................................. (29) Distribution Fees Payable............................................. (22) Other Liabilities...................................................... (68) (41,157) ------------- ----------------- NET ASSETS (100%) $529,123 =================
The accompanying notes are an integral part of the financial statements - -------------------------------------------------------------------------------- Active International Allocation Portfolio 14 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
AMOUNT (000) - ------------------------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Paid in Capital.................................................................. $559,412 Distributions in Excess of Net Investment Income................................. (2,199) Accumulated Net Realized Loss.................................................... (13,476) Unrealized Depreciation on Investments and Foreign Currency Translations......... (14,614) ------------ NET ASSETS....................................................................... $529,123 ============ CLASS A: - -------- NET ASSETS....................................................................... $509,309 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 47,693,181 outstanding $0.001 par value shares (authorized 500,000,000 shares).......................................................................... $10.68 ============ CLASS B: - -------- NET ASSETS....................................................................... $19,814 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 1,833,961 outstanding $0.001 par value shares (authorized 500,000,000 shares).......................................................................... $10.80 ============
- -------------------------------------------------------------------------------- (a) -- Non-income producing security (c) -- All or a portion of security on loan at December 31, 2000 -- See Note A-9 to financial statements. (d) -- Security valued at fair value -- See Note A-1 to financial statements. (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. CD -- Certificate of Deposit CP -- Commercial Paper MTN -- Medium Term Note NCS -- Non-Convertible Shares RFD -- Ranked for Dividend RNC -- Non-Convertible Savings Shares - -------------------------------------------------------------------------------- FUTURES CONTRACTS: At December 31, 2000, the following futures contracts were open:
NET UNREALIZED NUMBER NOTIONAL APPRECIATION OF VALUE EXPIRATION (DEPRECIATION) CONTRACTS (000) DATE (000) --------- ------------ ---------- -------------- LONG: MIB30 Index (Italy)................. 26 U.S.$ 5,287 March-01 $ (99) FTSE 100 Index (United Kingdom) 233 U.S.$21,537 March-01 (204) SHORT: DAX Index (Germany) 60 U.S.$ 8,535 March-01 446 ------ $143 ======
- ----------------------------------------------------------------------------------------------------------- SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION VALUE PERCENT OF SECTOR (000) NET ASSETS - ----------------------------------------------------------------------------------------------------------- Consumer Discretionary $61,659 11.7% Consumer Staples 53,713 10.2 Energy 46,285 8.7 Financials 116,878 22.1 Healthcare 34,744 6.6 Industrials 44,158 8.3 Information Technology 25,229 4.8 Materials 23,761 4.5 Telecommunication Services 36,388 6.9 Utilities 27,337 5.1 -------- ------ $470,152 88.9% ======== ======
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at December 31, 2000, the Portfolio is obligated to deliver or is to receive foreign currency in exchange for U.S. dollars as indicated below:
CURRENCY IN NET TO EXCHANGE UNREALIZE DELIVER VALUE SETTLEMENT FOR VALUE GAIN/(LOSS) (000) (000) DATE (000) (000) (000) - ----------------- -------- ---------- -------------- ------------ ------------ GBP 3,907 $5,839 1/02/01 U.S.$ 5,752 $5,752 $(87) GBP 826 1,234 1/03/01 U.S.$ 1,220 1,220 (14) JPY 1,371,023 12,101 3/02/01 U.S.$ 12,482 12,482 381 JPY 1,627,765 14,368 3/02/01 U.S.$ 14,384 14,384 16 AUD 1,563 $870 3/16/01 U.S.$ 848 $848 $(22) EUR 49,795 46,903 3/16/01 U.S.$ 44,195 44,195 (2,708) EUR 1,172 1,104 3/16/01 U.S.$ 1,048 1,048 (56) EUR 415 390 3/16/01 U.S.$ 370 370 (20) JPY 1,811,000 16,021 3/16/01 U.S.$ 16,499 16,499 478 JPY 1,017,194 8,999 3/16/01 U.S.$ 9,350 9,350 351 JPY 685,000 6,060 3/16/01 U.S.$ 6,193 6,193 133 JPY 2,480,957 21,948 3/16/01 U.S.$ 22,307 22,307 359 GBP 17 26 3/16/01 U.S.$ 26 26 -- U.S.$ 854 854 3/16/01 AUD 1,563 870 16 U.S.$ 8,199 8,199 3/16/01 EUR 9,162 8,630 431 U.S.$ 28,438 28,438 3/16/01 EUR 31,996 30,137 1,699 U.S.$ 5,398 5,398 3/16/01 EUR 5,815 5,477 79 U.S.$ 11,465 11,465 3/16/01 JPY 1,245,752 11,021 (444) U.S.$ 17,089 17,089 3/16/01 JPY 1,854,152 16,403 (686) U.S.$ 5,866 5,866 3/16/01 JPY 637,690 5,641 (225) U.S.$ 21,759 21,759 3/16/01 GBP 14,584 21,822 63 ------ --------- ------ $234,931 $234,675 $(256) ======== ======== ======
The accompanying notes are an integral part of the financial statements - -------------------------------------------------------------------------------- Active International Allocation Portfolio 15 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ ASIAN EQUITY PORTFOLIO COMPOSITION OF NET ASSETS (DECEMBER 31, 2000) - ------------------------------------------------------------------------------ [CHART] China/Hong Kong (40.3%) South Korea (19.3%) Taiwan (15.9%) Singapore (15.1%) Malaysia (5.1%) Thailand (2.3%) Philippines (0.6%) Indonesia (0.4%) Other (1.0%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ---------------------------------------------------- [GRAPH]
MSCI Combined Asian Equity Far East Portfolio- Free ex-Japan Class A Index (1) ---------------------- ------------- 1991 $ 500,000 $ 500,000 10/31/92 ---------- ---------- 12/31/92 ---------- ---------- 1993 ---------- ---------- 1994 ---------- ---------- 1995 ---------- ---------- 1996 ---------- ---------- 1997 ---------- ---------- 1998 ---------- ---------- 1999 ---------- ---------- 2000 $ 620,431 $709,490
* Commenced operations on July 1, 1991 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) ALL-COUNTRY FAR EAST FREE EX-JAPAN INDEX(1) - ------------------------------------------------------------------------------
TOTAL RETURNS(2) ------------------------------ AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION -------- --------- ------------ PORTFOLIO -- CLASS A.......... -40.65% -12.62% 2.30% PORTFOLIO -- CLASS B.......... -40.74 N/A -12.94 INDEX -- CLASS A.............. -36.80 -9.60 3.94 INDEX -- CLASS B.............. -36.80 N/A -9.66
1. The MSCI All-Country Far East Free ex-Japan Index is an unmanaged index of common stocks and includes Indonesia, Hong Kong, Malaysia, the Philippines, South Korea, Singapore, Taiwan and Thailand. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The investment objective of the Asian Equity Portfolio is to seek long-term capital appreciation by investing primarily in equity securities which are traded on recognized exchanges of Hong Kong, Singapore, Malaysia, Thailand, Indonesia and the Philippines. The Portfolio may also invest in equity securities traded on markets in Taiwan, South Korea, India, Pakistan, Sri Lanka and other Asian developing markets which are open for foreign investment. The Portfolio does not intend to invest in securities which are principally traded in Japan or in companies organized under the laws of Japan. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of - -40.65% for the Class A shares and -40.74% for the Class B shares compared to - -36.80% for the Morgan Stanley Capital International (MSCI) All-Country Far East Free ex-Japan Index (the "Index"). For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was - -12.62% compared to -9.60% for the Index. For the period from inception on July 1, 1991 through December 31, 2000, the average annual total return for the Class A shares was 2.30% compared to 3.94% for the Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was -12.94% compared to -9.66% for the Index. Asian equities were the worst performers in the emerging markets asset class for the year. As earnings growth peaked in the middle of the year, growth-oriented markets like Taiwan, South Korea and Thailand were the worst performers in the year. Markets like Hong Kong and Singapore heavily weighted with interest rate-sensitive and defensive utility stocks, were the best performing markets. The Korean market tracked the technology heavy NASDAQ market down in the fourth quarter falling by over 20%. Domestic investor confidence was extremely low because of delays in corporate restructuring, a slowing economy and an - ------------------------------------------------------------------------------ CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY THE MSCI ALL-COUNTRY FAR EAST FREE EX-JAPAN INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------ Asian Equity Portfolio 16 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ ASIAN EQUITY PORTFOLIO (CONT.) illiquid bond market with most funds trapped in bank deposits. Issues surrounding the restructuring of two large business conglomerates, Daewoo and Hyundai were not being addressed quickly enough. However, towards the end of the year the government announced a series of positive measures including the much anticipated 40 trillion won in public funds for financial sector restructuring, forming a second bond stabilization fund. The government also came up with a list of non-viable companies to be either shut down or rehabilitated. In the last two weeks of the year, announcements were made with respect to the consolidation of the banking sector, including the merger of the two largest retail-oriented banks in Korea - Housing and Commercial Bank and Kookmin Bank. This consolidation in the banking industry is likely to drive down deposit rates and stimulate liquidity into the financial markets. We have been adding incrementally to our positions in the well- capitalized banks in Korea and sold out of government- owned undercapitalized banks like Hanvit Bank. Hong Kong was the best performing large market in the region for the year 2000 and in the fourth quarter. Hong Kong has been regarded as a relative safe haven by investors given that it is likely to benefit from falling U.S. interest rates as well as the recovery in domestic Chinese demand. Since the U.S. Federal Reserve shifted to an easing bias in December, we are likely to see an easing of interest rates of at least 150 basis points through 2001. U.S. interest rates are key in Hong Kong given the currency board system, and declining real interest rates are likely to keep market sentiment buoyant. However, declining interest rates have been well anticipated and most investors seem to be overweight the Hong Kong market. Institutional liquidity is hemmed into interest rate sensitive stocks and big cap names like Hang Seng Bank and Sun Hun Kai Properties are looking fairly expensive. We have a significant underweight position in both these names, though we continue to be overweight Cheung Kong. Although Chueng Kong's property business accounts for only 20% of its net asset value, the company is a major developer in the Hong Kong residential market. Cheung Kong owns the second largest residential land bank located mainly in urban areas. The physical property market continues to be sluggish and the Hong Kong government has not abandoned its policy of increasing housing supply to boost home ownership. We are cautious on residential property sector stocks. The Taiwan market declined by over 20% in the fourth quarter, with market sentiment heavily dampened by prospects of a slowdown in growth in the technology sector. Taiwan's internal political and financial problems continued to make headline news as the opposition parties lobbied for the impeachment of DPP president Chen. Retail ownership of equities declined dramatically in the quarter. Selling was mainly triggered by deterioration of technology companies' earnings prospects, political paralysis on the nuclear power plant issue and problem loans in the banking system. MSCI's decision to keep Taiwan's weighting at 80% was another technical negative for the market. The first sign that technology sector fundamentals were turning negative began to emerge in the third quarter of 2000 as the "back-to-school" PC demand failed to materialize. The sector where earnings are at the biggest risk due to demand slowdown is the capital-intensive semiconductor sector. Hence, we reduced our exposure to the semiconductor foundry sector by moving to an underweight position on Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics (UMC) during the fourth quarter. However, we continue to maintain a long-term positive view on the strong secular growth in the foundry industry underpinned by outsourcing. Foundry stocks continue to remain among our top holdings. Going forward, the Portfolio expects to be overweight technology stocks in Taiwan, but more defensively focused with higher allocation to companies with a low fixed cost structure and lower operating leverage. In addition, we are optimistic on companies which are increasing production capacities in mainland China and benefiting from lower costs. As Taiwan frees up restrictions on capital investment into China, we believe companies like Hon Hai Precision, Delta Electronics and Compal Electronics are likely to benefit strongly. China has been one of the top performing markets in Asia over the last twelve months, but the market gave up a lot of ground in the last quarter of 2000. Two wireless telecom stocks, China Mobile and China Unicom, led the market decline, as telecom operators were de-rated globally. We continue to like the macro story in China, as growth in China is likely to outpace the rest of Asia in 2001. China remains the prominent Asian economy with the most robust domestic demand story, which makes it relatively insulated from a global slowdown. However, retail sales have started to slow down in November and December. The export sector is vulnerable to a U.S.-led global slowdown, and the government is likely to implement stimulatory monetary and fiscal policies to boost domestic consumption. Singapore was relatively flat in the fourth quarter, thereby being one of the best performing markets in the region. Investors found a safe haven among the more liquid financial stocks in Singapore, against a backdrop of heavy profit warnings from technology sector stocks in the U.S. Singapore continues to follow policies of steady and systematic structural reforms which we think should - ------------------------------------------------------------------------------ Asian Equity Portfolio 17 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ ASIAN EQUITY PORTFOLIO (CONT.) eventually boost the return on equity for listed government-linked corporations. However, Singapore is heavily geared to growth of electronics exports, and fears of a global electronics slowdown heavily impacted the semiconductor and contract manufacturing stocks. Although we reduced our weightings in the semiconductor sector, we continue to have a long-term positive view on secular growth prospects for well managed Electronic Manufacturing Services (EMS) companies like Venture Manufacturing and Omni Industries. Malaysia continues to be the country where we are most underweight. As inflation began to creep up towards the end of 2000, foreign exchange reserves for Malaysia continued to trend downwards. Anticipating a slowdown in the economy over the next twelve months, the government introduced various pump-priming measures in the 2001 budget. However, the expansionary fiscal measures are unlikely to have an immediate impact on the economy and earnings' risks are still on the downside. Despite the robust economy, non-performing loans in the banking system have started to rise again, underlining the failure to carry out corporate restructuring. Foreign direct investment is disappointing, mainly due to growing political concerns. The Indian stock market fared much better than other East Asian markets. In the fourth quarter, we saw alot of rotation back into old economy stocks as fears grew over possible earnings disappointments in the richly valued software sector. We continue to believe in the long term outsourcing-led growth for the IT services sector in India. Declines of over 20% in December of India's leading software stocks leave them reasonably valued relative to growth. We have added to stocks like Infosys during recent declines. In India, government policy will be an important factor for the market in the next few quarters as India's privatization program, which has been slow moving so far, is now approaching a critical stage. The government has lined up some of India's leading public sector names for strategic disinvestment and the outcome of this will greatly influence investing sentiment. Liquidity in the Indian market is abundant on the back of a successful issue of dollar denominated bonds to non-resident Indians that raised U.S.$5.5 billion, taking India's foreign reserves to almost U.S.$40 billion. Although industrial production in India has been slowing down and the macro-economic outlook looks uninspiring, the economy seems to remain insulated from a possible U.S.-led global slowdown as exports play a minor role in the economy. Asian stock markets in recent times continue to trade off developments in the U.S. Most of the V-shaped recovery in Asian markets was driven by exports, largely in the information technology sectors, to Europe and U.S. The dramatic collapse of the NASDAQ markets has raised fears that U.S. spending on information technology will collapse. This is likely to have grim implications for export-led economies in Asia like Taiwan, Malaysia, and even South Korea. We are likely to see substantial monetary easing by the U.S. Federal Reserve (perhaps over 150 basis points) in the year 2001 in their efforts to prevent a recession and trigger a soft landing. We think U.S. growth rates however, will be still uninspiring and that declining rates may not lead to a sharp recovery in U.S. markets. Despite this, emerging and Asian markets that are much cheaper relative to even lowered growth prospects are likely to be beneficiaries of lower U.S. rates. Ashutosh Sinha PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------ Asian Equity Portfolio 18 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ ASIAN EQUITY PORTFOLIO - ------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------- COMMON STOCKS (99.0%) CHINA/HONG KONG (40.3%) 147,000 Asia Satellite Telecommunications Holdings Ltd. . $ 305 86,000 ASM Pacific Technology .......................... 122 465,000 Cathay Pacific Airways Ltd. ..................... 858 116,900 Cheung Kong Holdings Ltd. ....................... 1,495 (a)700,000 China Mobile Ltd. ............................... 3,823 346,000 China Merchants Holdings International Co., Ltd. 251 (a)1,606,000 China Petroleum & Chemical Corp. ................ 255 (a)308,000 China Unicom .................................... 472 146,000 Citic Pacific Ltd. .............................. 518 414,000 Cosco Pacific Ltd. .............................. 321 42,000 Dao Heng Bank Group Ltd. ........................ 239 727,000 Great Wall Technology Co., Class H .............. 238 44,400 Hang Seng Bank Ltd. ............................. 598 40,000 Henderson Land Development Co., Ltd. ............ 204 424,600 Hong Kong & China Gas Co., Ltd. ................. 623 78,000 Hong Kong Land Holdings Ltd. .................... 173 484,980 Hutchison Whampoa Ltd. .......................... 6,047 (a)341,000 Johnson Electric Holdings Ltd. .................. 525 758,000 Legend Holdings Ltd. ............................ 476 (a)466,400 Li & Fung Ltd. .................................. 849 (a)712,770 Pacific Century CyberWorks Ltd. ................. 461 574,000 PetroChina Co., Ltd. ............................ 96 108,000 SmarTone Telecommunications Holdings Ltd. ....... 156 167,600 Sun Hung Kai Properties Ltd. .................... 1,671 (a)3,509,000 Sun Television Cybernetworks Holdings Ltd. ...... 82 173,200 Swire Pacific Ltd., Class A ..................... 1,249 (a)312,000 TCL International ............................... 71 125,800 Television Broadcasts Ltd. ...................... 661 (a)560,000 Timeless Software Ltd. .......................... 70 107,000 Wharf Holdings Ltd. ............................. 260 ----------- 23,169 ----------- INDONESIA (0.4%) 161,000 Gudang Garam .................................... 216 ----------- MALAYSIA (5.1%) 46,400 British American Tobacco Bhd .................... 427 74,000 Carlsberg Brewery Malaysia Bhd .................. 214 55,000 Commerce Asset Holdings Bhd ..................... 118 (a)177,000 Digi.Com Bhd .................................... 226 144,800 Malayan Banking Bhd ............................. 515 49,000 Malaysian Pacific Industries Bhd ................ 201 301,000 Public Bank Bhd ................................. 233 93,000 Resorts World Bhd ............................... 148 46,000 Tanjong plc ..................................... 87 163,000 Telekom Malaysia Bhd ............................ 485 96,000 Tenaga Nasional Bhd ............................. 293 ----------- 2,947 ----------- PHILIPPINES (0.6%) 1,532,000 Ayala Land, Inc., Class B ....................... 165 1,421,000 SM Prime Holdings, Inc. ......................... 165 ----------- 330 ----------- SINGAPORE (15.1%) (a)144,000 Capitaland Ltd. ................................. 249 (a)145,000 Chartered Semiconductor Manufacturing Ltd. ...... 397 63,600 City Developments Ltd. .......................... 295 58,520 Datacraft Asia Ltd. ............................. 276 133,235 DBS Group Holdings Ltd. ......................... 1,506 168,000 Keppel Corp., Ltd. .............................. 328 (a)379,000 Neptune Orient Lines Ltd. (Foreign) ............. 297 249,000 Omni Industries Ltd. ............................ 366 80,224 Overseas Union Bank Ltd. ........................ 375 112,000 Overseas-Chinese Banking Corp. (Foreign) ........ 834 (a)163,000 Pacific Century Region Developments Ltd. ........ 83 88,200 Sembcorp Logistics Ltd. ......................... 488 369,000 SIA Engineering Ltd. ............................ 285 125,000 Singapore Airlines Ltd. ......................... 1,240 46,900 Singapore Press Holdings Ltd. ................... 693 69,000 United Overseas Bank ............................ 518 68,700 Venture Manufacturing (Singapore) Ltd. .......... 460 ----------- 8,690 ----------- SOUTH KOREA (19.3%) 4,640 39Shopping Corp. ................................ 52 5,450 Cheil Communications, Inc. ...................... 267 (a)22,800 Communication Network Interface, Inc. ........... 38 37,008 Housing & Commerical Bank, Korea ................ 840 (a)27,360 Humax Co., Ltd. ................................. 227 87,346 Hyundai Electronics Industries Co. .............. 278 14,410 Hyundai Motor Co., Ltd. ......................... 138 40,622 Kookmin Bank .................................... 479 15,950 Korea Electric Power ............................ 298 (a)37,030 Korea Electric Power Corp. ADR .................. 380 1,680 Korea Telecom Corp. ............................. 89 (a)30,300 Korea Telecom Corp. ADR ......................... 939 (a)4,470 Korea Telecom Freetel ........................... 116 (a)6,740 L.G. Home Shopping, Inc. ........................ 148 1,870 Pohang Iron & Steel Co., Ltd. ................... 113 16,000 Pohang Iron & Steel Co., Ltd. ADR ............... 249 9,419 Samsung Electro-Mechanics Co. ................... 255 4,010 Samsung Electronics ............................. 219 24,525 Samsung Electronics Co. ......................... 3,063 66,710 Shinhan Bank Co., Ltd. .......................... 548 (a)2,760 SK Telecom Co., Ltd. ............................ 552 (a)65,870 SK Telecom Co., Ltd. ADR ........................ 1,552 30,580 Telson Electronics Co., Ltd. .................... 131 8,580 Tongyang Confectionery Co. ...................... 115 ----------- 11,086 ----------- TAIWAN (15.9%) (a)215,205 Advanced Semiconductor Engineering, Inc. ........ 147 65,500 Advantech Co., Ltd. ............................. 208 54,736 Ambit Microsystems Corp. ........................ 232 (a)16,500 ASE Test Ltd. ................................... 140 151,510 Asustek Computer, Inc. .......................... 455 (a)356,841 Chinatrust Commercial Bank ...................... 214
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Asian Equity Portfolio 19 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ ASIAN EQUITY PORTFOLIO (CONT.) - ------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------- TAIWAN (CONT.) 303,691 Compal Electronics, Inc. ........................ $ 412 189,500 Delta Electronics, Inc. ......................... 592 298,686 Far East Textile Ltd. ........................... 211 (a)10,800 GigaMedia Ltd. .................................. 30 180,474 Hon Hai Precision Industry ...................... 915 (a)274,200 Macronix International .......................... 330 265,688 Nan Ya Plastics Corp. ........................... 298 (a)304,000 Powerchip Semiconductor Corp. ................... 151 96,771 President Chain Store Corp. ..................... 254 (a)74,412 ProMos Technologies, Inc. ....................... 66 109,000 Quanta Computer, Inc. ........................... 286 28,000 Realtek Semiconductor Corp. ..................... 76 (a)579,849 Siliconware Precision Industries Co. ............ 322 431,200 Taishin International Bank ...................... 176 (a)746,884 Taiwan Semiconductor Manufacturing Co. .......... 1,793 (a)212,000 Uni-President Enterprises Co. ................... 141 732,821 United Micro Electronics Corp., Ltd. ............ 1,064 (a)344,290 Winbond Electronics Corp. ....................... 330 (a)329,000 Yageo Corp. ..................................... 259 35,000 Zinwell Corp. ................................... 49 ----------- 9,151 ----------- THAILAND (2.3%) (a)(d)32,900 Advanced Information Service PCL (Foreign) ...... 318 (d)44,300 BEC World PCL (Foreign) ......................... 225 (d)22,599 Delta Electronics (Thailand) PCL (Foreign) ...... 102 (a)(d)305,100 Golden Land Property Development PCL (Foreign)... 28 (a)44,300 Hana Microelectronics PCL ....................... 91 (a)99,366 Siam Cement PCL (Foreign) ....................... 286 (a)360,500 Siam Commercial Bank PCL (Foreign), expiring 5/10/02 ........................... 22 (a)349,100 Thai Farmers Bank PCL (Foreign) ................. 173 (a)39,000 Total Access Communications ..................... 105 ------------ 1,350 ------------ TOTAL COMMON STOCKS (99.0%) (Cost $75,479) 56,939 ------------ TOTAL FOREIGN SECURITIES (99.0%) (Cost $75,479) 56,939 ------------ FACE AMOUNT (000) ------- SHORT-TERM INVESTMENT (3.9%) REPURCHASE AGREEMENT (3.9%) $(f)2,242 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $2,242)......................... 2,242 ------------ FOREIGN CURRENCY (0.1%) HKD 45 Hong Kong Dollar........................... 6 IDR 202 Indian Rupee............................... 4 IND 68,425 Indonesian Rupiah.......................... 7 MYR 37 Malaysian Ringgit.......................... 10 TWD 191 Taiwan Dollar.............................. 6 THB 419 Thai Baht.................................. 10 VALUE (000) - ------------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY (COST $43) $ 43 ------------ TOTAL INVESTMENTS (103.0%) (COST $77,764) 59,224 ------------ OTHER ASSETS (0.9%) Cash .......................................... $ 65 Receivable for Investments Sold ............... 413 Dividends Receivable .......................... 29 Unrealized Gain on Foreign Currency Exchange Contracts ..................................... 1 Interest Receivable ........................... 1 Other.......................................... 17 526 ------------ LIABILITIES (-3.9%) Payable for Investments Purchased ............. (1,916) Payable for Portfolio Shares Redeemed ......... (108) Investment Advisory Fees Payable .............. (78) Custodian Fees Payable ........................ (48) Directors' Fees and Expenses Payable .......... (22) Administrative Fees Payable ................... (14) Distribution Fees Payable ..................... (1) Other Liabilities ............................. (50) (2,237) ------------ ------------ NET ASSETS (100%) ................................ $ 57,513 ============ NET ASSETS CONSIST OF: Paid in Capital ................................................. $ 157,389 Undistributed Net Investment Income ............................. 32 Accumulated Net Realized Loss ................................... (81,368) Unrealized Depreciation on Investments and Foreign Currency Translations ...................................... (18,540) ------------ NET ASSETS ...................................................... $ 57,513 ============ CLASS A: NET ASSETS ...................................................... $ 56,330 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 6,604,653 outstanding $0.001 par value shares (authorized 500,000,000 shares) ............................... $ 8.53 ============ CLASS B: NET ASSETS ...................................................... $ 1,183 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 140,099 outstanding $0.001 par value shares (authorized 500,000,000 shares) ............................... $ 8.44 ============
- ---------------------------------- (a) -- Non-income producing security (d) -- Security valued at fair value -- See Note A-1 to financial statements. (f) -- The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. ADR -- American Depositary Receipt PCL -- Public Company Limited The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Asian Equity Portfolio 20 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ ASIAN EQUITY PORTFOLIO (CONT.) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
VALUE PERCENT OF SECTOR (000) NET ASSETS - --------------------------------------------------------------- Consumer Discretionary............ $3,936 6.8% Consumer Staples.................. 1,368 2.4 Financials........................ 19,799 34.4 Energy............................ 351 0.6 Industrials....................... 5,376 9.3 Information Technology............ 14,275 24.8 Materials......................... 946 1.6 Telecommunication Services........ 9,295 16.2 Utilities......................... 1,593 2.9 ------- ---- $56,939 99.0% ======= ====
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at December 31, 2000, the Portfolio is obligated to deliver foreign currency in exchange for U.S. dollars as indicated below:
CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN (000) (000) DATE (000) (000) (000) ------- ----- ---------- -------- ------- ---------- SGD 513 $296 1/02/01 U.S.$ 297 $297 $1 SGD 139 80 1/03/01 U.S.$ 80 80 -- THB 419 10 1/03/01 U.S.$ 10 10 -- -- -- -- $386 $387 $1 ==== ==== ==
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Asian Equity Portfolio 21 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ ASIAN REAL ESTATE PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------ [CHART] Hong Kong (53.6%) Japan (21.1%) Australia (15.0%) Singapore (9.4%) Other (0.9%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ---------------------------------------------------- [GRAPH]
GPR General Asian Real Estate Asian Real Estate Real Estate Portfolio- Portfolio- Securities Index- Class A Class B Far East(1) ---------------- ----------------- ----------------- 1997 $500,000 $100,000 $500,000 1998 -------- -------- -------- 1999 -------- -------- -------- 2000 $453,857 $ 89,874 $356,596
* Commenced operations on October 1, 1997 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The GPR General Real Estate Securities Index -Far East value at December 31, 2000 assumes a minimum investment of $500,000; if a minimum initial investment of $100,000 (the minimum investment for Class B shares) is assumed, the value at December 31, 2000 would be $90,120. PERFORMANCE COMPARED TO THE GPR GENERAL REAL ESTATE SECURITIES INDEX - FAR EAST(1) - ------------------------------------------------------------------------------
TOTAL RETURNS(2) -------------------------- ONE AVERAGE ANNUAL YEAR SINCE INCEPTION -------- --------------- PORTFOLIO -- CLASS A ............. 3.44% -2.93% PORTFOLIO -- CLASS B ............. 3.29 -3.23 INDEX ............................ -0.23 -9.88
1. The GPR General Real Estate Securities Index - Far East is a market capitalization weighted index measuring total return of listed property/real estate securities in the Far East. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The investment objective of the Asian Real Estate Portfolio is to provide long-term capital appreciation by investing primarily in equity securities of companies in the Asian real estate industry. A company is considered to be Asian if its shares trade on a recognized stock exchange in Asia or if it is organized under the laws of an Asian country and whose business is conducted principally in Asia. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of 3.44% for the Class A shares and 3.29% for the Class B shares compared to - -0.23% for the GPR General Real Estate Securities Index - Far East (the "Index"). For the period from inception on October 1, 1997 through December 31, 2000, the Portfolio had an average annual total return of -2.93% for the Class A shares and -3.23% for the Class B shares compared to -9.88% for the Index. Asia's vulnerability to a global slowdown, particularly in the U.S., was the prevailing investor issue in the fourth quarter of 2000. Effects of the global energy shock, contracting global liquidity and global tech slowdown had already been reflected in Asia's declining stock market indices in the latter half of 2000. Investors were increasingly worried that even under a soft landing scenario in the U.S. in 2001, the negative impact on non-Japan Asia export volume could be considerable should the slowdown in IT spending turn out to be disproportionately large. Intra- regional trade is unlikely to be a sufficient buffer should U.S. final demand remain slow. In addition, Asia still has to deal with its own problems of excess capacity, financial system fragility, and terms of trade deterioration as a result of lower electronic product prices and higher oil prices. Asian real estate securities outperformed the broader equity markets in the year 2000 despite sustaining huge volatility during the year. The fourth quarter of 2000,was a strong quarter for Asian real estate with Hong Kong and Australia up 4% to 5%. The Hang Seng Property Index was up 21% in the month of December as investors positioned their portfolios to participate in rate sensitive sectors in anticipation of an easier U.S. interest rate policy in 2001. In addition, investors rotated into property stocks in Singapore - ------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------ Asian Real Estate Portfolio 22 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ ASIAN REAL ESTATE PORTFOLIO (CONT.) and Listed Property Trust (LPTs) in Australia as weakness on the Nasdaq Composite Index continued to be a drag on performance of the tech sector globally. Japan was the only exception where real estate stocks fell (TPREAL - -5%) in the fourth quarter of 2000 on concerns that the economy may slide into another recession. We believe there is scope for strong performance in Asian real estate securities in 2001. Hong Kong and Singapore may thrive as these countries have the greatest ability to pursue easier monetary policy, in tandem with a U.S. monetary easing, given the lack of inflationary pressure. We remain optimistic that lower mortgage rates will lead to a pick up in property transaction volume, particularly in Hong Kong where home-ownership is still hovering at 50%. However, it may take another six to nine months for the residential markets to clear the existing inventory overhang. This may pave the way for the return of pricing power to developers as well as in the secondary market. Australia continues to provide defensive qualities as its economy has limited exposure to U.S. electronics demand and is much less vulnerable than most in the region to higher oil prices. The high yielding listed property trusts in Australia remain an attractive investment, especially as the Reserve Bank of Australia's discount rate is probably near its peak. Japan can still be a `dark horse' to provide strong returns if JREIT can be successfully implemented to provide the much liquidity to revive the real estate market. Asian real estate markets, particularly the residential sector, experienced a slight deterioration in fundamentals as we moved into the traditionally quiet festive period in the fourth quarter. In Hong Kong, more interventionist government policies were touted as the major obstacle to recovery in the housing sector. The office sectors in Hong Kong, Singapore and Australia remain robust on the back of strong economic backdrop. While we remain watchful of any potentially negative impact of evolving global economic dynamics on Asia, it is equally important to identify domestic economies capable of taking on the slack arising from slower U.S. growth as well as countries that can best leverage from a U.S. monetary easing ahead. We believe that Hong Kong, Australia and Singapore may be the key beneficiaries under these scenarios. REAL ESTATE MARKETS In Japan, the government on November 30, 2000 ended prohibitions on funds investing in bank loans, derivatives, real estate and associated rights, opening the way for the industry to invest in REITs. The Tokyo Stock Exchange (TSE) had recently outlined that real estate investment trusts must invest at least half their assets in property with a stable revenue stream, disclose major changes in assets and regularly report asset market values. JREITs are however not required to disclose tenant and rental information. Japanese real estate companies typically do not disclose such data because there are huge gaps among tenants as the companies offer discounted rents. In addition, the TSE has set the minimum investment in JREITs at 50,000 yen ($446 U.S.) to encourage participation from individual investors and aims to establish a market for JREITs by March 2001. We are disappointed that this announcement was not accompanied by the necessary moves to turn JREITs into tax efficient vehicles. Japanese housing starts rose a higher-than-expected 5.4% in November from October, seasonally adjusted, as more consumers rebuilt their homes and developers built apartment blocks for rental purposes. Going forward, we expect this sector to remain weak on dwindling demand for cheap housing mortgages and tax breaks, despite the tax advantages being extended through to the end of 2003. New condominiums for sale in Tokyo rose 3.2% year-over-year in November and the average price of condominiums rose 2.2% on a per square meter basis. The latest survey conducted by Miki Shoji showed that office vacancy in the five central wards of Tokyo improved from 3.48% in September to 3.32% in October. The average rent in October was 19,658 yen per tsubo, up a slight 0.4% from the previous month. Brisk demand from IT-related firms in 2000 resulted in new large office buildings being able to secure 100% pre-commitment of leases prior to completion. The spill over effect of unsatisfied demand had also benefited older office buildings. We are mindful of the sustainability of IT driven office demand in 2001 as the Japanese economy slows. There could be rising headwinds against the office sector with 2 million square meters of new space completing annually from now until 2003 and potentially new vacancies created by the consolidation and merger of major city banks. In Australia, year 2000 witnessed a number of transactions that demonstrate the current strength of the real estate market. These included the purchase of Aurora Place on a 6.2% yield in the commercial sub-sector, and Mt. Druitt Marketown (7.7% yield) and Indooroopilly (5.7% yield) shopping centers in the retail sub-sector. The office rental market was particularly strong with Sydney vacancies falling to 4.2% and Melbourne falling to 7.2%. A combination of strong demand and low vacancy resulted in rental growth of 13.7% and 33% for the Sydney and Melbourne office markets, respectively for the twelve months to the September quarter. - ------------------------------------------------------------------------------ Asian Real Estate Portfolio 23 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ ASIAN REAL ESTATE PORTFOLIO (CONT.) In Hong Kong, November home sales fell in both volume and value terms on the possibility of further falls in property values. Data provided by the Land Registry showed that the November sales and purchase transactions fell 16% from October. The combined value of apartments bought and sold was $14.7 billion Hong Kong dollars ($1.88 billion U.S.), a 27.4% month-over-month decline from October. Confidence in the mass residential market was dampened by the well-publicized spar between stock analysts and the government's housing authority on the possibility of residential prices falling as much as 15% over the next six months before recovering. Increasingly, interventionist government policies were cited by analysts as a key obstacle to a recovery in the housing sector. Demand for luxury residential housing remains robust. Meanwhile, major developers were actively accumulating residential land banks at government land auctions/tenders, sending a strong signal that the market had bottomed. The office sector continues to enjoy strong rents and low vacancy. We believe that the narrowing yield gap, due mostly to escalating rents, will be a key catalyst of office sector transactions in 2001. Hong Kong Land's offer to buy back up to 260 million of its own shares at $2.20 U.S. per share, to tighten control of its largest shareholder, was fully subscribed. In Singapore, the residential sector languished after a brief spike in the September quarter as a result of the depressed stock market, reduced demand from public housing upgraders, concerns over higher oil prices and lingering political difficulties in the region. Home prices fell 2.6% quarter-over-quarter in the fourth quarter of 2000, after falling 2.7% quarter-over-quarter in the September quarter. Singapore's sale of residential land and commercial property fell 16% year-over-year to S$6.1 billion (U.S.$3.5 billion) in 2000. This reflects developers lack of confidence in the residential market in the medium term, preferring instead to focus on generating cash flow from selling homes and achieving higher yields on income-generating investment properties. To help ease pressure on the private home market, the government cut its annual land supply by as much as 33% in 2001 to between 6,000 and 7,000 units. It is interesting to note that Singapore's retail malls charged higher rents and saw capital value growth in 2000, after being on a downtrend for a decade. We expect divestments of commercial assets by major banks to be a key feature in the Singapore property scene in 2001. REAL ESTATE SECURITIES Real estate securities in Hong Kong and Australia rallied in the fourth quarter. The collapse of technology stocks globally led investors to rotate into financial and other sectors. Hong Kong real estate was an obvious choice as this sector offers the best leverage to Fed easing as the U.S. economy slows in 2001. Also, the more stable and high yielding Australian LPTs offer investors a defensive alternative in an uncertain global economic environment. Hong Kong developers led the December rally as their active land banking activities signaled that the residential market has bottomed. In Japan, the real estate sector disappointed with bell-weather stocks falling as much as 25% from their year-highs on concerns that the economy may slip into another recession. Shares of Mitsui Fudosan were subject to heavy selling pressure on rumors that the group may be forced to bail out its ailing 19%-owned associate, Mitsui Construction. Property stock prices in Singapore were generally flat as investors do not see any signs of recovery in the near term. We continue to shape the Portfolio with quality companies offering attractive fundamental valuations relative to their underlying real estate values. We are confident that Hong Kong will remain a strong performer as an easier interest rate environment is expected to drive domestic investment demand, hence our overweight position in this market. The price-to-net asset value ratio (P/NAV) of Hong Kong stocks, particularly the developers, rose sharply in the last weeks of the year on anticipation of higher property prices in the medium term. It may take another six to nine months before P/NAV can further expand on the back of higher property values. In Singapore, we are positioned in thematic plays. Hidden value of property investors such as United Overseas Land and Singapore Land may benefit from the acceleration of asset disposals by local banks. We maintained our near neutral position in Australia as favorable interest rates, broader market uncertainty and strong property sector fundamentals should lead to a continuation of defensive allocation to the LPTs in the first half of 2001. We have gained from being underweighted in Japan and are watchful of opportunities to raise our exposure as soon as there are clearer signs that the economy is not slipping into another recession. Having missed the opportunity for a one-off strong bounce in the Philippines real estate stocks in the fourth quarter of 2000, we prefer to wait for the outcome of President Estrada's impeachment trial to invest in the country. Theodore R. Bigman PORTFOLIO MANAGER Angeline Ho PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------ Asian Real Estate Portfolio 24 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ ASIAN REAL ESTATE PORTFOLIO
VALUE SHARES (000) - ----------------------------------------------------------------------------- COMMON STOCKS (99.1%) AUSTRALIA (15.0%) 24,000 AMP Office Trust .......................... $ 15 17,600 AMP Shopping Centre Trust ................. 14 19,100 BT Office Trust ........................... 16 24,100 Centro Properties Group ................... 40 49,597 General Property Trust .................... 76 18,200 Investra Property Group ................... 19 20,900 Mirvac Group .............................. 41 20,750 Stockland Trust Group ..................... 45 16,850 Westfield Holdings Ltd. ................... 126 51,900 Westfield Trust ........................... 98 -------- 490 -------- HONG KONG (53.6%) 148,000 Amoy Properties Ltd. ...................... 165 11,000 Cheung Kong Holdings Ltd. ................. 141 71,000 China Resources Beijing Land .............. 15 16,000 Great Eagle Holdings Ltd. ................. 27 38,000 Hang Lung Development Co. ................. 34 50,000 Henderson Investment Ltd. ................. 36 19,000 Henderson Land Development Co., Ltd. ...... 97 78,000 Hong Kong Land Holdings Ltd. .............. 173 32,000 Kerry Properties Ltd. ..................... 43 59,000 New World Development Co., Ltd. ........... 71 110,203 Sino Land Co. ............................. 58 62,000 Sun Hung Kai Properties Ltd. .............. 618 12,000 Swire Pacific Ltd., Class A ............... 87 78,000 Wharf Holdings Ltd. ....................... 189 -------- 1,754 -------- JAPAN (21.1%) 4,000 Daibiru Corp. ............................. 29 33,000 Mitsubishi Estate Co., Ltd. ............... 352 25,000 Mitsui Fudosan Co., Ltd. .................. 248 12,000 Sumitomo Realty & Development Co., Ltd. ... 60 -------- 689 -------- SINGAPORE (9.4%) (a)72,500 CapitaLand Ltd. ........................... 126 25,000 City Developments Ltd. .................... 116 21,000 Keppel Land Ltd. .......................... 33 18,000 United Overseas Land Ltd. ................. 16 21,000 Wing Tai Holdings Ltd. .................... 15 -------- 306 -------- TOTAL COMMON STOCKS (Cost $2,535) 3,239 -------- NO. OF WARRANTS - ------------------ WARRANTS (0.5%) AUSTRALIA (0.0%) (a)(d)1,086 Stockland Trust Group, expiring 6/29/01 -- SINGAPORE (0.5%) (a)18,000 Singapore Land Ltd., expiring 3/23/05 17 ------- TOTAL WARRANTS (Cost $13) 17 ------- TOTAL FOREIGN SECURITIES (99.6%) (Cost $2,548) 3,256 ------- FACE AMOUNT VALUE (000) (000) - ----------------------------------------------------------------------------- FOREIGN CURRENCY (0.5%) AUD 24 Australian Dollar ................................ $ 13 HKD 25 Hong Kong Dollar ................................. 3 JPY 177 Japanese Yen ..................................... 2 ------- TOTAL FOREIGN CURRENCY (Cost $18) ........................... 18 ------- TOTAL INVESTMENTS (100.1%) (COST $2,566) ...................... 3,274 ------- OTHER ASSETS (1.1%) Cash ................................................ $ 2 Receivable for Investments Sold ..................... 28 Dividends Receivable ................................ 6 36 ------- LIABILITIES (-1.2%) Custodian Fees Payable .............................. (10) Administrative Fees Payable ......................... (4) Other Liabilities ................................... (26) (40) ------- NET ASSETS (100%) ............................................. $ 3,270 ======= NET ASSETS CONSIST OF: Paid in Capital ............................................... $ 5,019 Distributions In Excess of Net Investment Income .............. (11) Accumulated Net Realized Loss ................................. (2,446) Unrealized Appreciation on Investments and Foreign Currency Translations ............................... 708 ------- NET ASSETS .................................................... $ 3,270 ======= CLASS A: NET ASSETS .................................................... $ 2,786 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 348,057 outstanding $0.001 par value shares (authorized 500,000,000 shares) .................... $ 8.01 ======= CLASS B: NET ASSETS .................................................... $ 484 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 60,035 outstanding $0.001 par value shares (authorized 500,000,000 shares) .................... $ 8.06 =======
- ----------------------------------------------------------------------------- (a) -- Non-income producing security (d) -- Security valued at fair value -- See Note A-1 to financial statements. RFD -- Ranked for Dividend - ----------------------------------------------------------------------------- SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
VALUE PERCENT OF INDUSTRY (000) NET ASSETS - --------------------------------------------------------------------- Diversified Financials ................... $ 87 2.7% Hotels, Restaurants & Leisure ............ 16 0.5 Real Estate .............................. 3,153 96.4 ------ ----- $3,256 99.6% ====== =====
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Asian Real Estate Portfolio 25 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ EMERGING MARKETS PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------ [CHART] South Korea (14.6%) Brazil (14.2%) Israel (11.0%) Mexico (10.1%) Taiwan (8.8%) China/Hong Kong (7.4%) India (6.3%) South Africa (4.5%) Russia (3.0%) Turkey (2.2%) Other (17.9%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ---------------------------------------------------- [GRAPH]
Emerging Markets MSCI Emerging IFC Global Portfolio- Markets Total Return Class A Free Index(1) Composite Index(1) ---------------- ------------- ------------------ 10/31/92 $500,000 $500,000 $500,000 12/31/92 -------- -------- -------- 1993 -------- -------- -------- 1994 -------- -------- -------- 1995 -------- -------- -------- 1996 -------- -------- -------- 1997 -------- -------- -------- 1998 -------- -------- -------- 1999 -------- -------- -------- 2000 $770,430 $670,810 $650,624
* Commenced operations on September 25, 1992 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS FREE INDEX AND IFC GLOBAL TOTAL RETURN COMPOSITE INDEX(1) - ------------------------------------------------------------------------------
TOTAL RETURNS(2) -------------------------------- AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION - -------------------------------------------------------------------------------------------- PORTFOLIO -- CLASS A..................................... -38.43% -0.30% 5.36% PORTFOLIO -- CLASS B..................................... -38.60 N/A 0.14 MSCI EMERGING MARKETS FREE INDEX -- CLASS A.............. -30.57 -4.16 3.62 IFC GLOBAL TOTAL RETURN COMPOSITE INDEX -- CLASS A....... -28.77 -3.35 3.29 MSCI EMERGING MARKETS FREE INDEX -- CLASS B.............. -80.61 N/A -4.30 IFC GLOBAL TOTAL RETURN COMPOSITE INDEX -- CLASS B....... -28.77 N/A -3.88
1. The MSCI Emerging Markets Free Index is a market capitalization weighted index comprised of companies that are representative of the market structure of developing countries in Latin America, Asia, Eastern Europe, the Middle East and Africa. The IFC Global Total Return Composite Index is an unmanaged index of common stocks and includes developing countries in Latin America, East and South Asia, Europe, the Middle East, and Africa. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The investment objective of the Emerging Markets Portfolio is to provide long-term capital appreciation by investing primarily in growth-oriented equity securities of emerging country issuers. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of - -38.43% for the Class A shares and -38.60% for the Class B shares compared to - -30.57% for the Morgan Stanley Capital International (MSCI) Emerging Markets Free Index (the "MSCI Index") and -28.77% for the IFC Global Total Return Composite Index (the "IFC Index"). For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was - ------------------------------------------------------------------------------ CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS MEASURED BY THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS FREE AND THE IFC GLOBAL TOTAL RETURN COMPOSITE INDICES, ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------ Emerging Markets Portfolio 26 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ EMERGING MARKETS PORTFOLIO (CONT.) - -0.30% compared to -4.16% for the MSCI Index and -3.35% for the IFC Index. For the period from inception on September 25, 1992 through December 31, 2000, the average annual total return for the Class A shares was 5.36% compared to 3.62% for the MSCI Index and 3.29% for the IFC Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 0.14% compared to - -4.30% for the MSCI Index and -3.88% for the IFC Index. Overall, stock selection detracted from performance and country allocation contributed positively. Stock selection in India, China, South Korea, Taiwan, Greece, Israel and Turkey detracted from performance. Equity selection in Brazil added to performance. Our overweight positions in China (MSCI Index return, -30.5%), Israel (+27.8%), coupled with our underweight stance in Malaysia (-16.0%), Greece (-41.6%), Taiwan (-44.9%) and Thailand (-56.3%) added to relative performance. Our overweight position in South Korea (-49.6%), Russia (-30.0%) and Egypt (-43.7%) coupled with our underweight stance in Chile (-15.1%), and South Africa (-17.2%) detracted from relative performance. The emerging markets fared poorly during 2000 as a difficult global environment overshadowed generally supportive fundamentals in the emerging markets. High levels of volatility in developed markets led to lower risk appetites globally further dampening already fragile sentiment. In addition to these global developments, heightened political and financial sector concerns in several major developing countries weighed on the markets. Many first quarter 2000 gains in the emerging markets were reversed during the second quarter, as positive macroeconomic and political developments within the emerging markets countries were overshadowed by heightened investor concerns over U.S. interest rates and the sharp NASDAQ declines in April. During the third quarter, the emerging markets were buffeted by global developments, namely the spike in oil prices, turmoil in the currency markets, and continued volatility in telecommunications and technology-related stocks. The emerging markets declined during the fourth quarter as they weathered a tenuous backdrop of concerns over a global growth slowdown, continued NASDAQ volatility, high oil prices, and prolonged uncertainty surrounding the U.S. presidential election. Latin American markets declined during the fourth quarter, weighed down by a combination of ongoing concerns over Argentina's debt repayment capacity and a volatile global backdrop. Investor concerns over a U.S. economic slowdown, profit warnings, and a significant sell-off in the NASDAQ dampened sentiment. Latin American countries are particularly vulnerable to a deterioration in global liquidity which is needed to help finance fiscal deficits. However, there were also encouraging signs of political and macroeconomic improvements during the fourth quarter. Mexico's new administration comforted the market with the formation of a credible cabinet and sensible economic policy, while Brazil's government demonstrated continued fiscal discipline, and Chile showed signs of re-accelerating economic growth. Brazilian equities declined, as they were hurt by Argentina's tumultuous political situation and a decreased global appetite for risk. However, positive macroeconomic signs a declining jobless rate, increasing industrial production, and a higher-than-expected consolidated fiscal surplus- continued to emerge. During November, Spain's Banco Santander Central-Hispano (BSCH) paid 7.1 billion real (U.S.$3.6 billion) for a 30% stake in the Brazilian bank Banespa, a significant premium over the asking price. The transaction should bring significant inflows, supporting Brazil's currency and also helping to avoid further concentration among the country's top three largest local banks. At December's monthly meeting, Brazil's Monetary Policy Committee (COPOM) lowered benchmark interest rates by 75 basis points which was more than market expectations. Despite the central bank's continued neutral stance on monetary policy, we believe rates may be reduced further in the near term given a supportive macroeconomic backdrop. Mexican equities also fell during the fourth quarter, weighed down by global market volatility coupled with Mexico's Central Bank tightening its monetary policy stance in November, citing inflationary pressures. Equities were buoyed earlier in the quarter by better-than-expected retail sales and overall supportive corporate earnings results. Private consumption reached its highest level in the last 30 years, and industrial production and manufacturing activity both increased in October. President-elect Vicente Fox named his cabinet members, generally perceived as market-friendly, at the end of November. He assumed presidency in December, in Mexico's first democratic transfer of power between political parties since 1929. Asian markets, weighed down by both domestic and global factors, fared the worst of the emerging markets regions during 2000. Heightened political tensions and concerns over financial sector restructuring depressed market sentiment, particularly in northern Asia. In addition, fears of the impact of a global economic slowdown coupled with - ------------------------------------------------------------------------------ Emerging Markets Portfolio 27 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ EMERGING MARKETS PORTFOLIO (CONT.) continued high volatility in technology stocks worldwide also dampened performance throughout the region. South Korean equities declined 27.1%, influenced by global volatility, concerns over chaebol restructuring and semiconductor companies' financial results. We are expecting to maintain our overweight position in South Korea, where we believe the corporate and banking sectors will successfully be restructured, benefiting the economy in the longer term. In Taiwan, equities were pulled down by instability in the banking sector and concerns that the bellwether technology sector is facing a long-lived slowdown. On a more promising note, a mergers and acquisitions law relating to the banking sector was passed, setting the stage for potential consolidation in the future by putting key tax provisions in place. On the close of November 30, the adjustment factor for Taiwan's total market capitalization weight in the Morgan Stanley Capital International (MSCI) indices was increased from 65% to 80%. Equities in China fell due to concerns over the negative impact on economic growth from a global growth slowdown, rising oil prices and heightened tensions in Taiwan. Economic growth prospects, however, remain vibrant and domestic demand currently continues to recover. During 2000, Indian equities were dampened by high oil prices and the turmoil in technology-related stocks. However, during the fourth quarter, stocks were also supported by some surprising moves towards structural reform taken by the government, including the cabinet's approval of a plan to lower government holdings in state banks from 51% to 33% and talk of privatizing the national airline. A rally during November was broad based, including cement and public sector companies. We are underweight the Emerging Europe, Middle East and Africa (EEMEA) regions. Israeli equities declined 15.3% during the fourth quarter, weighed down by continuing tensions in the Middle East and the volatility of technology stocks, yet were the best performing of the emerging markets for the twelve months ended December 31, 2000. Israel remains our largest overweight in the region, as we are attracted to exporters of technology-related products and services that remain extremely competitive, possess excellent management and are global leaders in their respective areas. Despite positive trends such as growing foreign reserves, increased profitability of many major Russian companies, greater tax revenues and collections, and improved industrial production, Russian equities were negatively affected by global market volatility and decreasing investor appetites for risk. We expect to maintain an underweight position in South Africa as we believe the pace of reform and privatization will likely slow and we do not foresee any significant moves towards addressing structural problems (such as the labor market) in the near future. We remain optimistic regarding the long-term prospects, as we believe markets should ultimately benefit from the restructuring and reforms that are creating near-term pressures. Within Latin America, we believe equities in Brazil and Mexico present attractively valued investment opportunities that are enhanced by supportive macroeconomic backdrops. We believe emerging Asian markets should overcome the near-term challenges of restructuring and equities shall benefit over the longer term. We are encouraged by the propensity for markets such as China and Taiwan to become increasingly integrated in global trade relationships. Within the EEMEA region, we continue to be attracted to the growth opportunities in Israel which are global leaders in niche product areas. We expect to maintain an underweight position in Greece, where expensive valuations already reflect much of the upside potential and Greece shall be leaving the MSCI emerging markets indices after May 31, 2001. South Africa will also likely remain underweighted as we are discouraged by the pace of reform and privatization nor do we foresee any significant moves towards addressing structural problems in the near future. Robert L. Meyer PORTFOLIO MANAGER Narayan Ramachandran PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------ Emerging Markets Portfolio 28 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ EMERGING MARKETS PORTFOLIO - ------------------------------------------------------------------------------
SHARES VALUE (000) - ---------------------------------------------------------------------------------------------- COMMON STOCKS (94.1%) ARGENTINA (0.5%) (a)183,876 Acindar, Class B .................................. $ 157 (c)17,210 Banco Frances SA ADR .............................. 361 (a)67,862 Grupo Financiero Galicia SA ....................... 1,005 (a)26,822 IRSA Inversiones y Representaciones SA GDR ........ 443 81,833 Siderar, Class A ......................... ....... 202 (c)142,130 Telecom Argentina ADR ............................. 2,230 ---------- 4,398 ---------- BRAZIL (14.2%) 26,300,000 Banco Itau SA (Preferred) ......................... 2,495 (a)(d)295,998,880 Banco Nacional SA (Preferred) ..................... 8 (c)83,201 Brasil Telecom Participacoes SA ................... 4,909 (a)31,870,093 Celular CRT (Preferred) ........................... 10,296 6,031,766 CEMIG (Preferred) ................................. 87 78,840 CEMIG ADR (Preferred) ............................. 1,140 (e)103,238 CEMIG ADR (Preferred) ............................. 1,493 (a)111,938 CIA Vale do Rio Doce, Class A (Preferred) ......... 2,726 (a)27,055,675 CRT (Preferred) ................................... 10,892 (a)257,959 CVRD ADR (Preferred) .............................. 6,352 24,636,000 Eletrobras ........................................ 455 30,000 Eletrobras ADR .................................... 277 15,219,000 Eletrobras, Class B (Preferred) ................... 281 258,613,000 Embratel Participacoes (Preferred) ................ 3,926 (c)429,800 Embratel Participacoes ADR ........................ 6,742 139,900 Empresa Brasileira de Aeronautica SA .............. 5,561 (a)358,200 Petrobras ......................................... 9,045 264,834 Petrobras (Preferred) ............................. 6,217 23,760 Petrobras ADR (Preferred) ......................... 558 464,025,910 Tele Celular Sul (Preferred) ...................... 1,226 (a)(c)59,085 Tele Celular Sul ADR .............................. 1,544 469,788,110 Tele Centro Sul (Preferred) ....................... 5,397 253,287,610 Tele Nordeste Celular (Preferred) ................. 521 (a)8,975 Tele Nordeste Celular ADR ......................... 371 161,120,220 Tele Norte Leste (Preferred) ...................... 3,470 (c)408,775 Tele Norte Leste ADR .............................. 9,325 151,317 Telebras ADR (Preferred) .......................... 11,027 627,935,816 Telemig Celular (Preferred) ....................... 1,903 (c)15,354 Telemig Celular ADR ............................... 914 548,401,686 Telesp Celular (Preferred) ........................ 5,779 128,953 Telesp Celular ADR ................................ 3,482 408,528 Unibanco GDR (Preferred) .......................... 12,026 (a)140,000 Votorantim Celulose e Papel S.A. ADR .............. 1,951 ---------- 132,396 ---------- CHILE (0.2%) (a)(c)138,900 CIA de Telecomunicaciones de Chile ADR ............ 1,832 ---------- CHINA/HONG KONG (7.4%) 522,000 Asia Satellite Telecommunications Holdings Ltd. ... 1,084 (a)1,250 Asia Info Holdings, Inc. .......................... 12 (c)3,801,000 China Merchants Holdings International Co. Ltd. ... 2,753 (a)(c)384,900 China Mobile (Hong Kong) Ltd. ..................... 10,440 (a)9,555,000 China Petroleum & Chemical Corp. .................. 1,519 (a)4,457,000 China Telecom Ltd. ................................ 24,343 (a)56,400 China Unicom ADR .................................. 832 (a)586,000 China Unicom Ltd. ................................. 898 1,031,000 Citic Pacific Ltd. ................................ 3,655 4,407,000 Cosco Pacific Ltd. ................................ 3,418 (a)4,212,000 Founder Holdings Ltd. ............................. 1,175 12,066,300 Great Wall Technology Co. Ltd. .................... 3,945 1,109,000 Guangdong Kelon Electrical Holdings Co., Ltd. ..... 183 (c)6,234,000 Legend Holdings Ltd. .............................. 3,916 (a)6,880,000 Nanjing Panda Electronics ......................... 1,517 (a)178,100 Netease.com, Inc. ................................. 546 (a)(c)129,600 Sohu.com, Inc. .................................... 308 39,461,900 Sun Television Cybernetworks Holdings Ltd. ........ 921 (a)14,040,000 TCL International Holdings Ltd. ................... 3,204 (a)6,356,000 Timeless Software Ltd. ............................ 799 106,736 Yanzhou Coal Mining Co., Ltd. ADR ................. 1,474 997,000 Yue Yuen Industrial Holdings Ltd. ................. 1,726 ---------- 68,668 ---------- CZECH REPUBLIC (0.3%) (a)151,282 Cesky Telecom AS .................................. 2,039 (a)77,270 Cesky Telecom AS GDR .............................. 1,053 ---------- 3,092 ---------- EGYPT (0.6%) (d)21,000 Egypt Gas Co. ..................................... 650 (a)253,267 Egyptian Co. for Mobil Services ................... 4,916 ---------- 5,566 ---------- GREECE (1.2%) 50,700 Alpha Credit Bank ................................. 1,746 27,870 Commercial Bank Of Greece ......................... 1,335 (a)14,147 EFG Eurobank Ergasias ............................. 277 (c)20,557 Hellenic Telecommunication Organization (OTE) ..... 308 616,261 Hellenic Telecommunication Organization (OTE) ADR . 4,468 54,910 National Bank of Greece ........................... 2,085 (a)19,610 National Bank of Greece SA ........................ 141 (a)79,400 Piraeus Bank SA ................................... 1,261 ---------- 11,621 ---------- HUNGARY (1.0%) 17,947 Gedeon Richter Rt. ................................ 1,061 323,914 Matav Rt. ......................................... 1,347 230,810 Matav Rt. ADR ..................................... 4,717 47,242 OTP Bank Rt. ...................................... 2,655 ---------- 9,780 ---------- INDIA (6.9%) 44,800 Aptech Ltd GDR. ................................... 360 (a)82,756 Aptech Ltd. ....................................... 665
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Emerging Markets Portfolio 29 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- EMERGING MARKETS PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------- INDIA (CONT.) (e)(a)68,000 Aptech Ltd. GDR ................................. $ 262 863,950 Bharat Heavy Electricals Ltd. ................... 3,026 165,500 BSES Ltd. ....................................... 874 25,000 BSES Ltd. GDR ................................... 337 55,250 Cipla Ltd. ...................................... 1,236 836,800 Container Corp. of India Ltd. ................... 3,029 (a)529,070 Dabur India Ltd. ................................ 767 101,000 Dr. Reddy's Laboratories Ltd. ................... 2,754 161,440 HCL Technologies Ltd ............................ 1,857 97,463 Hero Honda Motors Ltd. .......................... 1,825 637,860 Hindustan Lever Ltd. ............................ 2,820 336,150 Housing Development Finance Corp. Ltd. .......... 3,902 (a)(d)(e)393,611 India-Info.com Private Co., Ltd. ................ 1,054 477,500 Indo Gulf Corp. Ltd. ............................ 444 77,630 Infosys Technologies Ltd. ....................... 9,488 118,726 Lupin Laboratories Ltd. ......................... 560 733,918 Mahanagar Telephone Nigam Ltd. .................. 2,816 130,500 Mahanagar Telephone Nigam Ltd. GDR .............. 1,034 (g)25,663,200 Morgan Stanley India Growth Fund ................ 5,662 (a)84,270 NIIT Ltd. ....................................... 2,871 346,000 Ranbaxy Laboratories Ltd. ....................... 4,982 452,300 Reliance Industries Ltd. ........................ 3,285 30,000 Reliance Industries Ltd. GDR .................... 493 520,500 Satyam Computer Services Ltd. ................... 3,604 (a)(d)45,000 Sri Venkatesa Mills Ltd. ........................ 176,949 Sterlite Industries (India) Ltd. ................ 583 28,449 Sterlite Optical Technologies Ltd ............... 504 105,000 Strides Arcolab Ltd. ............................ 376 (a)(c)18,500 Wipro Ltd. ...................................... 927 343,500 Zee Telefilms Ltd. .............................. 2,038 ---------- 64,435 ---------- INDONESIA (0.6%) 3,376,141 Gudang Garam .................................... 4,537 (a)5,007,055 Indah Kiat Pulp & Paper Corp. (Foreign) ......... 427 243,474 Telekomunikasi Indonesia ADR .................... 1,004 ---------- 5,968 ---------- ISRAEL (11.4%) (a)151,286 Aladdin Knowledge Systems ....................... 567 (a)(c)28,699 Amdocs Ltd. ..................................... 1,901 (c)270,800 AudioCodes Ltd. ................................. 3,673 (a)106,318 Batm Advanced Communications .................... 171 (a)231,665 BreezeCom Ltd. .................................. 3,316 (a)(c)70,500 Ceragon Networks Ltd ............................ 850 (a)(c)153,220 Check Point Software Technologies ............... 20,464 (a)(c)32,918 Comverse Technology, Inc. ....................... 3,576 (c)1,514,077 ECI Telecommunications Ltd. ..................... 21,173 (a)345,756 Galileo Technology Ltd. ......................... 4,668 (a)(c)7,237 Gilat Satellite Networks Ltd. ................... 185 68,300 Metalink Ltd. ................................... 657 (a)(c)26,049 NICE-Systems Ltd. ............................... 870 (a)76,135 NICE-Systems Ltd. ADR ........................... 1,527 (a)167,840 Optibase Ltd. ................................... 1,112 (a)(c)233,540 RADVision Ltd. .................................. 2,875 (a)(c)265,281 RADWARE Ltd. .................................... 4,477 (a)(c)161,999 Tecnomatix Technologies Ltd. .................... 851 45,160 Teva Pharmaceutical Industries Ltd. ............. 3,194 (c)333,163 Teva Pharmaceutical Industries Ltd. ADR ......... 24,404 (a)259,107 TTI Team Telecom International Ltd. ............. 3,887 (a)(c)127,847 Zoran Corp. ..................................... 1,982 ---------- 106,380 ---------- MALAYSIA (2.0%) 427,000 British Amerian Tobacco Bhd ..................... 3,933 488,000 Commerce Asset Holdings Bhd ..................... 1,047 (a)1,263,000 Digi.Com Bhd .................................... 1,615 1,147,000 Malayan Banking Bhd ............................. 4,075 293,000 Malaysian Pacific Industries Bhd ................ 1,203 573,000 Resorts World Bhd ............................... 912 1,098,000 Telekom Malaysia Bhd ............................ 3,265 857,000 Tenaga Nasional Bhd ............................. 2,616 ---------- 18,666 ---------- MEXICO (10.1%) 1,249,899 Alfa, Class A ................................... 1,680 (a)3,434,253 Bancomer, Class O ............................... 1,901 (a)(e)277,930 Bancomer, Class O ADR ........................... 3,078 (a)(c)455,309 Carso, Class A1 ................................. 1,127 (c)872,071 Cemex CPO ....................................... 3,153 (c)254,392 Cemex CPO ADR ................................... 4,595 (c)1,745,801 Fomento Economico Mexicano S.A. ................. 5,212 (c)137,556 Fomento Economico Mexicano S.A. ADR ............. 4,110 (a)533,900 Grupo Aeroportuario del Sureste S.A. de CV ...... 861 (a)175,100 Grupo Aeroportuario del Sureste S.A. de CV ...... 2,911 (a)(c)6,842,535 Grupo Financiero Banamex Accival S.A. de CV ..... 11,190 (c)252,800 Grupo Modelo, Class C ........................... 647 (a)(c)77,025 Grupo Sanborns S.A. ............................. 105 (c)1,057,847 Kimberly-Clark, Class A ......................... 2,927 (a)214,524 Televisa CPO GDR ................................ 9,640 772,803 Telmex, Class L ADR ............................. 34,873 (a)85,222 Wal-mart de Mexico ADR .......................... 1,696 (a)1,780,411 Wal-mart de Mexico, Class C ..................... 3,278 (a)(c)344,757 Wal-mart de Mexico, Class V ..................... 685 ---------- 93,669 ---------- POLAND (2.1%) 57,993 Bank Polska Kasa Opieki Grupa Pekao S.A. ........ 877 5,479 BRE Bank S.A. ................................... 174 (a)(d)33,400 Eastbridge NV ................................... 2,245 136,639 Elektrim ........................................ 1,673 4,389 Powszechny Bank Kredytowy S.A. .................. 113 2,048,935 Telekomunikacja Polska GDR ...................... 13,984
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Emerging Markets Portfolio 30 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- EMERGING MARKETS PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------- POLAND (CONT.) 16,722 Wielkopolski Bank Kredytowy ..................... $ 111 ---------- 19,177 ---------- RUSSIA (4.2%) (a)(d)592,359 Alliance Cellulose Ltd. ......................... 1,624 184,741 Lukoil Holding ADR .............................. 6,835 68,700 Lukoil Holding Sponsored ADR .................... 1,223 (a)(d)66,270,018 Mustcom Ltd. .................................... 9,212 (c)82,260 Rostelecom ADR .................................. 427 (a)(d)990 Storyfirst Communications, Inc., Class C ........ 422 (a)(d)2,640 Storyfirst Communications, Inc., Class D ........ 1,125 (a)(d)3,250 Storyfirst Communications, Inc., Class E ........ 1,385 (a)(d)1,331 Storyfirst Communications, Inc., Class F ........ 1,134 (a)218,640 Surgutneftegaz .................................. 2,033 (a)(c)860,348 Surgutneftegaz ADR .............................. 8,948 410,842 Unified Energy Systems GDR ...................... 3,369 (a)44,812 Vimpel-Communications ADR ....................... 666 ---------- 38,403 ---------- SOUTH AFRICA (4.5%) 111,215 Anglo American Corp. ............................ 5,173 (d)4,181,667 B.O.E Ltd. ...................................... 6 385,553 Bidvest Group Ltd. .............................. 2,326 (c)230,393 De Beers Centenary AG ........................... 6,089 (c)35,100 De Beers Consolidated Mines ADR ................. 939 294,350 Ellerine Holdings Ltd. .......................... 673 373,200 FirstRand Ltd. .................................. 414 15,700 Impala Platinum Holdings Ltd. ................... 800 108,190 Liberty Life Association of Africa Ltd. ......... 965 (c)749,680 M-Cell Ltd. ..................................... 2,507 164,852 Nedcor Ltd. ..................................... 3,725 614,300 Rembrandt Group Ltd. ............................ 1,636 614,300 Remgro Ltd ...................................... 4,181 1,613,700 Sanlam Ltd. ..................................... 2,039 755,500 Sasol Ltd. ...................................... 4,887 775,208 South African Breweries plc ..................... 5,447 ---------- 41,807 ---------- SOUTH KOREA (14.4%) 65,950 Cheil Communications Inc. ....................... 3,232 39,476 CJ39 Shopping Corp. ............................. 440 (a)282,265 Communication Network Interface Inc. ............ 475 209,400 Hana Bank ....................................... 980 359,120 Housing & Commercial Bank ....................... 8,148 (a)325,365 Humax Co., Ltd. ................................. 2,701 831,480 Hyundai Electronics Industries Co. .............. 2,646 196,700 Hyundai Motor Co. Ltd. .......................... 1,881 446,810 Kookmin Bank .................................... 5,263 203,970 Korea Electric Power Corp. ...................... 3,805 (a)(c)194,226 Korea Electric Power Corp. ADR .................. 1,991 303,650 Korea Telecom Corp. ............................. 16,083 (a)(c)394,790 Korea Telecom Corp. ADR ......................... 12,238 (a)50,750 Korea Telecom Freetel ........................... 1,318 (a)43,060 LG Home Shopping, Inc. .......................... 946 243,080 LG Investment & Securities Co. Ltd. ............. 1,136 21,103 Pohang Iron & Steel Co., Ltd. ................... 1,276 154,299 Samsung Electro-Mechanics Co. ................... 4,184 290,963 Samsung Electronics Co. Ltd. .................... 36,342 120,030 Samsung Securities Co., Ltd. .................... 2,201 491,320 Shinhan Bank .................................... 4,039 (a)91,090 SK Telecom Co., Ltd. ............................ 18,218 (a)(c)115,135 SK Telecom Co., Ltd. ADR ........................ 2,713 344,196 Telson Electronics Co., Ltd. .................... 1,475 57,550 Tongyang Confectionery Co. ...................... 773 ---------- 134,504 ---------- TAIWAN (8.8%) (a)2,190,115 Advanced Semiconductor Engineering, Inc. ........ 1,494 573,800 Advantech Co. Ltd. .............................. 1,819 516,653 Ambit Microsystems Corp. ........................ 2,192 (a)(c)113,500 ASE Test Ltd. ................................... 965 989,829 Asustek Computer, Inc. .......................... 2,974 (a)2,883,913 Chinatrust Commercial Bank ...................... 1,733 2,504,700 Compal Electronics, Inc. ........................ 3,396 2,609,250 Delta Electronics, Inc. ......................... 8,154 1,011,172 Far East Textile Ltd. ........................... 714 (e)2,209 Far East Textile Ltd. GDR ....................... 16 1,801,600 Hon Hai Precision Industry ...................... 9,139 32,110 Hon Hai Precision Industry GDR .................. 378 (a)1,610,600 Macronix International .......................... 1,935 (a)3,428,000 Powerchip Semiconductor Corp. ................... 1,708 609,248 President Chain Store Corp. ..................... 1,600 (a)612,880 ProMos Technologies Inc. ........................ 540 914,000 Quanta Computer Inc. ............................ 2,401 (a)5,224,315 Siliconware Precision Industries Co. ............ 2,902 1,329,248 Taishin International Bank ...................... 542 (a)7,626,641 Taiwan Semiconductor Manufacturing Co. .......... 18,307 (a)1,538,000 Uni-President Enterprises Co. ................... 1,022 7,341,400 United Micro Electronics Corp., Ltd. ............ 10,662 (a)4,268,440 Winbond Electronics Corp. ....................... 4,085 (a)3,235,000 Yageo Corp. ..................................... 2,549 271,100 Zinwell Corp. ................................... 377 ---------- 81,604 ---------- THAILAND (1.4%) (a)524,350 Advanced Information Services PCL (Foreign) ..... 5,074 410,100 BEC World PCL (Foreign) ......................... 2,079 (d)540,104 Delta Electronics (Thailand) PCL (Foreign) ...... 2,427 (a)474,300 Shinawatra Computer Co. PCL (Foreign) ........... 1,748 (a)1,816,100 Thai Farmers Bank PCL (Foreign) ................. 900
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Emerging Markets Portfolio 31 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- EMERGING MARKETS PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
VALUE SHARES (000) - ----------------------------------------------------------------------------- THAILAND (CONT.) (a)409,600 Total Access Communication PCL .................. $ 1,102 ---------- 13,330 ---------- TURKEY (2.2%) (a)6,043,036 Alcatel Telekomunikasyon ........................ 640 (a)35,691,264 Anadolu Efes Biracilik Ve Malt Sanayi A.S. ...... 1,731 (a)293,994,898 Garanti Bankasi A.S. ............................ 1,645 45,432,588 Netas Telekomunik A.S. .......................... 4,677 (a)202,057 Turkcell Iletisim Hizmetleri A.S. ............... 1,414 (a)270,855,235 Vestel Elektronik Sanayi Ve Ticaret A.S. ........ 1,000 (a)1,675,419,583 Yapi Ve Kredi Bankasi A.S. ...................... 8,623 (a)71,687 Yapi Ve Kredi Bankasi A.S. GDR .................. 368 ---------- 20,098 ---------- OTHER (0.1%) (g)84,455 MSDW Africa Investment Fund, Inc. ............... 665 ---------- TOTAL COMMON STOCKS (Cost $1,237,622) ........................... 876,059 ---------- PREFERRED STOCKS (0.2%) COLOMBIA (0.0%) (a)(d)103,207 Bancolombia ..................................... 51 ---------- SOUTH KOREA (0.2%) 29,840 Samsung Electronics Co. Ltd. .................... 1,627 ---------- TOTAL PREFERRED STOCKS (Cost $5,109) ............................ 1,678 ---------- NO. OF UNITS (000) - ------------ UNITS (0.2%) RUSSIA (0.2%) (a)(d)1,637 Storyfirst Communications, Inc., First Section, Tranche I, 25.00% (Convertible) .......................... 698 (a)(d)96 Storyfirst Communications, Inc., Second Section, Tranche I, 25.00% (Convertible) .......................... 41 (a)(d)421 Storyfirst Communications, Inc., Tranche II, 26.00% (Convertible) .............. 179 (a)(d)562 Storyfirst Communications, Inc., Tranche IV, 28.00% (Convertible) .............. 239 (a)(d)654 Storyfirst Communications, Inc., Tranche V, 29.00% ............................. 279 (a)(d)550 Storyfirst Communications, Inc., Tranche VI, 30.00% ............................ 234 ---------- TOTAL UNITS (Cost $4,675) ....................................... 1,670 ---------- FACE AMOUNT VALUE (000) (000) - ----------------------------------------------------------------------------- CONVERTIBLE DEBENTURES (0.0%) INDIA (0.0%) $ (b)(d)336 DCM Shriram Industries Ltd., 7.50%, 2/21/02 (Cost $473)..................... 71 ---------- NON-CONVERTIBLE DEBENTURES (0.1%) INDIA (0.1%) $ (b)(d)341 DCM Shriram Industries Ltd., (Floating Rate), 9.90%, 2/21/02 ................ $ 95 (d)700 Saurashtra Cement & Chemicals Ltd., 18.00%, 11/27/98 ........................ 700 ---------- TOTAL NON-CONVERTIBLE DEBENTURES (Cost $2,864) .................. 795 ---------- TOTAL FOREIGN SECURITIES (94.6%) (Cost $1,250,743) .............. 880,273 ---------- SHORT-TERM INVESTMENTS (21.8%) SHORT-TERM INVESTMENTS HELD AS COLLATERAL ON LOANED SECURITIES (17.1%) 6,962 Amstel Funding Corp., CP., 6.70%, 1/12/01 ....... 6,962 7,000 AT&T Corp., CP., 6.73%, 7/19/01 ................. 7,000 5,000 Bank of Austria, Yankee CD, 6.75%, 1/02/01 ...... 5,000 3,000 Bayerische Landesbank, Yankee CD, 6.68%, 2/22/01 3,000 5,000 Beta Finance, Inc., MTN, 6.93%, 9/05/01 ......... 5,000 4,947 Bills Securitization, CP, 6.72%, 1/26/01 ........ 4,947 7,679 Citibank Credit Card CP., 6.78%, 1/09/01 ........ 7,679 6,000 Ciesco LP, MTN, 6.68%, 10/15/01 ................. 6,000 10,395 CS First Boston, 6.68%, 1/02/01 ................. 10,395 2,900 Dresdner Bank, Grand Cayman, 6.63%, 1/02/01 ..... 2,900 4,954 Greyhawk Funding, Inc., CP, 6.73%, 1/19/01 ...... 4,954 8,065 Goldman Sachs Group, L.P., MTN, 6.80%, 1/09/01 .. 8,065 6,500 K2 (USA) LLC., MTN, 6.71%, 9/17/01 .............. 6,500 5,000 Landesbank Baden-Wuerttemberg, Yankee CD, 6.75%, 1/02/01............................. 5,000 25,000 Salomon Smith Barney, Inc., 6.75%, 1/02/01, ..... 25,000 25,000 Salomon Smith Barney, Inc., 6.50%, 1/02/01, ..... 25,000 4,948 Sheffield Receivable Corp., CP, 6.73%, 1/25/01 .. 4,948 5,000 Sigma Finance, Inc., MTN, 6.73%, 2/12/01 ........ 5,000 9,009 Student Loan Market, 6.54%, 6/11/01 ............. 9,009 6,995 Svenska Handelsbank, Yankee CD, 6.76%, 2/26/01 .. 6,995 ---------- TOTAL SECURITIES HELD FOR COLLATERAL ON LOANED SECURITIES........ 159,354 ----------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Emerging Markets Portfolio 32 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- EMERGING MARKETS PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------- REPURCHASE AGREEMENT (4.7%) $ (f)43,791 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01(Cost $43,791).............................. $ 43,791 ---------- TOTAL SHORT-TERM INVESTMENTS (Cost $203,145)....................... 203,145 ---------- FOREIGN CURRENCY (0.3%) ARP 10 Argentine Peso ................................ 10 BRL 18 Brazilian Real ................................ 9 GBP 955 British Pound ................................. 1,427 EUR 130 Euro .......................................... 122 MYR 403 Malaysian Ringgit ............................. 106 HKD 8 Hong Kong Dollar .............................. 1 HUF 917 Hungarian Forint .............................. 3 INR 884 Indian Rupee .................................. 19 MXN 1,156 Mexican Peso .................................. 120 PLN 5 Poland Zloty .................................. 1 ZAR 6,362 South African Rand ............................ 841 TWD 3,378 Taiwan Dollar ................................. 102 ---------- TOTAL FOREIGN CURRENCY (Cost $2,700) ............................ 2,761 ---------- TOTAL INVESTMENTS (116.7%) (Cost $1,456,588) 1,086,179 ---------- OTHER ASSETS (1.8%) Cash ............................................... $ 854 Receivable for Investments Sold .................... 11,372 Receivable for Portfolio Shares Sold ............... 3,521 Dividends Receivable ............................... 764 Interest Receivable ................................ 157 Other .............................................. 82 16,750 ---------- LIABILITIES (-18.5%) Collateral on Securities Loaned .................... (159,354) Payable for Investments Purchased .................. (7,739) Investment Advisory Fees Payable ................... (3,233) Custodian Fees Payable ............................. (350) Foreign Taxes Payable .............................. (347) Payable for Portfolio Shares Redeemed .............. (314) Directors' Fees and Expenses Payable ............... (139) Administrative Fees Payable ........................ (136) Distribution Fees Payable .......................... (10) Net Unrealized Loss on Foreign Currency Exchange Contracts ............................... (1) Other Liabilities .................................. (266) (171,889) ---------- ----------- NET ASSETS (100%) ................................................ $ 931,040 =========== NET ASSETS CONSIST OF: Paid in Capital .................................................. $1,358,024 Accumulated Net Investment Loss .................................. (4,154) Distributions In Excess of Net Realized Gain ..................... (52,071) Unrealized Depreciation on Investments and Foreign Currency Translations (Net of accrual of foreign taxes of $332 on unrealized depreciation of investments).................. (370,759) ----------- NET ASSETS ........................................................ $ 931,040 =========== CLASS A: - -------- NET ASSETS ........................................................ $ 917,091 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 81,083,903 outstanding $0.001 par value shares (authorized 500,000,000 shares)................................. $ 11.31 ======== CLASS B: - -------- NET ASSETS......................................................... $ 13,949 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 1,238,672 outstanding $0.001 par value shares (authorized 500,000,000 shares) $ 11.26 ======== - ------------------------------------------------------------------------------------------------ FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at December 31, 2000, the Portfolio is obligated to deliver foreign currency in exchange for U.S. dollars as indicated below: CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE (LOSS) (000) (000) DATE (000) (000) (000) - ---------------- --------------- ----------------- ------------------- -------------- ----------------------- MXP 624 $ 65 1/02/01 U.S.$ 65 $ 65 $ - GBP 222 331 1/02/01 U.S.$ 330 330 (1) ---- ---- ---- $396 $395 $(1) ==== ==== ==== - ------------------------------------------------------------------------------------------------------------- (a) -- Non-income producing security (b) -- Security is in default (c) -- All or a portion of security on loan at December 31, 2000 -- See Note A-9 to financial statements. (d) -- Investments valued at fair value-- See Note A-1 to financial statements. (e) -- 144A Security -- certain conditions for public sale may exist. (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. (g) -- The fund is advised by an affiliate. CP -- Commercial Paper ADR -- American Depositary Receipt GDR -- Global Depositary Receipt MTN -- Medium Term Note PCL -- Public Company Limited - ------------------------------------------------------------------------------------------------------------- SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION VALUE PERCENT OF SECTOR (000) NET ASSETS - ------------------------------------------------------------------------------------------------------------- Consumer Discretionary......................................... $ 46,261 5.0% Consumer Staples............................................... 31,830 3.4 Energy......................................................... 41,265 4.4 Finance........................................................ 101,409 10.9 Health Care.................................................... 39,334 4.2 Industrials.................................................... 46,032 4.9 Information Technology......................................... 237,033 25.5 Materials...................................................... 44,788 4.8 Telecommunication Services..................................... 274,944 29.6 Utilities...................................................... 17,377 1.9 -------- -------- $880,273 94.6% ======== ========
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Emerging Markets Portfolio 33 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- EUROPEAN EQUITY PORTFOLIO [CHART] COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------- United Kingdom (41.7%) France (13.9%) Switzerland (10.7%) Germany (8.8%) Netherlands (7.2%) Sweden (4.7%) Italy (3.2%) Spain (2.3%) Finland (2.1%) Portugal (1.1%) Other (4.3%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ---------------------------------------------------- [GRAPH]
European Equity Portfolio- MSCI Europe Class A Index(1) --------------- ----------- 1993 $ 500,000 $ 500,000 1994 -------- -------- 1995 -------- -------- 1996 -------- -------- 1997 -------- -------- 1998 -------- -------- 1999 -------- -------- 2000 $1,468,073 $1,544,097
* Commenced operations on April 2, 1993 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX(1) - ------------------------------------------------------------------------------- TOTAL RETURNS(2) -------------------------- AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION ----- ------ ----------- PORTFOLIO -- CLASS A ......... 7.38% 12.91% 14.91% PORTFOLIO -- CLASS B ......... 7.08 N/A 12.41 INDEX -- CLASS A ............. -8.39 15.39 15.53 INDEX -- CLASS B ............. -8.39 N/A 15.26
1. The MSCI Europe Index is an unmanaged market value weighted index of common stocks listed on the stock exchanges of countries in Europe. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The investment objective of the European Equity Portfolio is to seek long-term capital appreciation through investment primarily in equity securities of European issuers. Equity securities for this purpose include stocks and stock equivalents such as securities convertible into common and preferred stocks and securities having equity characteristics, such as rights and warrants to purchase common stock. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. The approach taken in selecting investments for the Portfolio is oriented to individual stock selection and is value driven. The initial step in identifying attractive undervalued securities is the screening of European databases. Stocks are screened for undervaluation on two primary criteria, cash flow and book value, and three secondary criteria, earnings, sales and yield. Once stocks have been selected from this screening process, they are put through detailed fundamental analysis. Important areas covered during this in-depth study include the companies' balance sheets and cash flow, franchise, products, management and the strategic value of the assets. For the year ended December 31, 2000, the Portfolio had a total return of 7.38% for the Class A shares and 7.08% for the Class B shares compared to - -8.39% for the Morgan Stanley Capital International (MSCI) Europe Index (the "Index"). For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was 12.91% compared to 15.39% for the Index. For the period from inception on April 2, 1993 through December 31, 2000, the average annual total return for the Class A shares was 14.91% compared to 15.53% for the Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 12.41% compared to 15.26% for the Index. Although there was a slight rise in the Index in the fourth quarter of 2000, much was derived from a sharp recovery in - ------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE MEASURED BY THE MSCI EUROPE INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------- European Equity Portfolio 34 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- EUROPEAN EQUITY PORTFOLIO (CONT.) the euro and sterling currencies that appreciated 8% and 5%, respectively, against the dollar in December alone. The European technology, media and telecommunication (TMT) groups failed to rally given the weakness in the NASDAQ and poor news flow from many companies ahead of year end (e.g. Ericsson). The Portfolio was rewarded during the year by strong stock selection, an overweight in consumer staples, as well as its underweight to telecommunications and technology. Allied Domecq was a strong positive as it pulled out of the auction for Seagram's wine and spirits business but did acquire Mumm and Perrier-Jouet champagnes. Combined with the U.S. distribution rights for Stolichnaya vodka, Allied Domecq's underlying growth story remains intact. Pernod Ricard successfully acquired the bulk of Seagrams' spirits portfolio, boosting both its global brand strength and product diversity. Diageo Reckitt & Coleman and Cadbury Schweppes were also strong performers in the sector. Elsewhere, Rentokil Initial enjoyed a 43% rise on improved news flow from depressed levels. Akzo Nobel and Wolsley both benefited from a re-rating of economically sensitive shares on the prospects of a U.S. rate cut. Our zero exposure to Index heavy-weights such as Ericsson, BP Amoco, SAP, and Deutsche Telekom, on valuation/balance sheet concerns, was particularly rewarding throughout the year. Our concern remains that growth expectations implicit in the valuations of the New Economy companies is excessive, not just in the U.S. but also in Europe. We also are wary of the Fed's ability to steer clear of a hard landing. The U.S. suffers from structural imbalances that could serve to exacerbate a slowdown in capital expenditure and consumer spending. Europe has the capacity to stimulate growth through expansionary fiscal policy. However, it will be difficult for Europe not to be impacted by a slowing U.S. policy. Of note, European consumer confidence has been weak in line with U.S. trends. Last year was good to Value investors overweighted to high quality defensive businesses. In a hard landing scenario even the consumer staples sector could suffer earnings disappointments (as it did following the Asia crisis in '98). However, given the gearing of technology and banking profits to the economy, consumer staples still look relatively attractive to us. As we enter the new year, the Portfolio maintains a defensive bias with an overweight position in consumer staples, where valuations still remain reasonable relative to free cash flow and there is a greater degree of earnings visibility. Despite the sharp price declines seen in many technology and telecommunication share prices, we believe earnings growth expectations still remain far too optimistic for this group, particularly if there is a hard landing in the U.S. economy. We therefore remain underweight in these sectors, although market movements have reduced the size of the relative underweight position. Margaret Naylor PORTFOLIO MANAGER Willem Vinke PORTFOLIO MANAGER Nathalie Degans PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------- European Equity Portfolio 35 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- EUROPEAN EQUITY PORTFOLIO - ------------------------------------------------------------------------------- VALUE SHARES (000) - ------------------------------------------------------------------------------- COMMON STOCKS (93.6%) BELGIUM (0.1%) 55 G.I.B. Group - VVPR .............................. $ 2 (a)3,140 Mobistar SA ...................................... 95 ------- 97 ------- DENMARK (0.7%) 8,900 Danisco A/S ........................................ 366 2,030 Tele Danmark A/S ................................... 83 ------- 449 ------- FINLAND (2.1%) 34,580 Metso Oyj ........................................ 386 11,250 Sampo Insurance Co. plc, Class A ................. 607 36,300 Stora Enso Oyj ................................... 430 ------- 1,423 ------- FRANCE (13.9%) (a)14,220 Alcatel Alsthom ................................. 808 5,200 Assurances Generales de France .................. 361 25,535 Aventis S.A. .................................... 2,242 4,700 AXA ............................................. 680 1,920 Banque Nationale de Paris ....................... 168 2,670 Cie de Saint Gobain ............................. 419 11,550 CNP Assurances .................................. 463 288 Essilor International S.A. ...................... 94 (a)5,170 Groupe Danone ................................... 780 10,590 Pernod Ricard ................................... 731 13,370 Schneider S.A. .................................. 975 11,424 TotaFina, Class B ............................... 1,699 ------- 9,420 ------- GERMANY (5.9%) 7,635 Adidas-Salomon AG ............................... 464 10,242 BASF AG ......................................... 466 14,457 Bayer AG ........................................ 759 8,834 Bayerische-Hypo Vereinsbank AG .................. 496 (a)62,830 Deutsche Post AG ................................ 1,351 11,517 Dresdner Bank AG (Registered) ................... 503 ------- 4,039 ------- ITALY (3.2%) 32,600 Banco Intesa S.p.A. ............................. 157 98,510 ENI S.p.A. ...................................... 629 3,052 Seat-Pagine Gialle S.p.A. ....................... 7 45,680 Telecom Italia Mobile S.p.A. .................... 364 55,090 Telecom Italia S.p.A. (RNC) ..................... 609 82,230 UniCredito Italiano S.p.A ....................... 430 ------- 2,196 ------- NETHERLANDS (7.2%) (a)13,137 ABN Amro Holding N.V. ........................... 299 21,420 Akzo Nobel N.V. ................................. 1,151 21,126 Buhrmann N.V. ................................... 566 17,132 ING Groep N.V. .................................. 1,369 (a)28,505 Koninklijke (Royal) Philips Electronics N.V. .... 1,044 2,780 Royal Dutch Petroleum Co. ....................... 170 28,600 Royal KPN N.V. .................................. 329 ------- 4,928 ------- PORTUGAL (1.1%) 69,810 Banco Commercial Portugues (Registered) ......... 371 (a)107,500 Electricidade de Portugal S.A (Registered). ..... 355 ------- 726 ------- SPAIN (2.3%) 14,020 Banco Popular Espanol ........................... 488 19,800 Repsol S.A. ..................................... 317 43,941 Telefonica S.A. ................................. 726 ------- 1,531 ------- SWEDEN (4.7%) 23,640 Autoliv, Inc. SDR ............................... 371 33,420 ForeningsSparbanken ABClass A ................... 512 98,801 Nordbanken Holding AB ........................... 748 27,150 Scandic Hotels AB ............................... 359 16,350 Svenska Cellulosa AB, Class B ................... 347 43,510 Svenska Handelsbanken, Class A .................. 744 36,700 Swedish Match AB ................................ 143 ------- 3,224 ------- SWITZERLAND (10.7%) 324 Cie Financiere Richemont AG, Class A ............ 866 592 Holderbank Financiere Glarus AG, Class B (Bearer) 712 890 Nestle S.A. (Registered) ........................ 2,075 710 Novartis AG (Registered) ........................ 1,255 46 Roche Holding AG (Registered) ................... 469 310 Schindler Holding AG (Registered) ............... 488 (a)10,680 Syngenta AG ..................................... 573 2,500 UBS AG .......................................... 408 717 Zurich Financial Services AG .................... 432 -------- 7,278 -------- UNITED KINGDOM (41.7%) 208,880 Allied Domecq plc ............................... 1,380 17,160 AstraZeneca Group plc ........................... 865 63,190 BAA plc ......................................... 584 100,350 BAE Systems plc ................................. 573 24,280 Barclays plc .................................... 752 60,743 BG Group plc .................................... 238 43,014 Blue Circle Industries plc ...................... 283 48,080 BOC Group plc ................................... 731 102,880 British American Tobacco plc .................... 784 79,970 British Telecommunications plc .................. 684 204,850 Cadbury Schweppes plc ........................... 1,417 91,470 Centrica plc .................................... 354 110,528 Diageo plc ...................................... 1,239 42,125 GKN plc ......................................... 445 50,312 GlaxoSmithKline plc ............................. 1,421 (a)67,123 Granada Compass plc ............................. 731 110,470 Great Universal Stores plc ...................... 868 43,550 Halma plc ....................................... 90 95,760 Imperial Tobacco Group plc ...................... 997 142,800 Invensys plc .................................... 334 (a)104,943 Lattice Group plc ............................... 237 57,400 Lloyds TSB Group plc ............................ 607 67,680 Prudential Corp. plc ............................ 1,089 111,979 Reckitt & Benckiser plc ......................... 1,543
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- European Equity Portfolio 36 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- EUROPEAN EQUITY PORTFOLIO (CONT.) - ------------------------------------------------------------------------------- VALUE SHARES (000) - ------------------------------------------------------------------------------- UNITED KINGDOM (CONT.) 210,150 Rentokil Initial plc ............................ $ 725 28,080 RMC Group plc ................................... 247 247,930 Rolls-Royce plc ................................. 734 91,550 Sainsbury (J) plc ............................... 543 89,704 Scottish & Southern Energy plc .................. 831 237,617 Shell Transport & Trading Co. plc ............... 1,950 41,689 Smiths Industries plc ........................... 503 93,630 SSL International plc ........................... 700 623,246 Vodafone Group plc .............................. 2,287 77,480 Wolseley plc .................................... 533 83,110 WPP Group plc ................................... 1,083 -------- 28,382 -------- TOTAL COMMON STOCKS (Cost $56,383) .......................... 63,693 -------- PREFERRED STOCKS (2.9%) GERMANY (2.9%) 3,523 Fresenius Medical Care AG ........................ 936 16,040 Henkel KGaA-Vorzug ............................... 1,039 -------- TOTAL PREFERRED STOCKS (Cost $1,645) ........................ 1,975 -------- TOTAL FOREIGN SECURITIES (96.5%) (Cost $58,028) ............. 65,668 --------
FACE AMOUNT (000) - ------- SHORT-TERM INVESTMENT (2.1%) REPURCHASE AGREEMENT (2.1%) $ (f)1,411 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $1,411) ......................... 1,411 ------- FOREIGN CURRENCY (0.1%) GBP 27 British Pound (Cost $41) ....................... 41 ------- TOTAL INVESTMENTS (98.7%) (COST $59,480) .................... 67,120 ------- OTHER ASSETS (1.7%) Unrealized Gain on Foreign Currency Exchange Contracts .... $516 Dividends Receivable ...................................... 208 Receivable for Investments Sold ........................... 204 Foreign Withholding Tax Reclaim Receivable ................ 169 Interest Receivable ....................................... 1 Other ..................................................... 34 1,132 ----- LIABILITIES (-0.4%) Investment Advisory Fees Payable ......................... (130) Custodian Fees Payable ................................... (21) Directors' Fees and Expenses Payable ..................... (19) Administrative Fees Payable .............................. (18) Distribution Fees Payable ................................ (1) Other Liabilities ........................................ (29) (218) ----- -------- NET ASSETS (100%) .......................................... $68,034 ======== NET ASSETS CONSIST OF: Paid in Capital ............................................ $57,752 Undistributed Net Investment Income ........................ 137 Accumulated Net Realized Gain .............................. 2,016 Unrealized Appreciation on Investments and Foreign Currency Translations ............................................. 8,129 -------- NET ASSETS ................................................. $68,034 ======== CLASS A: - -------- NET ASSETS ................................................. $65,747 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 4,638,840 outstanding $0.001 par value shares (authorized 500,000,000 shares) ........................ $14.17 ========= CLASS B: - -------- NET ASSETS ................................................. $2,287 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 161,107 outstanding $0.001 par value shares (authorized 500,000,000 shares) ........................ $14.19 ========
- ------------------------------------------------------------------------------- FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at December 31, 2000, the Portfolio is obligated to deliver or is to receive foreign currency in exchange for U.S. dollars as indicated below: CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS) (000) (000) DATE (000) (000) (000) - ------------ -------- ----------- ------------- ------- ---------- GBP 7,900 $ 11,827 5/15/01 U.S.$ 11,374 $11,374 $(453) U.S.$ 11,374 11,374 5/15/01 EUR 13,078 12,343 969 -------- -------- -------- $ 23,201 $23,717 $516 ======== ======== ========
(a) -- Non-income producing security (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. RNC -- Non-Convertible Savings Shares - ------------------------------------------------------------------------------- SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION VALUE PERCENT OF SECTOR (000) NET ASSETS - -------------------------------------------------------------------------------- Consumer Discretionary .............................. $ 6,771 10.0% Consumer Staples .................................... 12,000 17.6 Energy .............................................. 5,001 7.4 Financials .......................................... 11,684 17.2 Health Care ......................................... 7,981 11.7 Industrials ......................................... 7,640 11.2 Information Technology .............................. 898 1.3 Materials ........................................... 6,738 9.9 Telecommunication Services .......................... 5,177 7.6 Utilities ........................................... 1,778 2.6 ------- ----- $65,668 96.5% ======= =====
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- European Equity Portfolio 37 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- EUROPEAN REAL ESTATE PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - -------------------------------------------------------------------------------- [CHART] United Kingdom (40.0%) France (17.9%) Sweden (13.1%) Spain (11%) Netherlands (3.4%) Ireland (3.1%) Germany (2.0%) Norway (1.7%) Finland (1.5%) Portugal (1.1%) Other (5.2%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - --------------------------------------------------------------------- [GRAPH]
European Real European Real GPR General Estate Portfolio- Estate Portfolio- Real Estate Securities Class A Class B Index - Europe(1) ----------------- ------------------ ---------------------- 1997 $500,000 $100,000 $500,000 1998 -------- -------- -------- 1999 -------- -------- -------- 2000 $559,901 $111,138 $562,263
* Commenced operations on October 1, 1997 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The GPR General Real Estate Securities Index - Europe value at December 31, 2000 assumes a minimum investment of $500,000; if a minimum initial investment of $100,000 (the minimum investment for Class B shares) is assumed, the value at December 31,2000 would be $103,640. PERFORMANCE COMPARED TO THE GPR GENERAL REAL ESTATE SECURITIES INDEX - EUROPE(1) - --------------------------------------------------------------------------------
TOTAL RETURNS(2) -------------------------- ONE AVERAGE ANNUAL YEAR SINCE INCEPTION ------- ---------------- PORTFOLIO -- CLASS A............... 14.91% 3.54% PORTFOLIO -- CLASS B............... 14.55 3.30 INDEX.............................. 9.05 3.64
1. The GPR General Real Estate Securities Index - Europe is a market capitalization weighted index of listed property/real estate securities in Europe measuring total return. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The investment objective of the European Real Estate Portfolio is to provide current income and long-term capital appreciation by investing primarily in equity securities of companies in the European real estate industry. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of 14.91% for the Class A shares and 14.55% for the Class B shares compared to 9.05% for the GPR General Real Estate Securities Index - Europe (the "Index"). For the period from inception on October 1, 1997 through December 31, 2000, the Portfolio had an average annual total return of 3.54% for the Class A shares and 3.30% for the Class B shares compared to 3.64% for the Index. The year 2000 was very successful for investors in the European real estate securities sector. After posting a -0.4% Euro return in the fourth quarter, the GPR Index offered a 16.4% return for the year 2000. This compares to a quarterly and annual Euro return of -4.1% and -1.9%, respectively, for the broader European equity markets, measured by MSCI Europe. Hence, real estate securities showed a relative outperformance of 18.3% versus the broader equity market in 2000, the best year of relative performance since 1987. The best performing listed property markets for the year were Denmark, Sweden, Ireland and the United Kingdom, returning 39.7%, 38.4%, 27.5% and 21.6% in Euros, respectively. The worst performing markets for the year were Norway, Belgium, Portugal and Switzerland with Euro returns of -3.2%, -2.4%, -2.4% and -1.1%, respectively. Looking ahead to 2001, we remain optimistic about the European real estate securities market, but we do expect the sector returns to slow down towards the historic average annual Euro return of 10.0%. This compares favorably to the expectations for a weak year for the broader European equity markets. European property shares have returned 19.8% in 1999 and 16.4% in 2000, and rental and capital value growth in European real estate markets have been strong during the same period on the back of above trend economic growth in - -------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - -------------------------------------------------------------------------------- European Real Estate Portfolio 38 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- EUROPEAN REAL ESTATE PORTFOLIO (CONT.) most European countries. Building activity has increased in this positive environment, and the main question for the near future is how take-up will respond to this new space, and how absorption will be effected by the expected economic slow down in 2001. The vacancy rate of the European office market as a whole has decreased consistently since the end of 1993. Vacancy rates in all European office markets have continued to decline since 1999, despite an increase in office space completions since the end of 1998. Low vacancy rates combined with strong demand for office space have put clear upward pressure on rents and explain the high rental growth rates. Office space in the pipeline for 2001 and 2002 is expected to exceed the level of completions at the last peak in the late eighties. However, while the top level of completions in the previous cycle comprised 4.5% of the total stock, this is now a bit more modest at below 3% as the office stock has grown from 100 million metric squares to 150 million metric squares. The supply risk on the cycle is more modest as a result, and this risk is also somewhat mitigated by current vacancy rates at about 4%, which is half of what they were at the last peak level of 8.0% in 1993. Also, about 50% of new completions in 2001 are currently pre-let, and about 37% of new supply in 2002 is pre-let. Given the in-elasticity of new supply, the key variable to watch in 2001 will be space absorption by tenants. The European real estate market is moving towards equilibrium with slowing growth, but if the current projected slowdown in the economy turns out better than expected, the prevailing imbalance in the real estate markets could result in yet another year of strong rental growth. Following lower expectations for global growth, MSDW economists have lowered their estimate of 2001 annual GDP growth in the U.K. by another 10 basis points to 2.4%. Quarterly annualized GDP growth is envisaged to ease from 2.9% at the end of 3Q 2000 to a below-trend 2.1% by the end of 2001. However, this slowdown should prove short-lived, and the MSDW view is for a subsequent rebound to 3.2% annual growth in 2002. This expansion is entirely explained by domestic demand growth, as private sector and government consumption are set to register robust growth in 2002. Despite higher oil prices, U.K. inflation should stay below the Government's target of 2.5%, with 2001 inflation expected at 2.4%. Against this backdrop of slowing growth and benign inflation, MSDW forecasts the first rate cut of 25 basis points in mid 2001, with a further 25 basis points reduction in late autumn, leaving the end-2001 rate target at 5.5%. The U.K. showed a GBP return of 5.0% in the fourth quarter, but as the Euro recovered from its all time lows versus the British Pound, the Euro return for the U.K. sector was only -0.2%, in line with the European average. This resulted in a 21.6% Euro return for the year, marking the second consecutive year of outperformance for the U.K. Three real estate companies were bid for during the fourth quarter, bringing the total for the year to eleven. Pillar, a listed company, offered a cash bid for Wates City, and both Burford and Frogmore became subject to a privately financed management buyout ("MBO"). Over the last two years, sixteen companies with a total market cap of L4.5 billion departed the sector as a result of liquidation, an MBO or a take-over, including L1.9 billion relating to the MBO of MEPC, nearly 20% of the total value of the sector. In addition, share buy-backs and capital returns have totalled over L1.5 billion over the last two years. While we believe that corporate activity is likely to slow this year, we still believe that there will be opportunities for further MBOs and share buy-backs given that the public to private arbitrage still exists with average discounts at 22.8%. French property shares showed a -0.2% Euro return in the fourth quarter, bringing the return for the year to 7.4%, underperforming the index by 9.0% for the year. The residential companies dragged down the sector during the year, with Simco, Gecina and Fonciere Lyonnaise returning -4.3%, -5.2% and - -7.8%, respectively. On the other hand, the commercial companies posted good returns, with Unibail, Sophia and Klepierre returning 40.4%, 14.1% and 8.3% for the year, respectively. The Swedish real estate securities market showed another quarter of strong performance with a 4.2% Euro return, bringing the return for the year to 38.4% in Euro. This is a phenomenal 54.1% of relative outperformance versus the local equity market. After intensive corporate activity in the first three quarters of the year, the fourth quarter turned out to be slow. One interesting event was the placement of the 26.5% Skanska stake in JM at a price of SEK 210. The placement of shares was almost two times over-subscribed and was placed with domestic and international institutional shareholders within two days, showing the appetite of institutions for Swedish real estate. At the same time, JM eliminated the separate A and B shares structure giving JM a single share capital structure with equal voting rights, which we regard as positive for the shareholders. Denmark is disappearing as a country in our index. Norden Invest, a consortium of domestic institutional investors, has agreed to buy ES Norden A/S at 367 Kroner per share, which was a 15% premium to the closing price of the day before the bid and represented a 15% discount to its NAV. As a result of the takeover, the fourth quarter performance for Denmark was 14.5% in Euros, and 39.7% for the year 2000. This made Denmark the best performing real estate securities market in Europe. - -------------------------------------------------------------------------------- European Real Estate Portfolio 39 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- EUROPEAN REAL ESTATE PORTFOLIO (CONT.) The Norwegian and Finnish property shares markets had a disappointing year, returning -3.2% and 3.4% in Euros, respectively. Both real estate securities markets remain attractive with shares trading at discounts to NAV of more than 40%, and the underlying real estate markets remain robust. Hence, opportunities for public to private arbitrage exist in these markets, and we remain overweight. The Dutch sector outperformed the European average over the last quarter of 2000, returning 1.5% in Euros. However, the Dutch real estate securities significantly underperformed the European market over the whole of 2000, showing a return of 8.5% in Euros versus a 16.4% return for the GPR Index. Belgium recovered from the bad performance in the third quarter, showing a 3.8% Euro return in the fourth quarter, but it was still one of the worst performing markets in 2000, falling -2.4% in Euros. While some smaller companies showed positive total returns, the two biggest companies, Cofinimmo and Befimmo, fell -6.1% and -1.8% in Euros, respectively. Even though the companies now trade at a slight discount to or at NAV, the Belgian real estate market remains unexciting. We do not expect rental growth for offices in Brussels to accelerate due to the current vacancy rate of 5.9%, the expected flow of new space coming to the market, and an expected slowdown of the economic growth for 2001. We will continue to have no weighting in Belgium. In the fourth quarter, the Spanish sector fell by -4.1% in Euros, but still offered an overall return for the year of 11.5%. Metrovacesa fell -14.2% in Euros after it was announced that it would invest in Argentina and Chili. Even though the investment will be minor in relation to the rest of the company's portfolio, we fail to get excited by this sudden "diversification". We prefer companies to stay focused on their core competencies, and as investors in European real estate we do not applaud companies to start investing outside of Europe. In addition, with its shares trading at a discount of 37.5%, we would support the Company utilizing its capital to buy back its own shares, instead of investing it at parity in foreign real estate markets. Portugal was the worst performing market in the fourth quarter, falling -7.0% in Euros, bringing performance for the year down to -2.4%. The market has not rewarded Sonae Imobiliaria's successes in its local markets, but has instead punished them for the investments in Greece and Brazil. We share the view that companies should focus on their core competencies in their local markets, but we feel that the market has over-reacted in this case, and we therefore have an overweight position. The listed property companies in Germany and Switzerland underperformed the European index this quarter, returning -1.4% and -1.0% in Euros, respectively. Both markets also significantly underperformed for the year, with returns of 0.8% and -1.1%, respectively, compared to a GPR Index return of 16.4%. The Austrian market returned 5.4% in Euros in the fourth quarter and outperformed by 1.0% relative to the GPR Index over the year. The Swiss real estate securities market has grown considerably during the year following the IPO of four companies in the first half of the year. However, even though the Swiss real estate market is still early in the cycle, we are not comfortable buying in at this time given relative valuations. We currently remain underweight in all three markets. Theodore R. Bigman PORTFOLIO MANAGER Jan Willem de Geus PORTFOLIO MANAGER January 2001 - -------------------------------------------------------------------------------- European Real Estate Portfolio 40 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- EUROPEAN REAL ESTATE PORTFOLIO - --------------------------------------------------------------------------------
VALUE SHARES (000) - -------------------------------------------------------------------------------- COMMON STOCKS (96.1%) BELGIUM (0.4%) (a)400 Cofinimmo S.A. .................................. $ 34 ------------ FINLAND (1.5%) 36,440 Sponda Oyj ...................................... 135 ------------ FRANCE (17.9%) 1,300 Gecina .......................................... 124 2,858 Klepierre ....................................... 269 590 Silic ........................................... 91 1,800 Simco (RFD) ..................................... 124 (a)6,620 Societe Fonciere Lyonnaise ...................... 179 6,120 Sophia .......................................... 172 4,362 Unibail ......................................... 695 ------------ 1,654 ------------ GERMANY (2.0%) 15,161 IVG Holding AG .................................. 185 ------------ IRELAND (3.1%) 42,400 Green Property plc .............................. 283 ------------ ITALY (0.6%) 19,400 Beni Stabili S.p.A. ............................. 10 (a)131,800 Bonaparte S.p.A. ................................ 43 ------------ 53 ------------ NETHERLANDS (3.4%) 2,800 Schroders International Property Fund N.V. ...... 47 2,129 Uni-Invest N.V. ................................. 22 5,600 VIB N.V. ........................................ 142 (a)2,100 Wereldhave N.V. ................................. 103 ------------ 314 ------------ NORWAY (1.7%) (a)8,700 Home Invest ASA ................................. 5 12,100 Steen & Strom ASA ............................... 148 ------------ 153 ------------ PORTUGAL (1.1%) 8,380 Sonae Imobiliaria S.A. .......................... 99 ------------ SPAIN (11.0%) 29,540 Inmobiliaria Colonial S.A. ...................... 397 25,200 Inmobiliaria Metropolitana Vasco Central ........ 365 42,130 Vallehermoso .................................... 256 ------------ 1,018 ------------ SWEDEN (13.1%) 25,905 Castellum AB .................................... 285 23,580 Drott AB, Class B ............................... 325 (a)20,900 Hufvudstaden International AB ................... 69 15,920 JM AB ........................................... 352 (a)5,100 Pandox AB ....................................... 52 (a)88,100 Wihlborgs Fastigheter AB ........................ 121 ------------ 1,204 ------------ VALUE SHARES (000) - -------------------------------------------------------------------------------- SWITZERLAND (0.3%) (a)326 PSP Swiss Property AG ........................... $ 31 ------------ UNITED KINGDOM (40.0%) 47,100 Benchmark Group plc ............................. 214 19,300 BPT plc ......................................... 85 85,915 British Land Co. plc ............................ 610 30,600 Brixton Estate plc .............................. 111 119,310 Buford Holdings plc ............................. 213 55,100 Capital & Regional Properties plc ............... 185 31,882 Chelsfield plc .................................. 172 40,800 Delancey Estates plc ............................ 63 10,900 Derwent Valley Holdings plc ..................... 121 25,812 Grantchester Holdings plc ....................... 78 49,182 Great Portland Estates plc ...................... 215 33,880 Hammerson plc ................................... 234 46,855 Land Securities plc ............................. 590 16,807 Liberty International plc ....................... 122 (a)11,000 Marylebone Warwick Balfour Group plc ............ 38 77,529 NHP plc ......................................... 24 18,300 Quintain Estates & Development plc .............. 51 38,300 Saville Gordon Estates plc ...................... 51 58,740 Slough Estates plc .............................. 362 72,453 Wates City of London Properties plc ............. 152 ------------ 3,691 ------------ TOTAL COMMON STOCKS (COST $8,777) ............................... 8,854 ------------ NO. OF WARRANTS - ---------------- WARRANTS (0.0%) FRANCE (0.0%) (a)6,800 Societe Fonciere Lyonnaise, expiring 7/30/02 (Cost $0) ....................................... -- ------------ TOTAL FOREIGN SECURITIES (96.1%) (COST $8.777) .................. 8,854 ------------ FACE AMOUNT (000) - ---------------- SHORT-TERM INVESTMENT (2.3%) REPURCHASE AGREEMENT (2.3%) $ (f)211 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $211) ......................... 211 ------------ FOREIGN CURRENCY (0.2%) GBP 13 British Pound ................................... 20 EUR 5 Euro ............................................ 5 ------------ TOTAL FOREIGN CURRENCY (Cost $24) 25 ------------
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- European Real Estate Portfolio 41 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- EUROPEAN REAL ESTATE PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
AMOUNT (000) - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (98.6%) (Cost $9,012) ......................... $ 9,090 ------------ OTHER ASSETS (1.8%) Dividends Receivable ............................ $ 149 Foreign Withholding Tax Reclaim Receivable ...... 16 165 ------------ LIABILITIES (-0.4%) Administrative Fees Payable ..................... (6) Custodian Fees Payable .......................... (4) Investment Advisory Fees Payable ................ (3) Directors' Fees and Expenses Payable ............ (2) Distribution Fees Payable ....................... (1) Other Liabilities ............................... (24) (40) ------------ ------------ NET ASSETS (100%) ............................................... $ 9,215 ============ NET ASSETS CONSIST OF: Paid in Capital ................................................. $ 15,834 Distributions In Excess of Net Investment Income ................ (57) Accumulated Net Realized Loss ................................... (6,616) Unrealized Appreciation on Investments and Foreign Currency Translations................................................ 54 ------------ NET ASSETS ...................................................... $ 9,215 ============ AMOUNT (000) - -------------------------------------------------------------------------------- CLASS A: NET ASSETS ...................................................... $ 7,766 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 748,460 outstanding $0.001 par value shares (authorized 500,000,000 shares) ........................ $ 10.38 ============ CLASS B: NET ASSETS ...................................................... $ 1,449 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 139,218 outstanding $0.001 par value shares (authorized 500,000,000 shares) ........................ $ 10.41 ============
- -------------------------- (a) -- Non-income producing security (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. - -------------------------------------------------------------------------------- SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
VALUE PERCENT OF SECTOR (000) NET ASSETS - ----------------------------------------------------------------------------------- Apartments $ 1,378 15.0% Diversified 5,317 57.7 Office Buildings 286 3.1 Office and Industrial 1,441 15.6 Shopping Centers 432 4.7 ----------- ----------- $ 8,854 96.1% =========== ===========
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ European Real Estate Portfolio 42 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- GLOBAL EQUITY PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------- [CHART] United States (39.1%) United Kingdom (16.3%) Japan (10.6%) France (7.5%) Switzerland (4.9%) Netherlands (4.7%) Canada (2.4%) Germany (2.4%) Australia (1.9%) Ireland (1.5%) Other (8.7%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ---------------------------------------------- [GRAPH]
Global Equity Portfolio- MSCI World Class A Index (1) -------------- ---------- 10/31/92 $ 500,000 $ 500,000 12/31/92 ---------- ---------- 1993 ---------- ---------- 1994 ---------- ---------- 1995 ---------- ---------- 1996 ---------- ---------- 1997 ---------- ---------- 1998 ---------- ---------- 1999 ---------- ---------- 2000 $1,806,672 $1,359,159
* Commenced operations on July 15, 1992 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX(1) - -------------------------------------------------------------------------------
TOTAL RETURNS(2) ------------------------------- AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION ------- -------- ----------- PORTFOLIO -- CLASS A......... 11.75% 15.15% 16.38% PORTFOLIO -- CLASS B......... 11.52 N/A 14.74 INDEX -- CLASS A............. -13.18 12.12 12.54 INDEX -- CLASS B............. -13.18 N/A 12.03
1. The MSCI World Index is an unmanaged index of common stocks and includes securities representative of the market structure of 22 developed market countries in North America, Europe, and the Asia/Pacific region. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The investment objective of the Global Equity Portfolio is to seek long-term capital appreciation by investing primarily in equity securities of issuers throughout the world, including U.S. issuers. Investments may also be made with discretion in emerging markets. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of 11.75% for the Class A shares and 11.52% for the Class B shares compared to - -13.18% for the Morgan Stanley Capital International (MSCI) World Index (the "Index"). For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was 15.15% compared to 12.12% for the Index. For the period from inception on July 15, 1992 through December 31, 2000, the average annual total return for the Class A shares was 16.38% compared to 12.54% for the Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 14.74% compared to 12.03% for the Index. On a sector basis, the Portfolio's underweight to technology contributed more to relative outperformance than any other factor. Despite some compression of valuation multiples in technology companies, we remain concerned about the impact of slowing U.S. growth on the earnings expectations of the sector. The Portfolio's performance was further enhanced during 2000 by strong stock selection and a continued overweight to consumer staples. Philip Morris was the single biggest contributor during 2000, as fundamentals continue to improve and litigation risks wane. The share price is up over 100% since this time last year. Unicom, which merged with Peco to form a company called Exelon, was another top contributor to performance during 2000. We remain impressed by their regulatory clarity and great balance sheet. The management teams of Unicom and Peco are clearly hard-driven shareholder value maximizers and Exelon will likely benefit from the - ------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------- Global Equity Portfolio 43 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- GLOBAL EQUITY PORTFOLIO (CONT.) harmonic combination of the two management teams. General Dynamics had strong performance throughout 2000, driven by improved margins at their business jet subsidiary, Gulfstream. While stock selection in healthcare was strong throughout the year, the Portfolio's underweight to that sector detracted from performance. NTT showed stock specific weakness, but is likely to benefit from demand for fixed-line telecoms. Last year was good to value investors overweighted to high quality defensive businesses. In a hard landing scenario even the consumer staples sector will likely suffer earnings disappointments (as it did following the Asia crisis in '98). However, given the gearing of technology and banking profits to the economy, consumer staples still look relatively attractive to us. Of note, the Portfolio's weighting to the U.S. has risen moderately in the last year (remains underweight) as the weakness in that market has thrown up value opportunities on a global basis. We believe our switch early in 2000 from Spain's Telefonica to SBC Communications is an example of the emerging value potential in the U.S. The Portfolio remains well positioned in the current environment, balancing an underweight in technology with a continued overweight in consumer staples. Frances Campion PORTFOLIO MANAGER Paul Boyne PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------- Global Equity Portfolio 44 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ GLOBAL EQUITY PORTFOLIO - ------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------- COMMON STOCKS (98.1%) AUSTRALIA (1.9%) 220,910 CSR Ltd. ............................................ $ 575 106,989 Westpac Banking Corp. ............................... 785 -------- 1,360 -------- BELGIUM (0.4%) 6,630 Delhaize-Le Lion .................................... 315 CANADA (2.4%) (a)10,580 Potash Corp. of Saskatchewan, Inc. .................. 827 27,480 Telus Corp. ......................................... 761 5,420 Telus Corp. (Non-Voting Shares) ..................... 142 -------- 1,730 -------- CHINA/HONG KONG (1.3%) 246,180 Hong Kong Electric Holdings Ltd. .................... 909 -------- DENMARK (0.6%) 10,370 Danisco A.S. ........................................ 427 -------- FRANCE (7.5%) (a)8,790 Alcatel Alsthom ..................................... 499 13,690 Aventis S.A. ........................................ 1,202 (a)5,130 Groupe Danone ....................................... 774 5,010 Lafarge S.A. ........................................ 420 14,580 Pernod Ricard ....................................... 1,006 9,230 Total Fina S.A., Class B ............................ 1,373 -------- 5,274 -------- GERMANY (2.4%) 17,034 BASF AG ............................................. 775 17,150 Bayer AG ............................................ 900 -------- 1,675 -------- IRELAND (1.5%) 44,800 Bank of Ireland plc ................................. 444 90,906 Green Property plc .................................. 606 -------- 1,050 -------- ITALY (1.5%) 75,160 ENI S.p.A. .......................................... 480 5,106 Seat-Pagine Gialle S.p.A. ........................... 11 93,183 Telecom Italia S.p.A. (RNC) ......................... 560 -------- 1,051 -------- JAPAN (10.6%) 49 DDI Corp. ........................................... 236 19,000 Fuji Photo Film Ltd. ................................ 793 29,000 Fujitsu Ltd. ........................................ 427 78,000 Hitachi Ltd. ........................................ 694 15,000 Matsushita Electric Industrial Co., Ltd. ............ 358 50,000 Mitsubishi Electric Corp. ........................... 307 53,000 Mitsui & Co., Ltd. .................................. 333 18,000 NEC Corp. ........................................... 329 141 Nippon Telegraph & Telephone Corp. (NTT) ............ 1,014 32,000 Sankyo Co., Ltd. .................................... 766 32,000 Sumitomo Bank, Ltd. ................................. 328 68,000 Sumitomo Marine & Fire Insurance Co., Ltd. .......... 438 224,000 Tokyo Gas Co., Ltd. ................................. 661 53,000 Toppan Printing Co., Ltd. ........................... 461 46,000 Toshiba Corp. ....................................... 307 -------- 7,452 -------- NETHERLANDS (4.7%) 13,170 Akzo Nobel N.V. ..................................... 707 11,296 ING Groep N.V. ...................................... 902 (a)16,909 Koninklijke Philips Electronics N.V. ................ 620 17,600 Royal Dutch Petroleum Co. ........................... 1,066 -------- 3,295 -------- SINGAPORE (0.6%) 55,000 United Overseas Bank Ltd. ........................... 412 -------- SOUTH KOREA (0.3%) (a)2,600 Samsung Electronics Co. GDR (New) ................... 185 -------- SPAIN (1.0%) 4,410 Iberdrola ........................................... 55 24,200 Repsol .............................................. 387 17,569 Telefonica .......................................... 290 -------- 732 -------- SWEDEN (1.1%) 104,400 Nordbanken Holding AB ............................... 791 -------- SWITZERLAND (4.9%) 226 Cie Financiere Richemont AG, Class A ................ 604 443 Holderbank Financiere Glarus AG, Class B (Bearer) ... 533 650 Nestle (Registered) ................................. 1,516 1,440 Swisscom AG (Registered) ............................ 374 (a)216 Syngenta AG ......................................... 12 2,545 UBS AG .............................................. 415 -------- 3,454 -------- UNITED KINGDOM (16.3%) 171,610 Allied Domecq plc ................................... 1,134 8,900 AstraZeneca Group plc ............................... 449 51,000 BAA plc ............................................. 471 114,900 BAE Systems plc ..................................... 656 94,524 Blue Circle Industries plc .......................... 623 53,900 British Telecommunications plc ...................... 461 174,913 Cadbury Schweppes plc ............................... 1,210 87,196 Diageo plc .......................................... 977 31,100 GKN plc ............................................. 329 (a)35,329 Granada Group plc ................................... 385 56,800 Great Universal Stores plc .......................... 446 71,400 Imperial Tobacco Group plc .......................... 743 66,311 Reckitt Benckiser plc ............................... 914 131,000 Rolls-Royce plc ..................................... 388 134,718 Sainsbury (J) plc ................................... 799 151,000 Vodafone Group plc .................................. 554 75,200 WPP Group plc ....................................... 980 -------- 11,519 -------- UNITED STATES (39.1%) 46,422 Albertson's, Inc. ................................... 1,230 37,840 Alcoa, Inc. ......................................... 1,268 2,800 American Home Products Corp. ........................ 178 (a)14,140 BJ's Wholesale Club, Inc. ........................... 543 25,210 Boise Cascade Corp. ................................. 848 16,095 Borg-Warner Automotive, Inc. ........................ 644
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Global Equity Portfolio 45 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- GLOBAL EQUITY PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------- UNITED STATES (CONT.) 6,600 Bristol-Myers Squibb Co. ............................ $ 488 (a)48,560 Cadiz, Inc. ......................................... 434 29,350 Chase Manhattan Bank ................................ 1,334 10,600 Deere & Co. ......................................... 486 20,350 Exelon Corp ......................................... 1,429 17,500 First Data Corp. .................................... 922 17,110 General Dynamics Corp. .............................. 1,335 (a)21,669 GenRad, Inc. ........................................ 217 19,773 Georgia Pacific Group ............................... 615 14,000 Goodrich (BF) Co. ................................... 509 8,350 Honeywell International, Inc. ....................... 395 12,942 Houghton Mifflin Co. ................................ 600 10,377 Lockheed Martin Corp. ............................... 352 10,400 MBIA, Inc. .......................................... 771 3,100 McGraw-Hill Cos., Inc. .............................. 182 17,900 Mellon Bank Corp. ................................... 880 5,600 Merrill Lynch & Co. ................................. 382 26,900 Metlife, Inc. ....................................... 941 (a)23,000 NCR Corp. ........................................... 1,130 10,070 New York Times Co., Class A. ....................... 403 4,200 Northrop Grumman Corp. .............................. 349 18,849 Pharmacia Corp. ..................................... 1,150 49,950 Philip Morris Cos., Inc. ............................ 2,198 9,100 Rockwell International Corp. ........................ 433 31,600 SBC Communications, Inc. ........................... 1,509 28,900 Sears, Roebuck & Co. ................................ 1,004 23,510 Tupperware Corp. .................................... 480 23,200 U.S. Bancorp ........................................ 677 25,831 Verizon Communications .............................. 1,295 6,600 Xerox Corp. ......................................... 30 -------- 27,641 -------- TOTAL COMMON STOCKS (Cost $64,425)................................... 69,272 -------- TOTAL FOREIGN SECURITIES (98.1%) (Cost $64,425)...................... 69,272 -------- FACE AMOUNT (000) -------- SHORT-TERM INVESTMENTS (1.2%) REPURCHASE AGREEMENT (1.2%) $ (f)863 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $863).............................. 863 -------- FOREIGN CURRENCY (0.3%) GBP 136 British Pound ......................................... 204 DKK 6 Danish Krone ......................................... -- JPY 336 Japanese Yen .......................................... 3 -------- TOTAL FOREIGN CURRENCY (Cost $205) .................................. 207 -------- TOTAL INVESTMENTS (99.6%) (Cost $65,493) ............................ 70,342 -------- VALUE (000) - ------------------------------------------------------------------------------- OTHER ASSETS (1.9%) Cash .................................................. $ 864 Dividends Receivable .................................. 259 Foreign Withholding Tax Reclaim Receivable ............ 101 Receivable for Investments Sold ....................... 79 Receivable for Portfolio Shares Sold .................. 36 Other ................................................. 6 $ 1,345 ------- LIABILITIES (-1.5%) Payable for Investments Purchased ..................... (880) Investment Advisory Fees Payable ...................... (105) Distribution Fees Payable ............................. (16) Custodian Fees Payable ................................ (14) Directors' Fees and Expenses Payable .................. (14) Administrative Fees Payable ........................... (10) Net Unrealized Loss on Foreign Currency Exchange Contracts .................................. (1) Other Liabilities ..................................... (33) (1,073) ------- -------- NET ASSETS (100%) ................................................. $ 70,614 ======== NET ASSETS CONSIST OF: Paid in Capital ................................................... $ 66,266 Distributions In Excess of Net Investment Income .................. (134) Distributions In Excess of Net Realized Gain ...................... (352) Unrealized Appreciation on Investments and Foreign Currency Translations .................................................... 4,834 -------- NET ASSETS ........................................................ $ 70,614 ======== CLASS A: - -------- NET ASSETS ........................................................ $ 40,418 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 2,370,678 outstanding $0.001 par value shares (authorized 500,000,000 shares).......................... $ 17.05 ======== CLASS B: - -------- NET ASSETS ........................................................ $ 30,196 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 1,784,995 outstanding $0.001 par value shares (authorized 500,000,000 shares)............................... $ 16.92 ========
- ------------------------------------------------------------------------------ FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at December 31, 2000, the Portfolio is obligated to deliver foreign currency in exchange for U.S. dollars as indicated below:
CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE (LOSS) (000) (000) DATE (000) (000) (000) - ----------- ------- ------------ ---------- ----- ----------- GBP 136 $204 1/02/01 U.S.$ 203 $203 $(1) ======= ===== ===========
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Global Equity Portfolio 46 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- GLOBAL EQUITY PORTFOLIO - ------------------------------------------------------------------------------- (a) -- Non-income producing security (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. RNC -- Non-Convertible Savings Shares GDR -- Global Depository Receipts - ------------------------------------------------------------------------------- SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
VALUE PERCENT OF SECTOR (000) NET ASSETS - -------------------------------------------------------------- Consumer Discretionary.................. $ 8,843 12.5% Consumer Staples........................ 13,677 19.4 Energy.................................. 3,305 4.7 Finance................................. 10,106 14.3 Health Care............................. 4,233 6.0 Industrials............................. 6,936 9.8 Information Technology.................. 3,818 5.4 Materials............................... 8,103 11.5 Telecommunication Services.............. 7,196 10.2 Utilities............................... 3,055 4.3 ------- ------ $69,272 98.1% ======= ======
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Global Equity Portfolio 47 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- INTERNATIONAL EQUITY PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------- [CHART] United Kingdom (33.9%) Japan (20.2%) France (8.5%) Switzerland (7.0%) Netherlands (5.9%) China/Hong Kong (2.9%) Australia (3.7%) Canada (2.3%) Sweden (1.8%) Germany (1.7%) Other (12.1%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------ [GRAPH]
International Equity Portfolio- MSCI EAFE Class A Index (1) ------------- ---------- 1990 $ 500,000 $500,000 1991 ---------- -------- 10/31/92 ---------- -------- 12/31/92 ---------- -------- 1993 ---------- -------- 1994 ---------- -------- 1995 ---------- -------- 1996 ---------- -------- 1997 ---------- -------- 1998 ---------- -------- 1999 ---------- -------- 2000 $1,989,617 $882,302
* Commenced operations on August 4, 1989 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1) - -------------------------------------------------------------------------------
TOTAL RETURNS(2) -------------------------------- AVERAGE ANNUAL ------------------------ ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION ------ ----- ----- --------- PORTFOLIO -- CLASS A...... 9.29% 15.57% 14.89% 12.86% PORTFOLIO -- CLASS B...... 8.94 N/A N/A 15.12 INDEX -- CLASS A.......... -14.17 7.13 8.24 5.26 INDEX -- CLASS B.......... -14.17 N/A N/A 7.13
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe, Australasia and the Far East. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The investment objective of the International Equity Portfolio is long-term capital appreciation through investment primarily in equity securities of non-U.S. issuers. Equity securities for this purpose include common stocks and equivalents, such as securities convertible into common stocks, and securities having common stock characteristics, such as rights and warrants to purchase common stocks. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of 9.29% for the Class A shares and 8.94% for the Class B shares compared to -14.17% for the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index"). For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was 15.57% compared to 7.13% for the Index. For the ten- year period ended December 31, 2000, the average annual total return for the Class A shares was 14.89% compared to 8.24% for the Index. For the period from inception on August 4, 1989 through December 31, 2000, the average annual total return for the Class A shares was 12.86% compared to 5.26% for the Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return of Class B shares was 15.12% compared to 7.13% for the Index. International equity markets followed the fortunes of the NASDAQ Index to varying degrees during the calendar year. Most equity markets peaked in early March before declining over the remainder of the year to record negative returns for the calendar year as the technology bubble burst and concerns over a hard landing for the U.S. economy took hold. The Japanese equity market suffered the largest fall of the major international markets declining by 20% in local currency terms and 28% in U.S. dollar terms. The European markets, ex the U.K., declined by a modest 1.6% in local currency terms but over 8% in U.S. dollar terms as a result of the depreciation of the euro. The U.K. market closed the year down 4.6% in local currency but down 11.5% in U.S. dollar terms. - ------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------- International Equity Portfolio 48 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- INTERNATIONAL EQUITY PORTFOLIO (CONT.) An underweight allocation in Japan (21.9% compared to 26.5% for the Index) was a slight positive for the Portfolio's performance but by far the majority of the outperformance was generated from stock picks within countries rather than through country allocation. In particular, the Portfolio benefited from a highly defensive positioning with an aggressive overweight exposure to consumer staples (average weighting of 18.1% compared to 5.8% for the Index) and utilities and an underweight exposure to the telecommunications and technology sectors. In total, this explains over half of the outperformance for the year. The balance of the outperformance came from good stock selection across all the other MSCI sector classifications, in particular consumer discretionary (+330 basis points) and healthcare (+240 basis points) where the Portfolio benefited from the spectacular performance of the Japanese pharmaceutical companies, Daiichi and Shionogi. As we enter the new year, the Portfolio maintains a defensive bias with an overweight position in consumer staples and utilities where valuations still remain reasonable relative to free cash flow and there is greater degree of earnings visibility. Despite the sharp price declines seen in many technology and telecommunication share prices, we believe earnings growth expectations still remain far too optimistic for this group, particularly if there is a hard landing in the U.S. economy. We therefore remain underweight these sectors although market movements have reduced the size of the relative underweight position. Our single largest disagreement with the market is now in the financial sector (15.2% weighting compared to 26.0% for the Index) where we outright disagree with the consensus view that the financial sector offers a safe haven in the current environment. In our opinion it is far too early in the deteriorating credit cycle to be looking through the valley of earnings disappointments to the next peak, particularly given the record levels of consumer and corporate sector debt in the U.S. The overweight position in healthcare has been unwound as profits in Japanese (Daiichi and Shionogi) and European (Schering, NovoNordisk) pharmaceuticals have been taken. The Portfolio is neutrally positioned in the energy sector and remains overweight the materials sector where stock prices already discount an economic hard landing and valuations look compelling. Dominic Caldecott PORTFOLIO MANAGER Peter Wright PORTFOLIO MANAGER William Lock PORTFOLIO MANAGER Walter Riddell PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------- International Equity Portfolio 49 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- INTERNATIONAL EQUITY PORTFOLIO - -------------------------------------------------------------------------------
VALUE SHARES (000) - --------------------------------------------------------------------------------- COMMON STOCKS (95.3%) AUSTRALIA (3.7%) 1,541,521 Brambles Industries Ltd. ........................ $ 36,020 (c)19,595,840 Fosters Brewing Group Ltd. ...................... 51,458 (c)6,964,862 Westpac Banking Corp. ........................... 51,126 (c)8,375,920 Woolworths Ltd. ................................. 39,237 --------- 177,841 --------- CANADA (2.3%) (a)2,251,194 Husky Energy, Inc. .............................. 22,351 403,765 Potash Corp. of Saskatchewan, Inc. .............. 31,560 (c)2,215,548 Telus Corp. ..................................... 60,368 --------- 114,279 --------- CHINA/HONG KONG (2.9%) 10,952,000 China Light & Power Co., Ltd..................... 54,622 (c)12,449,420 Hong Kong Electric Holdings Ltd. ................ 45,969 (c)17,324,155 Hong Kong Land Holdings Ltd. .................... 38,459 --------- 139,050 --------- DENMARK (0.6%) 678,912 Danisco A/S ..................................... 27,940 --------- FINLAND (1.3%) 4,708,300 Enso Oy ......................................... 55,700 370,200 Huhtamaki Oyj, Series 1 ......................... 9,871 --------- 65,571 --------- FRANCE (8.5%) (a)525,272 Alcatel S.A. .................................... 29,837 673,540 Assurances Generales de France (Bearer) ......... 46,796 1,240,940 Aventis S.A. .................................... 108,938 344,262 Cie de Saint-Gobain ............................. 54,076 (a)(c)488,422 Groupe Danone ................................... 73,648 668,943 Total Fina, Class B ............................. 99,486 --------- 412,781 --------- GERMANY (1.7%) 499,665 BASF AG ......................................... 22,729 1,138,948 Bayer AG ........................................ 59,777 --------- 82,506 --------- ITALY (1.7%) 7,014,830 ENI S.p.A. ...................................... 44,786 (c)6,269,657 Telecom Italia S.p.A. (RNC) ..................... 37,674 --------- 82,460 --------- JAPAN (20.2%) 2,402,000 Asahi Chemical Industry Co., Ltd................. 13,810 1,150,000 Canon, Inc. ..................................... 40,192 325,000 Chudenko Corp. .................................. 4,217 1,844,000 Daibiru Corp. ................................... 13,051 (c)4,420,000 Daiwa Securities Co., Ltd. ...................... 46,073 3,559 DDI Corp......................................... 17,134 743,000 Fuji Photo Film Ltd. ............................ 31,031 (c)2,800,000 Fujitsu Ltd. .................................... 41,199 4,803,000 Hitachi Ltd...................................... 42,721 6,125 Japan Tobacco, Inc. ............................. 47,416 (c)482,800 Lawson, Inc. .................................... 19,067 2,069,000 Matsushita Electric Industrial Co., Ltd. ........ 49,352 4,325,000 Mitsubishi Electric Corp. ....................... 26,566 3,966,000 Mitsui & Co., Ltd. .............................. 24,915 1,058,000 NEC Corp. ....................................... 19,320 (c)4,261,000 Nichido Fire & Marine Insurance Co., Ltd. ....... 22,599 12,894 Nippon Telegraph & Telephone Corp. (NTT) ........ 92,720 644,000 Ono Pharmaceutical Co., Ltd. .................... 25,152 (c)3,153,000 Sankyo Co. Ltd. ................................. 75,485 669,000 Sekisui House Co., Ltd .......................... 6,108 1,224,000 Shionogi & Co., Ltd. ............................ 24,919 4,560,000 Sumitomo Bank Ltd. .............................. 46,736 (c)6,538,000 Sumitomo Marine & Fire Insurance Co., Ltd. .......................................... 42,102 3,385,000 Sumitomo Trust & Banking Co., Ltd ............... 22,981 424,600 Takefuji Corp.................................... 26,711 (c)15,012,000 Tokyo Gas Co., Ltd. ............................. 44,334 5,201,000 Toppan Printing Co., Ltd......................... 45,216 5,013,000 Toshiba Corp. ................................... 33,464 1,240,000 Toyo Seikan Kaisha Ltd. ......................... 20,152 468,000 Yamanouchi Pharmaceutical Co., Ltd. ............. 20,200 --------- 984,943 --------- NETHERLANDS (5.9%) 1,007,050 Akzo Nobel N.V. ................................. 54,084 1,054,810 CSM N.V. ........................................ 26,145 826,060 Hollandsche Beton Groep N.V. .................... 8,493 741,967 ING Groep N.V. .................................. 59,269 (a)677,549 Koninklijke Philips Electronics N.V. ............ 24,823 1,871,400 Royal Dutch Petroleum Co. ....................... 114,665 --------- 287,479 --------- PORTUGAL (0.6%) (a)8,946,300 Electricidade de Portugal SA .................... 29,567 --------- SINGAPORE (1.6%) 8,046,337 Jardine Strategic Holdings Ltd. ................. 23,495 6,967,328 United Overseas Bank Ltd. (Foreign) ............. 52,250 --------- 75,745 --------- SOUTH KOREA (0.4%) (a)293,300 Samsung Electronics Co. GDR (New) ............... 20,898 --------- SPAIN (1.2%) (c)1,919,490 Iberdrola ....................................... 24,060 (c)2,076,262 Telefonica ...................................... 34,309 --------- 58,369 --------- SWEDEN (1.8%) 3,343,020 ForeningsSparbanken AB .......................... 51,167 5,017,116 Nordbanken Holdings AB .......................... 37,996 --------- 89,163 --------- SWITZERLAND (7.0%) 13,506 Cie Financiere Richemont AG, Class A ............ 36,119 34,241 Holderbank Financiere Glarus AG, Class B (Bearer) ....................................... 41,191 43,437 Nestle (Registered) ............................. 101,290 40,210 Novartis AG (Registered) ........................ 71,068 14,259 Schindler Holding AG (Participating Certificates) ................................. 22,017
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- International Equity Portfolio 50 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- INTERNATIONAL EQUITY PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
VALUE SHARES (000) - --------------------------------------------------------------------------------- SWITZERLAND (CONT.) 71,500 Swisscom AG (Registered) ........................ $ 18,592 (a)55,707 Syngenta AG ..................................... 2,990 (c)301,080 UBS AG (Registered) ............................. 49,128 ---------- 342,395 ---------- UNITED KINGDOM (33.9%) 11,709,800 Allied Domecq plc ............................... 77,351 3,302,600 Associated British Foods plc .................... 24,851 657,400 AstraZeneca Group plc ........................... 33,159 6,538,800 BAA plc ......................................... 60,392 9,945,500 BAE Systems plc ................................. 56,779 1,667,400 Barclays plc .................................... 51,633 (c)2,353,400 Bass plc ........................................ 25,640 4,073,298 BG Group plc .................................... 15,949 (c)4,753,961 Blue Circle Industries plc ...................... 31,332 1,744,300 BOC Group plc ................................... 26,512 5,600,200 British American Tobacco plc .................... 42,663 4,401,100 British Telecommunications plc .................. 37,623 7,414,000 Bunzl plc ....................................... 45,429 16,035,786 Cadbury Schweppes plc ........................... 110,960 6,235,909 Diageo plc ...................................... 69,897 4,587,400 GKN plc ......................................... 48,471 (a)5,383,609 Granada Compass Group plc ....................... 58,614 8,172,700 Great Universal Stores plc ...................... 64,185 7,046,901 Imperial Tobacco Group plc ...................... 73,353 11,518,300 Invensys plc .................................... 26,940 53,544 John Mowlem & Co. plc ........................... 98 (a)5,570,198 Lattice Group plc ............................... 12,570 3,868,500 Lloyds TSB Group plc ............................ 40,933 1,573,400 Prudential Corp. plc ............................ 25,325 6,920,336 Reckitt Benckiser plc ........................... 95,357 16,685,800 Rentokil Initial plc ............................ 57,604 5,026,600 RMC Group plc ................................... 44,247 9,586,010 Rolls-Royce plc ................................. 28,402 12,312,800 Sainsbury (J) plc ............................... 73,054 8,293,800 Scottish & Southern Energy plc .................. 76,850 6,454,400 Tate & Lyle plc ................................. 24,019 22,006,400 Vodafone Group plc .............................. 80,741 8,924,400 Wolseley plc .................................... 61,353 3,726,196 WPP Group plc ................................... 48,560 ---------- 1,650,846 ---------- TOTAL COMMON STOCKS (Cost $4,111,711) ....................... 4,641,833 ---------- TOTAL FOREIGN SECURITIES (95.3%) (Cost $4,111,711) .......... 4,641,833 ----------
FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (6.6%) SHORT-TERM INVESTMENTS HELD AS COLLATERAL ON LOANED SECURITIES (4.0%) $ 15,000 AT&T Corp., CP., 6.725%, 7/19/01 ................ $ 15,000 10,000 Bank of Austria, N.Y., Yankee CD, 6.67%, 2/16/01 ....................................... 10,000 10,013 Bayerische Hypo-Und Vereinsbank, TD, 7.125%, 7/03/00 ............................... 10,013 14,000 Bear Stearns, Yankee CD, 6.72%, 5/04/01 ......... 14,000 10,000 Beta Finance, Inc., MTN, 6.925%, 9/05/01 ........ 10,000 5,498 BNP Paribas N.Y., Yankee CD, 6.53%, 1/08/01 ....................................... 5,498 22,745 CIT Group Holdings, MTN, 6.70%, 5/24/01 ......... 22,745 19,998 K2 (USA) LLC., MTN, 6.71%, 9/17/01 .............. 19,998 23,000 First Union Bank, CD, 6.68%, 2/20/01 ............ 23,000 12,430 Four Winds Funding Corp., CP 6.70%, 1/10/01 ....................................... 12,430 20,000 Links Finance Corp., MTN, 6.65%, 5/21/01......... 20,000 15,015 Student Loan Market, 6.54%, 6/11/01 ............. 15,015 6,248 Salomon Smith Barney, Inc., 6.50%, dated 12/29/00, due 1/02/01 ......................... 6,248 12,431 Tulip Funding Corp., CP, 6.71%, 1/10/01 ......... 12,431 --------- TOTAL SECURITIES HELD FOR COLLATERAL ON LOANED SECURITIES ............................................ 196,378 --------- REPURCHASE AGREEMENT (1.1%) (f)56,644 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01........................... 56,644 --------- TIME DEPOSIT (1.5%) 80,252 Euro Time Deposit, 4.81%, 12/31/00 ............... 72,095 --------- TOTAL SHORT-TERM INVESTMENTS (Cost $325,117) ................... 325,117 --------- FOREIGN CURRENCY (0.9%) AUD 949 Australian Dollar .................................... 528 GBP 2,998 British Pound ........................................ 4,481 EUR 40,422 Euro ................................................. 37,952 NZD 3 New Zealand Dollar ................................... 1 --------- TOTAL FOREIGN CURRENCY (Cost $41,834) ......................... 42,962 ---------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- International Equity Portfolio 51 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- INTERNATIONAL EQUITY PORTFOLIO (CONT.)
VALUE (000) - ---------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (102.8%) (Cost $4,478,662) ....................................... $ 5,009,912 ------------ OTHER ASSETS (1.5%) Cash ............................................................. $ 487 Receivable for Portfolio Shares Sold ............................. 37,646 Unrealized Gain on Foreign Currency Exchange Contracts ........... 21,205 Dividends Receivable ............................................. 9,542 Foreign Withholding Tax Reclaim Receivable ....................... 2,303 Interest Receivable .............................................. 810 Receivable for Investments Sold .................................. 9 Other............................................................. 198 72,200 --------- LIABILITIES (-4.3%) Collateral on Securities Loaned .................................. (196,378) Investment Advisory Fees Payable ................................. (9,544) Payable for Investments Purchased ................................ (3,559) Administrative Fees Payable ...................................... (599) Custodian Fees Payable ........................................... (340) Directors' Fees and Expenses Payable ............................. (321) Distribution Fees Payable ........................................ (34) Other Liabilities ................................................ (540) (211,315) --------- ------------ NET ASSETS (100%) .................................................................... $ 4,870,797 ============ NET ASSETS CONSIST OF: Paid in Capital ...................................................................... $ 4,274,353 Undistributed Net Investment Income .................................................. 6,322 Accumulated Net Realized Loss ........................................................ 38,464 Unrealized Appreciation on Investments and Foreign Currency Translations.............. 551,658 ------------ NET ASSETS............................................................................ $ 4,870,797 ============ CLASS A: - -------- NET ASSETS ........................................................................... $ 4,810,852 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 269,119,472 outstanding $0.001 par value shares (authorized 500,000,000 shares)............................................. $ 17.88 ============ CLASS B: - -------- NET ASSETS .......................................................................... $ 59,945 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 3,365,181 outstanding $0.001 par value shares (authorized 500,000,000 shares)............................................. $ 17.81 ============
- ------------------------------------------------------------------------------- (a) -- Non-income producing security (c) -- All or a portion of security on loan at December 31, 2000 -- See Note A-9 to financial statements. (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. RNC -- Non-Convertible Savings Shares - ------------------------------------------------------------------------------- SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
PERCENT VALUE OF NET SECTOR (000) ASSETS - --------------------------------------------------------------- Consumer Discretionary.............. $ 499,472 10.3% Consumer Staples.................... 977,707 20.0 Energy ............................. 297,238 6.1 Financials.......................... 747,829 15.4 Healthcare.......................... 358,921 7.4 Industrials......................... 406,520 8.3 Information Technology.............. 227,631 4.7 Materials........................... 459,383 9.4 Telecommunication Services.......... 379,161 7.8 Utilities........................... 287,971 5.9 ---------- ----- $4,641,833 95.3% ========== =====
- --------------------------------------------------------------- FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at December 31, 2000, the Portfolio is obligated to deliver and is to receive foreign currency as indicated below:
CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN (000) (000) DATE (000) (000) (000) - -------------- ----------- ----------- ----------- ---------- --------------- AUD 949 $ 528 1/02/01 EUR 568 $ 534 $ 6 GBP 320,000 478,863 4/04/01 EUR 530,601 500,062 21,199 -------- -------- ------- $479,391 $500,596 $21,205 ======== ======== =======
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- International Equity Portfolio 52 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ INTERNATIONAL MAGNUM PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------- [CHART] United Kingdom (28.1%) Japan (22.8%) France (9.2%) Switzerland (7.3%) Netherlands (5.9%) Germany (5.2%) Sweden (3.0%) Italy (2.8%) Finland (2.1%) Australia (1.9%) Other (11.7%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------------------ [GRAPH]
International Magnum International Magnum Portfolio- Portfolio- MSCI EAFE Class A Class B Index(1) -------------------- -------------------- --------- 1996 $500,000 $100,000 $500,000 1997 -------- -------- -------- 1998 -------- -------- -------- 1999 -------- -------- -------- 2000 $691,951 $136,569 $700,459
* Commenced operations on March 15, 1996 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different fees assessed to that class. The MSCI EAFE Index value at December 31, 2000 assumes a minimum investment of $500,000; if a minimum initial investment of $100,000 (the minimum investment for Class B shares) is assumed, the value at December 31, 2000 would be $107,520. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1) - -------------------------------------------------------------------------------
TOTAL RETURNS(2) ------------------- AVERAGE ANNUAL ONE SINCE YEAR INCEPTION ------ ---------- PORTFOLIO -- CLASS A......... -10.50% 7.00% PORTFOLIO -- CLASS B......... -10.81 6.71 INDEX........................ -14.17 7.52
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe, Australasia and the Far East. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The International Magnum Portfolio seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers in accordance with the EAFE country weightings determined by the Adviser. The EAFE countries in which the Portfolio will primarily invest are those comprising the Morgan Stanley Capital International (MSCI) EAFE Index (the `Index"), which includes Australia, Japan, New Zealand, most nations located in Western Europe, Hong Kong and Singapore. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign invest- ments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of - -10.50% for the Class A shares and -10.81% for the Class B shares compared to - -14.17% for the Index. For the period from inception on March 15, 1996 through December 31, 2000, the average annual total return for the Class A shares was 7.00% and 6.71% for the Class B shares compared to 7.52% for the Index. The year 2000 was expected to be one of market difficulties resulting from technical problems associated with the Y2K computer bug. Instead, this proved to be a non-event while the real market event was the abrupt turnaround seen in mid-March as investors soured on the technology and telecommunication sectors which had dominated market returns and had become extremely overvalued. After mounting fears of an overheating U.S. economy and the consequent interest rate hikes, investor enthusiasm for technology, media and telecommunication (TMT) stocks cooled and sent these sectors into a nosedive. This trend continued through the remainder of the year as TMT stocks were sold in favor of more defensive and less cyclically sensitive sectors such as consumer staples and pharmaceuticals. The theme for much of the year was one of market volatility and inflation concerns which toward year-end turned into concerns over slowing global growth. U.S. market - ------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------ International Magnum Portfolio 53 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ INTERNATIONAL MAGNUM PORTFOLIO (CONT.) volatility, which, with the exception of 1987, was the highest since the 1930s, impacted international markets as NASDAQ declines heightened investor skittishness. Despite a brief summer rebound in anticipation of a "soft landing" for the U.S. economy, by year-end markets were pricing in the possibility of a full-blown U.S. recession, which could extend to global markets. Although international markets had been trailing their U.S. counterparts during the last decade, the second half of the year saw them mounting a comeback, due in large part to currency appreciation. EAFE markets ended the year off 14.17% underperforming the S&P 500 which closed down 9.12% but far exceeding the technology ridden NASDAQ which fell 39.29%. Despite this difficult environment, the Portfolio outperformed the Index. All regions fell over the course of the year, but Europe was the relative outperformer of all EAFE regions, falling 8.4% in U.S. dollar terms with a much smaller 2.2% decline in local currency. Currency weakness throughout most of the year severely impacted returns for U.S. dollar-based investors as the euro depreciated over 6% over the course of the year. Perhaps more telling of the currency impact was the near 12% depreciation of the euro seen in the first half, followed by an impressive 14% appreciation off a low of $0.83 in October to end the year at $0.94. The global mania for TMT stocks continued unabated until March of 2000. The rotation in market leadership, which began at the end of the first quarter, continued throughout the year. Concerned investors abandoned TMT for the relative safety of non-cyclical defensive sectors. The main beneficiaries of this trend were formerly neglected healthcare and consumer staples, which appreciated 22.1% and 16.7%, respectively. The Japanese equity market suffered most from the challenging environment during 2000. After ending 1999 as the top performing EAFE region with a 61.5% appreciation, Japan fell 28.2% and underperformed all EAFE regions. Despite above consensus earnings revisions posted by leading companies, share prices remained unaffected, reacting more to negative external factors such as higher U.S. interest rates, volatile NASDAQ, escalating oil prices and mounting uncertainty of optimistic calls for a "soft landing". As foreign investors raised cash and Japanese institutions aggressively unloaded their "cross-holdings" into the September half-year book-closing, share prices slumped further. The fourth quarter of 2000 was witness to internal crisis in Japan with large scale collapses of Sogo Department Store, Kyoei and Chiyoda Life Insurance as well as political turmoil caused by a "no confidence" run on Prime Minister Mori. In a final blow for negative sentiment in 2000, the potential changes to the MSCI calculation of free float for Japanese shares ensured that any potential buyers would await the outcome of MSCI's formal announcement before any allocations to Japan would be made. Pacific ex-Japan markets slightly underperformed the Index over the course of the year, ending the period -15.6% compared to -14.2% for the Index. The region was driven by returns seen in the financial and telecommunication sectors which comprise almost two-thirds of the regional Index. General weakness in the global telecommunications sector as well as slowing global growth and its implications for financial companies dominated the markets, especially during the latter half of the period. However, signs of positive macroeconomic change have been evident, particularly during the course of the fourth quarter. In Hong Kong, accelerating domestic demand, a dip in unemployment figures, and September's trade growth, surpassed market expectations. The Portfolio began the year overweight compared to the Index in Japan and Asia ex-Japan and underweight relative to the Index in Europe. During the first half of 2000, we reduced exposure to Asia ex-Japan in the face of a difficult period for those markets. We decreased our overweight to Japan during the fourth quarter to end the year with a neutral position in the region. We increased our exposure to Europe during the fourth quarter thereby decreasing the magnitude of our underweight. Reducing exposure to Japan while simultaneously increasing our weighting in Europe added to performance on the margin, but on balance our regional allocation strategies neither added to nor detracted from portfolio performance. Portfolio relative outperformance over the course of the year can be attributed directly to strong stock selection in Europe, and to a lesser degree in Japan. During the end of the first quarter, we began to take early steps to consolidate gains in Europe and to protect the Portfolio. We began trimming the Portfolio's cyclical growth exposure and adding to more defensive companies in the pharmaceuticals, food, beverage, and tobacco sectors where our research gave us confidence that we could see reliable earnings growth at reasonable valuations. By and large, we held this defensive posture throughout the balance of the year. As defensive stocks saw a return to favor in Europe, the Portfolio was positioned to reap the benefits of this turnaround. The single largest contributor to relative outperformance for the year was our overweight to and stock selection within the consumer staples sector, which appreciated 17%. Allied Domecq (Index return +36%) pulled out of the auction for Seagram's wine and spirits business but did acquire Mumm - ------------------------------------------------------------------------------ International Magnum Portfolio 54 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ INTERNATIONAL MAGNUM PORTFOLIO (CONT.) and Perrier-Jouet champagnes. Combined with the U.S. distribution rights for Stolichnaya vodka, Allied Domecq's underlying growth story remains intact. Nestle (+30%), Diageo (+45%), and Reckitt Benckiser (+49%) were also strong performers in the sector. Healthcare companies (+22%), particularly pharmaceuticals (+22%) were the strongest performing sector in the European market during the year. The Portfolio benefited both from its overweight to and stock selection within healthcare as Aventis (+53%), which recently surpassed Merck as the largest pharmaceutical company in the world, and Fresenius (+47%), the world's top dialysis products and services provider, were among the top contributors. Our underweight and stock selection within European telecommunication services companies was the second largest contributor to relative performance over the year. Specifically, maintaining significant underweights to telecommunication incumbents Deustche Telekom (-46%) and France Telecom (-30%) as well as Vodafone Group (-18%) added handsomely to relative returns. The largest detractor from performance in Europe was our underweight to financials, which detracted from performance as the sector rose 13%. In Japan stock selection in information technology contributed significantly to relative performance. Our zero weighting in Softbank (-89%) added almost 94 basis points to performance during the year. Our overweight to outperforming NEC (+5%) added to performance as NEC reached new highs during the first half of the year due to the strong DRAM business and its management strategy. Retaining our underweighting of Japanese financials contributed to alpha as companies in this sector suffered from a variety of actions including the unwinding of cross-shareholdings. OUTLOOK The very broad sector divergences that have characterized equity market valuations and stock performance over the past year should continue to unwind throughout the coming year. In place of the broad themes such as growth compared to value or new compared to old economy, we are likely to see individual stock selection within sectors become increasingly important. The key will be the severity of the U.S. slowdown and whether or not the Fed's actions can help to put the recovery back on track. The U.S. suffers from structural imbalances that could serve to exacerbate a slowdown in capital expenditure and consumer spending. Europe may present a more stable picture as it is earlier in the economic cycle and growth is decelerating less quickly than that of the U.S. Over the past few weeks, consensus expectations about GDP and corporate earnings growth in the U.S. have been scaled back much more dramatically than in Europe. We think that this is fair given the greater impact the bursting of the technology bubble is having on U.S. corporate spending, and the more pervasive influence of the equity market wealth effect on U.S. consumers. After lagging the U.S. for several years, European GDP and corporate profits growth are likely to be on a par with or may even exceed the U.S. in 2001. Within Europe, we will continue to look carefully at the risk profile of the companies we own and how susceptible they may be to a European slowdown or U.S. recession. We will also be looking for stocks with resilient long-term prospects that may have been beaten down by cyclical disappointment or market over-reactions. Having taken relatively early steps in 2000 to seek to protect the Portfolio from the bursting of the technology bubble, we will be looking for opportunities in 2001 to pick among the rubble for solid businesses at reasonable valuations. We are positive about the prospects for stock picking in Europe in 2001. Over the last several months, valuations for Japanese equities have become increasingly reasonable in a still relatively expensive world. Although anemic, a macro recovery and continuing aggressive cost cutting by leading companies have begun to show the best signs of real growth over the last decade, particularly on the corporate level. Japan has committed to foster information technology, establishing a "Minister of IT," an office dedicated to promoting IT within government on a national level. The free cash flow generated by blue chip companies is now directed to increasing return on equity and productivity through IT, much as the U.S. experienced during the early 1990s. Furthermore, NTT may face a similar "Japanese style" break-up as did AT&T in the early 1980s which could provide a huge platform to exploit Japan's pre-eminence in digital technology, particularly the I-mode, over the next several years. On a bigger picture, just as Japan dominated the production of TVs and VCRs during the 1970s and 1980s, we believe Japan will do so with digital consumer products globally. Recent weakness in the yen should contribute positively to international blue chip earnings over the next several months. Manufacturers in Japan have significantly increased their operating efficiency over the last 5 years and a weaker yen should increase both returns on equity and operating margins notably. Perhaps the biggest catalyst for a re-evaluation of Japan over the next year will be the accounting changes from book to mark-to-market. This greater transparency of balance sheets combined with recent - ------------------------------------------------------------------------------ International Magnum Portfolio 55 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ INTERNATIONAL MAGNUM PORTFOLIO (CONT.) amendments to the commercial code could spur a flurry of merger and acquisition activity, including hostile take-overs for the first time in Japan. Our outlook for Asia ex-Japan remains somewhat tentative due to the region's twin sensitivity to U.S. interest rates as well as to the global TMT sectors. The recent U.S. Fed easing and the likelihood of a global easing cycle should inject much-needed liquidity into these economies, which should buoy the equity markets. Although vulnerable to further weakness in the global telecommunication and technology sectors, economies in the region are benefiting from rapid reform as well as overseas expansion. Equities in Hong Kong are also likely to gain support from falling interest rates and China's entry into the World Trade Organization, while prospects in Singapore will be closely tied to the level of global IT spending. In Australia, although short-term interest rates may decline as they have started to fall in the U.S., profitability indicators continue to deteriorate. Earnings disappointments have been prolific, and we do not anticipate that a looser monetary policy alone will be the catalyst needed for change. Francine J. Bovich PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------ International Magnum Portfolio 56 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ INTERNATIONAL MAGNUM PORTFOLIO - ------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------ COMMON STOCKS (93.1%) AUSTRALIA (2.0%) 12,050 AMP Ltd. ........................................ $ 136 6,250 Brambles Industries Ltd. ........................ 146 28,250 Broken Hill Proprietary Co., Ltd. ............... 298 (c)25,950 Commonwealth Bank of Australia .................. 446 8,500 CSL Ltd. ........................................ 185 (a)103,350 ERG Ltd. ........................................ 158 102,200 Fosters Brewing Group Ltd. ...................... 268 14,860 Lend Lease Corp., Ltd. .......................... 138 32,780 National Australia Bank Ltd. .................... 525 67,000 News Corp., Ltd. ................................ 522 51,900 Qantas Airways Ltd. ............................. 103 20,950 Rio Tinto Ltd. .................................. 343 (a)86,450 Solution 6 Holdings Ltd. ........................ 53 90,350 Telstra Corp., Ltd. ............................. 323 53,050 Westpac Banking Corp. ........................... 389 36,400 WMC Ltd. ........................................ 155 -------- 4,188 -------- BELGIUM (0.0%) (a)2,910 Mobistar S.A. ................................... 87 -------- CHINA/HONG KONG (1.7%) 74,000 Asia Satellite Telecommunications Holdings Ltd. . 154 95,000 Cathay Pacific Airways Ltd. ..................... 175 27,600 Cheung Kong Holdings Ltd. ....................... 353 (a)87,600 China Telecom Ltd. .............................. 478 174,900 Hong Kong & China Gas Co., Ltd. ................. 257 81,840 Hutchison Whampoa Ltd. .......................... 1,020 204,200 Li & Fung Ltd. .................................. 372 (a)119,762 Pacific Century CyberWorks Ltd. ................. 78 (c)40,000 SmarTone Telecommunications Holdings Ltd. ....... 58 40,500 Sun Hung Kai Properties Ltd. .................... 404 16,000 Swire Pacific Ltd., Class A ..................... 115 25,000 Television Broadcasts Ltd. ...................... 131 -------- 3,595 -------- DENMARK (0.4%) 10,600 Danisco A/S ..................................... 436 8,260 Tele Danmark A/S ................................ 337 -------- 773 -------- FINLAND (2.1%) 46,600 Metso Oyj ....................................... 521 (a)55,020 Nokia Oyj ....................................... 2,454 13,055 Sampo Insurance Co. plc, Class A ............... 705 48,400 Stora Enso Oyj .................................. 572 -------- 4,252 -------- FRANCE (9.2%) (a)23,950 Alcatel Alsthom ................................. 1,360 5,800 Assurances Generales de France .................. 403 52,017 Aventis S.A. .................................... 4,566 (c)15,257 AXA ............................................. 2,206 12,785 Banque Nationale de Paris ....................... 1,122 2,900 Castorama Dubois Investissement S.A. ............ 752 3,510 Cie de Saint Gobain ............................. 551 VALUE SHARES (000) - ------------------------------------------------------------------------------- 15,460 CNP Assurances .................................. $ 620 262 Essilor International S.A. ...................... 86 (a)6,810 Groupe Danone ................................... 1,027 (c)14,360 Pernod Ricard ................................... 991 18,010 Schneider S.A. .................................. 1,314 (a)(c)16,270 ST Microelectronics N.V. ........................ 710 (a)3,863 Thomson Multimedia S.A. ......................... 181 21,437 TotalFina, Class B .............................. 3,188 -------- 19,077 -------- GERMANY (3.8%) 9,513 Adidas-Salomon AG ............................... 579 13,010 BASF AG ......................................... 592 25,668 Bayer AG ........................................ 1,347 10,945 Bayerische Hypo Uno Vereinsbank AG .............. 614 7,293 Deutsche Bank AG ................................ 616 (a)109,141 Deutsche Post AG ................................ 2,348 34,913 Dresdner Bank AG ................................ 1,524 2,431 SAP AG .......................................... 283 -------- 7,903 -------- ITALY (2.8%) 158,800 Banco Intesa S.p.A. ............................. 763 333,840 ENI S.p.A. ...................................... 2,131 4,076 Seat-Pagine Gialle S.p.A. ....................... 9 (c)56,700 Telecom Italia Mobile S.p.A. .................... 453 (c)119,730 Telecom Italia S.p.A. (RNC) ..................... 1,324 (c)198,280 UniCredito Italiano S.p.A. ...................... 1,037 -------- 5,717 -------- JAPAN (22.8%) 25,500 Aiwa Co., Ltd. .................................. 195 105,000 Amada Co., Ltd. ................................. 780 19,000 Bank of Tokyo-Mitsubushi Ltd. ................... 189 38,000 Canon, Inc. ..................................... 1,328 (c)92,000 Casio Computer Co., Ltd. ........................ 776 57,000 Dai Nippon Printing Co., Ltd. ................... 847 161,000 Daicel Chemical Industries Ltd. ................. 488 94,000 Daifuku Co., Ltd. ............................... 549 68,000 Daikin Industries Ltd. .......................... 1,307 70,000 Denki Kagaku Kogyo Kabushika Kaisha ............. 240 22,700 FamilyMart Co., Ltd. ............................ 572 25,000 Fuji Machine Manufacturing Co. .................. 668 43,000 Fuji Photo Film Ltd. ............................ 1,796 54,000 Fujitec Co., Ltd. ............................... 262 81,000 Fujitsu Ltd. .................................... 1,192 33,000 Furukawa Electric Co. ........................... 575 (c)56,000 Hitachi Credit Corp. ............................ 1,064 149,000 Hitachi Ltd. .................................... 1,325 20,000 House Foods Corp. ............................... 260 122,000 Kaneka Corp. .................................... 1,152 54,000 Kurita Water Industries Ltd. .................... 705 11,400 Kyocera Corp. ................................... 1,242 33,000 Kyudenko Corp., Ltd. ............................ 98 70,000 Lintec Corp. .................................... 626 65,000 Matsushita Electric Industrial Co., Ltd. ........ 1,551 (c)73,000 Minebea Co., Ltd. ............................... 675 138,000 Mitsubishi Chemical Industries .................. 363
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ International Magnum Portfolio 57 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- INTERNATIONAL MAGNUM PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
VALUE SHARES (000) - -------------------------------------------------------------------------------- JAPAN (CONT.) (c)57,000 Mitsubishi Estate Co., Ltd. ..................... $ 608 210,000 Mitsubishi Heavy Industries Ltd. ................ 914 40,000 Mitsubishi Logistics Corp. ...................... 350 (c)44,000 Mitsumi Electric Co., Ltd. ...................... 730 30,000 Nagase & Co., Ltd. .............................. 111 81,000 NEC Corp. ....................................... 1,479 58,000 Nifco, Inc. ..................................... 542 12,500 Nintendo Co., Ltd. .............................. 1,965 42,000 Nippon Meat Packers, Inc. ....................... 571 (a)178,000 Nissan Motor Co., Ltd. .......................... 1,023 18,000 Nissei Sangyo Co., Ltd. ......................... 194 43,000 Nissha Printing Co., Ltd. ....................... 219 151 NTT DoCoMo ...................................... 1,086 30,000 Ono Pharmaceutical Co., Ltd. .................... 1,172 83,000 Ricoh Co., Ltd. ................................. 1,530 26,700 Rinnai Corp. .................................... 441 5,000 Rohm Co., Ltd. .................................. 948 (c)26,000 Ryosan Co., Ltd. ................................ 443 16,000 Sangetsu Co., Ltd. .............................. 211 48,000 Sankyo Co., Ltd. ................................ 1,149 123,000 Sanwa Shutter Corp. ............................. 246 134,000 Sekisui Chemical Co. ............................ 381 98,000 Sekisui House Co., Ltd. ......................... 895 93,000 Shin-Etsu Polymer Co., Ltd. ..................... 505 22,700 Sony Corp. ...................................... 1,567 59,000 Suzuki Motor Co., Ltd. .......................... 629 15,000 TDK Corp. ....................................... 1,457 20,000 Tokyo Electric Power Co., Inc. .................. 495 205,000 Toshiba Corp. ................................... 1,369 27,000 Toyota Motor Corp. .............................. 861 108,000 Tsubakimoto Chain Co. ........................... 325 64,000 Yamaha Corp. .................................... 626 31,000 Yamanouchi Pharmaceutical Co., Ltd. ............. 1,338 --------- 47,205 --------- NETHERLANDS (5.9%) 17,976 ABN Amro Holding N.V. ........................... 409 28,835 Akzo Nobel N.V. ................................. 1,549 (a)30,970 ASM Lithography Holding N.V. .................... 703 20,403 Buhrmann N.V. ................................... 547 23,130 Fortis (NL) N.V. ................................ 752 (a)46,660 Getronics N.V. .................................. 274 (a)5,710 Gucci Group N.V. ................................ 496 22,511 ING Groep N.V. .................................. 1,798 (a)90,599 Koninklijke (Royal) Philips Electronics N.V. .... 3,319 29,800 Koninklijke (Royal) KPN N.V. .................... 343 27,127 Koninklijke Ahold N.V. .......................... 875 20,240 Royal Dutch Petroleum Co. ....................... 1,240 --------- 12,305 --------- NEW ZEALAND (0.1%) (c)55,500 Telecom Corp. of New Zealand Ltd. ............... 118 --------- PORTUGAL (0.6%) 82,550 Banco Commercial Portugues (Registered) ......... 438 (a)145,300 Electricidade de Portugal S.A. .................. 480 VALUE SHARES (000) - ------------------------------------------------------------------------------- 30,130 Portugal Telecom S.A. ........................... 276 --------- 1,194 --------- SINGAPORE (1.4%) (a)54,000 Chartered Semiconductor Manufacturing Ltd. ...... 148 (a)600 Chartered Semiconductor Manufacturing Ltd. ADR .. 16 39,000 City Developments Ltd. .......................... 181 46,965 DBS Group Holdings Ltd. ......................... 531 42,000 Keppel Corp., Ltd. .............................. 82 (a)105,000 Neptune Orient Lines Ltd. (Foreign) ............. 82 100,000 OMNI Industries Ltd. ............................ 147 27,800 Oversea-Chinese Banking Corp. (Foreign) ......... 207 35,816 Overseas Union Bank Ltd. (Foreign) .............. 167 35,000 Sembcorp Logistics Ltd. ......................... 194 22,000 Singapore Airlines Ltd. ......................... 218 22,000 Singapore Press Holdings Ltd. ................... 325 33,792 United Overseas Bank Ltd. (Foreign) ............. 254 39,000 Venture Manufacturing Ltd. ...................... 261 --------- 2,813 --------- SPAIN (1.9%) (a)78,870 Amadeus Global Travel Distribution S.A. ......... 585 41,745 Banco Bilbao Vizcaya Argentaria S.A. (Registered) 621 17,070 Banco Popular Espanol ........................... 595 25,500 Repsol S.A. ..................................... 407 (c)104,981 Telefonica S.A. ................................. 1,735 --------- 3,943 --------- SWEDEN (3.0%) 36,952 Assa Abloy AB ................................... 722 31,590 Autoliv, Inc. ................................... 495 43,790 ForeningsSparbanken AB .......................... 670 273,129 Nordbanken Holding AB ........................... 2,068 40,070 Scandic Hotels AB ............................... 531 21,200 Svenska Cellulosa AB, Class B ................... 450 58,980 Svenska Handelsbanken, Class A ................. 1,009 45,600 Swedish Match AB ................................ 178 --------- 6,123 --------- SWITZERLAND (7.3%) 660 Adecco S.A. ..................................... 415 631 Cie Financiere Richemont AG, Class A ............ 1,688 852 Holderbank Financiere Glarus AG, Class B (Bearer) 1,025 1,757 Nestle S.A. (Registered) ........................ 4,097 1,839 Novartis AG (Registered) ........................ 3,250 81 Roche Holding AG (Registered) ................... 825 392 Schindler Holding AG (Registered) ............... 617 (a)14,313 Syngenta AG(Registered) ......................... 768 622 Syngenta AG ..................................... 194 10,485 UBS AG .......................................... 1,711 977 Zurich Financial Services AG .................... 589 --------- 15,179 --------- UNITED KINGDOM (28.1%) 355,950 Allied Domecq plc ............................... 2,351 22,470 AstraZeneca Group plc ........................... 1,133
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- International Magnum Portfolio 58 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- INTERNATIONAL MAGNUM PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
VALUE SHARES (000) - -------------------------------------------------------------------------------- UNITED KINGDOM (CONT.) 21,030 AstraZeneca Group plc ........................... $ 1,047 77,900 BAA plc ......................................... 719 136,300 BAE Systems plc ................................. 778 67,740 Barclays plc .................................... 2,098 140,160 BG Group plc .................................... 549 56,672 Blue Circle Industries plc ...................... 374 64,840 BOC Group plc ................................... 985 98,040 BP Amoco plc .................................... 791 129,800 British American Tobacco plc .................... 989 266,250 British Telecommunications plc .................. 2,276 385,700 Cadbury Schweppes plc ........................... 2,669 137,000 Centrica plc .................................... 531 218,041 Diageo plc ...................................... 2,444 (a)170,900 Egg plc ......................................... 312 26,200 EMAP plc ........................................ 334 56,565 GKN plc ......................................... 598 148,258 GlaxoSmithKline plc ............................. 4,188 (a)196,284 Granada Compass plc ............................. 2,137 232,020 Great Universal Stores plc ...................... 1,822 39,110 Halma plc ....................................... 81 23,700 HSBC Holdings plc ............................... 351 142,160 Imperial Tobacco Group plc ...................... 1,480 190,400 Invensys plc .................................... 445 (a)155,160 Lattice Group plc ............................... 350 77,200 Lloyds TSB Group plc ............................ 817 180,740 Prudential Corp. plc ............................ 2,909 147,126 Reckitt Benckiser plc ........................... 2,027 91,900 Reed International plc .......................... 961 511,200 Rentokil Initial plc ............................ 1,765 37,900 RMC Group plc ................................... 334 332,170 Rolls-Royce plc ................................. 984 123,440 Sainsbury (J) plc ............................... 732 120,940 Scottish & Southern Energy plc .................. 1,121 320,650 Shell Transport & Trading Co. plc ............... 2,631 122,747 Smiths Industries plc ........................... 1,482 117,100 SSL International plc ........................... 875 118,516 Tesco plc ....................................... 483 1,777,067 Vodafone Group plc .............................. 6,520 104,400 Wolseley plc .................................... 718 160,590 WPP Group plc ................................... 2,093 --------- 58,284 --------- TOTAL COMMON STOCKS (Cost $178,377) 192,756 --------- PREFERRED STOCKS (1.4%) GERMANY (1.4%) 4,723 Fresenius Medical Care AG ....................... 1,255 21,520 Henkel KGaA-Vorzug .............................. 1,394 870 Hugo Boss AG ................................. 233 --------- TOTAL PREFERRED STOCKS (Cost $2,379) 2,882 --------- TOTAL FOREIGN SECURITIES (94.5%) (Cost $180,756) 195,638 --------- FACE AMOUNT (000) - --------- SHORT-TERM INVESTMENTS (11.2%) SHORT-TERM INVESTMENTS HELD AS COLLATERAL ON LOANED SECURITIES (5.1%) $ 297 Bills Securitization, CP, 6.54%, 1/26/01 ........ 297 347 Citibank Corp., CP, 6.78%, 1/09/01 .............. 347 500 Ciesco LP, MTN, 6.68%, 10/15/01 ................. 500 297 Greyhawk Funding, Inc., CP, 6.73%, 1/19/01 ...... 297 400 K2 (USA) LLC., MTN, 6.71%, 9/17/01 .............. 400 500 First Union Bank, CD, 6.68%, 2/20/01 ............ 500 1,001 Student Loan Market, 6.54%, 6/11/01 ............. 1,001 500 Sigma Finance, Inc., MTN, 6.73%, 2/12/01 ........ 500 297 Sheffield Recievable Corp., CP, 6.73%, 1/25/01 .. 297 6,566 Salomon Smith Barney, Inc., 6.50%, dated 12/29/00, due 1/02/01, ......................... 6,566 --------- TOTAL SECURITIES HELD FOR COLLATERAL ON LOANED SECURITIES ..... 10,705 --------- REPURCHASE AGREEMENT (6.1%) (f)12,621 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 ............................. 12,621 --------- TOTAL SHORT TERM INVESTMENTS (Cost $23,326) 23,326 --------- FOREIGN CURRENCY (0.3%) GBP 357 British Pound ........................................... 534 NZD 9 New Zealand Dollar ........................................ 4 SGD 20 Singapore Dollar ......................................... 11 --------- TOTAL FOREIGN CURRENCY (Cost $551) .............................. 549 ---------
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- International Magnum Portfolio 59 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- INTERNATIONAL MAGNUM PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
AMOUNT (000) - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (106.0%) (COST $204,633) $ 219,513 ---------- OTHER ASSETS (0.4%) Receivable for Portfolio Shares Sold................ $ 326 Dividends Receivable................................ 295 Receivable for Investments Sold..................... 184 Foreign Withholding Tax Reclaim Receivable.......... 106 Interest Receivable................................. 11 Unrealized Gain on Foreign Currency Exchange Contracts................................. 1 Other............................................... 6 929 -------- LIABILITIES (-6.4%) Collateral on Securities Loaned..................... (10,705) Payable for Investments Purchased................... (2,163) Investment Advisory Fees Payable.................... (382) Custodian Fees Payable.............................. (39) Administrative Fees Payable......................... (33) Directors' Fees and Expenses Payable................ (18) Distribution Fees Payable........................... (14) Bank Overdraft Payable.............................. (5) Other Liabilities................................... (43) (13,402) --------- --------- NET ASSETS (100%) .................................... $207,040 ========= NET ASSETS CONSIST OF: Paid in Capital....................................... $198,230 Accumulated Net Investment Loss....................... (1,182) Accumulated Net Realized Loss......................... (4,183) Unrealized Appreciation on Investments and Foreign Currency Translations................................ 14,175 --------- NET ASSETS $207,040 ========= AMOUNT (000) - -------------------------------------------------------------------------------- CLASS A: - --------- NET ASSETS............................................ $ 183,566 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 15,884,431 outstanding $0.001 par value shares (authorized 500,000,000 shares)............... $ 11.56 ========== CLASS B: - --------- NET ASSETS............................................ $ 23,474 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 2,036,918 outstanding $0.001 par value shares (authorized 500,000,000 shares)............... $11.52 ===========
- -------------------------------------------------------------------------------- (a) -- Non-income producing (c) -- All or a portion of security on loan at December 31, 2000-- See Note A-9 to financial statements. (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. CD -- Certificate of Deposit CP -- Commercial Paper MTN -- Medium Term Note RNC -- Non-Convertible Savings Shares ADR -- American Depository Receipt - ------------------------------------------------------------------------------- FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at December 31, 2000, the Portfolio is obligated to deliver U.S. dollars in exchange for foreign currency as indicated below:
CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN (000) (000) DATE (000) (000) (000) - ------------------ ------------- ----------------- ------------------- ------------------ -------------- U.S.$ 264 $ 264 1/02/01 GBP 177 $ 265 $ 1 ====== ====== ==== - --------------------------------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
PERCENT VALUE OF NET SECTOR (000) ASSETS - ------------------------------------------------------------------------------------- Consumer Discretionary ...................... $32,099 15.5% Consumer Staples ............................ 22,452 10.8 Energy ...................................... 10,938 5.3 Financials .................................. 33,566 16.2 Health Care ................................. 21,069 10.2 Industrials ................................. 23,343 11.3 Information Technology ...................... 19,691 9.5 Materials ................................... 13,755 6.6 Telecommunication Services .................. 15,491 7.5 Utilities ................................... 3,234 1.6 --------- --------- $195,638 94.5% ========= =========
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- International Magnum Portfolio 60 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ INTERNATIONAL SMALL CAP PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) [CHART] Japan (23.9%) United Kingdom (12.6%) Netherlands (9.0%) Germany (7.6%) Finland (6.7%) Switzerland (6.7%) France (6.1%) Sweden (6.0%) New Zealand (4.0%) Australia (3.4%) Other (14.0%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------- [GRAPH]
International Small Cap MSCI EAFE Portfolio- Small Cap Class A Index (1) ------------- --------- 1992 $ 500,000 $500,000 1993 ---------- -------- 1994 ---------- -------- 1995 ---------- -------- 1996 ---------- -------- 1997 ---------- -------- 1998 ---------- -------- 1999 ---------- -------- 2000 $1,271,365 $616,942
* Commenced operations on December 15, 1992 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE SMALL CAP INDEX(1) - --------------------------------------------------------------------------------
TOTAL RETURN(2) --------------------------------- AVERAGE AVERAGE ANNUAL ONE ANNUAL FIVE SINCE YEAR YEARS INCEPTION --------------------------------- PORTFOLIO ............ -2.92% 10.38% 12.57% INDEX ................ -9.23 -3.26 2.65
1. The MSCI EAFE Small Cap Index is an unmanaged market valued weighted average of the performance of over 900 securities of companies listed on the stock exchanges of countries in Europe, Australasia and the Far East. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The International Small Cap Portfolio seeks long-term capital appreciation by investing primarily in the equity securities of small non-U.S. issuers. The Portfolio applies a disciplined bottom-up value approach to identify and invest in small capitalization companies which it believes are both attractive businesses and available at cheap prices. A market capitalization generally less than U.S. $2 billion is used as our definition of "small." Investments in small-to medium- sized corporations are more vulnerable to financial risks and other risks than larger corporations and may involve a higher degree of price volatility than investments in the general equity markets. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of - -2.92% compared to -9.23% for the Morgan Stanley Capital International (MSCI) EAFE Small Cap Index (the "Index"). For the five-year period ended December 31, 2000, the average annual total return for the Portfolio was 10.38% compared to -3.26% for the Index. For the period from inception on December 15, 1992 through December 31, 2000, the average annual total return for the Portfolio was 12.57% compared to 2.65% for the Index. During 2000, the Portfolio preserved capital better than the Index in a year that was difficult for equities. The fourth quarter saw a 30% fall in the NASDAQ as investors reconciled a slowing U.S. economy with sky-high valuations in the technology sector. International technology shares were similarly impacted with Germany's Neur Markt (small cap technology) down 68% from its peak in March last year. The Portfolio's underweight to technology and overweight to consumer staples were strong positives. Strong stock selection in consumer staples produced most of the performance during the year. Matthews (Bernard) (+26%) stood out as the single biggest contributor to performance during the period, despite a setback caused - ------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY THE MSCI EAFE SMALL CAP INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------- International Small Cap Portfolio 61 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ INTERNATIONAL SMALL CAP PORTFOLIO (CONT.) by Sara Lee backing out of a takeover bid. Nutreco was boosted by its aquaculture division - which includes the second largest salmon farm in the world - as the price of salmon has risen nearly 20% during the year. Swedish Match was another strong contributor, boosted by a renewed interest in its snuff and chewing tobacco products as smokers seek alternatives to stigma-riddled cigarettes. On the negative side, Ssl was one of the biggest detractors from performance. Its main products being latex surgical gloves and condoms, Ssl suffered by not manufacturing enough of the former and too many of the latter. Shares are likely oversold and inventory issues are being addressed. Japan's economic slump has knocked the wind out of construction with Sumitomo Osaka Cement seeing a decreased demand for its product. Our interest, however, lies not in cement but rather Sumitomo Osaka's focus on its fiber optic cable business. As demand for communication capacity - via internet service providers and telephone companies - increases, Sumitomo Osaka Cement should likely benefit handsomely. As we enter the new year the Portfolio maintains a defensive bias with an overweight position in consumer staples and industrials where valuations still remain reasonable relative to free cash flow, and there is greater degree of earnings visibility. Despite the sharp price declines seen in many technology and telecom share prices, we believe earnings growth expectations still remain far too optimistic for this group, particularly if there is a hard landing in the U.S. economy. We therefore remain underweight these sectors although market movements have reduced the size of the relative underweight position. The Portfolio remains well-diversified by sector and country. Our main disagreements with the Index lie with the Portfolio's underweight to technology, financials and Japan and our overweight to consumer staples and the euro-zone on valuation grounds. Margaret Naylor PORTFOLIO MANAGER Willem Vinke PORTFOLIO MANAGER Nathalie Degans PORTFOLIO MANAGER Arthur Pollock PORTFOLIO MANAGER January 2001 - -------------------------------------------------------------------------------- International Small Cap Portfolio 62 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- INTERNATIONAL SMALL CAP PORTFOLIO
VALUE SHARES (000) - -------------------------------------------------------------------------------- COMMON STOCKS (93.3%) AUSTRALIA (3.4%) 2,685,875 Ausdoc Group Ltd. .................................. $ 2,466 (a)479,800 Billabong International Ltd. ....................... 1,130 (a)2,194,125 E.R.G. Ltd. ........................................ 3,343 1,074,400 Neverfail Springwater Ltd. ......................... 2,534 2,965,085 Ramsay Health Care Ltd. ............................ 2,887 549,717 Skilled Engineering Ltd. ........................... 291 ------- 12,651 ------- AUSTRIA (0.6%) 40,400 Austria Tabakwerke AG .............................. 2,240 ------- DENMARK (1.3%) 17,050 Copenhagen Airports A/S ............................ 1,459 89,465 Sydbank A/S ........................................ 3,446 ------- 4,905 ------- FINLAND (6.7%) 158,858 KCI Konecranes International ....................... 4,027 68,069 Kone Oyj, Class B .................................. 4,762 410,832 Metso Oyj .......................................... 4,590 87,350 Perlos Oyj ......................................... 1,804 831,308 Rapala Normark Corp. ............................... 3,278 (a)235,000 Uponor Oyj ......................................... 4,137 126,030 Wartsila Oyj, Class B .............................. 2,331 ------- 24,929 ------- FRANCE (6.1%) 50,205 Algeco ............................................. 5,232 48,696 Chargeurs .......................................... 3,201 4,846 Coface ............................................. 496 (a)131,043 Europeene d'Extincteurs ............................ 3,888 108,979 Legris Industries .................................. 4,911 (a)220,569 Neopost S.A. ....................................... 5,177 ------- 22,905 ------- GERMANY (5.4%) 153,412 Beru AG ............................................ 5,474 (a)20,426 Escada AG .......................................... 2,397 544,110 FAG Kugelfischer Georg Schaefer AG ................. 3,678 246,581 Marseille-Kliniken AG .............................. 1,822 433,586 Sartorius AG ....................................... 3,440 (a)67,619 Techem AG .......................................... 2,082 98,351 Winkler & Duennebier AG ............................ 1,298 ------- 20,191 ------- HONG KONG (1.4%) 1,602,000 Asia Satellite Telecommunications Holdings Ltd. .... 3,327 15,157,500 Vitasoy International Holdings Ltd. ................ 2,060 ------- 5,387 ------- IRELAND (1.1%) 623,696 Green Property plc ................................. 4,158 ------- ITALY (1.2%) (a)2,055,300 Cassa di Risparmio di Firenze S.p.A. ............... 2,376 803,900 Sogefi S.p.A. ...................................... 2,030 ------- 4,406 ------- JAPAN (23.9%) 40,350 Aiful Corp. ........................................ 3,289 51,000 Asatsu-DK, Inc. .................................... 1,225 356,000 Asia Securities Printing Co., Ltd. ................. 3,229 574,000 Chiyoda Co., Ltd. .................................. 2,312 301,000 Daibiru Corp. ...................................... 2,130 670,000 Hankyu Realty Co., Ltd. ............................ 2,008 538,000 Hanshin Department Stores Ltd. ..................... 1,833 117,500 Hurxley Corp. ...................................... 1,848 (a)2,358,000 Ishikawajima-Harima Heavy Industries Co., Ltd. ..... 5,027 1,305,000 Jaccs Co., Ltd. .................................... 3,443 401,700 Maezawa Kasei Industries ........................... 3,861 103,900 Megane TOP Co., Ltd. ............................... 1,634 187,000 Mirai Industry Co., Ltd. ........................... 1,569 437,800 Nichiha Corp. ...................................... 2,337 80,000 Nippon Broadcasting System, Inc. ................... 3,020 699,000 Nissan Fire & Marine Insurance Co. ................. 2,345 278,000 Nissei Industries .................................. 2,167 607,900 Nitta Corp. ........................................ 6,268 534,000 Osaka Steel Co., Ltd. .............................. 1,871 (a)772,000 Osaki Electric Co., Ltd. ........................... 4,223 (a)4,066,000 Pacific Metals Co., Ltd. ........................... 6,786 313,000 S.T Chemical Co., Ltd. ............................. 1,750 (a)224,500 Shidax Community Corp. ............................. 1,473 2,389,000 Sumitomo Osaka Cement Co., Ltd. .................... 7,974 523,000 Tasaki Shinju Co., Ltd. ............................ 1,842 1,102,000 Toc Co. ............................................ 6,557 529,000 Tokyo Kikai Seisakusho Ltd. ........................ 1,770 816,000 Yomiuri Land Co., Ltd. ............................. 2,374 949,000 Zeon Corp. ......................................... 3,416 ------- 89,581 ------- NETHERLANDS (9.0%) 185,106 Buhrmann N.V. ...................................... 4,962 257,000 CSM N.V. ........................................... 6,370 (a)200,400 Head N.V. .......................................... 1,165 147,164 Hollandsche Beton Groep N.V. ....................... 1,513 122,950 IHC Caland N.V. .................................... 5,772 193,195 International Muller N.V. .......................... 4,444 121,513 Nutreco Holding N.V. ............................... 6,457 198,418 Samas Groep N.V. ................................... 3,167 ------- 33,850 ------- NEW ZEALAND (4.0%) 1,544,560 Auckland International Airport Ltd. ................ 2,146 1,291,468 Fisher & Paykel Industries Ltd. .................... 4,560 4,352,763 Fletcher Challenge Building ........................ 3,775 (a)2,165,200 Frucor Beverages Group Ltd. ........................ 1,763 753,060 Sky City Ltd. ...................................... 2,706 ------- 14,950 ------- NORWAY (1.2%) 159,748 Sparebanken ........................................ 4,651 ------- SINGAPORE (0.6%) 1,134,000 Avimo Group Ltd. ................................... 2,394 ------- SPAIN (2.1%) (a)406,600 Amadeus Global Travel Distribution S.A., Class A ... 3,016
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- International Small Cap Portfolio 63 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
VALUE SHARES (000) - ------------------------------------------------------------------------------- SPAIN (CONT.) 205,484 Miquel y Costas & Miquel, S.A. ..................... $ 4,727 -------- 7,743 -------- SWEDEN (6.0%) 237,300 Haldex AB .......................................... 1,747 (a)259,540 Hoganas AB, Class B ................................ 3,808 126,430 Nobel Biocare AB ................................... 3,897 425,000 Scandic Hotels AB .................................. 5,627 1,875,405 Swedish Match AB ................................... 7,310 -------- 22,389 -------- SWITZERLAND (6.7%) 2,522 Bobst AG (Bearer) .................................. 3,594 10,261 Edipresse (Bearer) ................................. 3,216 (a)8,690 Leica Geosystems AG ................................ 2,680 (a)6,205 Saurer AG .......................................... 2,871 16,730 Sulzer Medica AG (Registered) ...................... 4,391 18,711 Valora Holding AG .................................. 4,000 6,790 Zehnder Holding AG, Class B ........................ 4,335 -------- 25,087 -------- UNITED KINGDOM (12.6%) 223,355 Alliance Unichem plc ............................... 1,822 752,300 British Vita plc ................................... 2,204 954,800 Caradon plc ........................................ 2,854 3,117,357 Devro plc .......................................... 2,191 1,449,900 Glynwed International plc .......................... 4,182 2,528,300 Halma plc .......................................... 5,214 10,400 John Mowlem & Co. plc .............................. 19 630,800 Laird Group plc .................................... 3,252 264,700 Litho Supplies plc ................................. 289 248,200 Luminar plc ........................................ 2,455 1,031,860 NHP plc ............................................ 324 333,970 Reckitt Benckiser plc .............................. 4,602 1,270,600 SIG plc ............................................ 3,836 800,016 SMG plc ............................................ 3,270 788,700 Spirax-Sarco Engineering plc ....................... 4,173 634,100 SSL International plc .............................. 4,738 1,861,000 The 600 Group plc .................................. 1,752 -------- 47,177 -------- TOTAL COMMON STOCKS (Cost $358,595)................................. 349,594 -------- PREFERRED STOCKS (2.2%) GERMANY (2.2%) 231,398 Dyckerhoff AG ...................................... 4,063 211,898 Moebel Walther AG .................................. 1,793 171,138 Wuerttembergische Metallwarenfabrik AG ............. 2,233 -------- TOTAL PREFERRED STOCKS (Cost $16,175)............................... 8,089 -------- TOTAL FOREIGN SECURITIES (95.5%) (Cost $374,770).................... 357,683 -------- FACE AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT (1.5%) $ (f)5,787 Chase Securities, Inc., 5.60%, dated 12/29/00 due 1/02/01(Cost $5,787) ..................... $ 5,787 -------- FOREIGN CURRENCY (2.8%) GBP 4,346 British Pound ......................................... 6,496 EUR 2,354 Euro .................................................. 2,210 HKD 14,170 Hong Kong Dollar ...................................... 1,816 -------- TOTAL FOREIGN CURRENCY (COST $10,406) ............................ 10,522 -------- TOTAL INVESTMENTS (99.8%) (COST $390,963) .......................... 373,992 -------- OTHER ASSETS (0.6%) Unrealized Gain on Foreign Currency Exchange Contracts .............................................. $ 724 Foreign Withholding Tax Reclaim Receivable ............... 459 Receivable for Portfolio Shares Sold ..................... 424 Dividends Receivable ..................................... 378 Receivable for Investments Sold .......................... 116 Interest Receivable ...................................... 3 Other .................................................... 17 2,121 ------- LIABILITIES (-0.4%) Investment Advisory Fees Payable ......................... (823) Payable for Investments Purchased ........................ (148) Custodian Fees Payable ................................... (54) Administrative Fees Payable .............................. (53) Directors' Fees and Expenses Payable ..................... (28) Bank Overdraft Payable ................................... (10) Other Liabilities ........................................ (73) (1,189) ------- -------- NET ASSETS (100%)........................................... $374,924 ======== NET ASSETS CONSIST OF: Paid in Capital .................................................... $391,062 Undistributed Net Investment Income ................................ 453 Distributions In Excess of Net Realized Gain ....................... (315) Unrealized Depreciation on Investments and Foreign Currency Translations ..................................................... (16,276) -------- NET ASSETS.......................................................... $374,924 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 23,006,224 outstanding $0.001 par value shares (authorized 500,000,000 shares)............................ $ 16.30 ========
- -------------------------------------------------------------------------------- (a) -- Non-income producing security (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- International Small Cap Portfolio 64 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- INTERNATIONAL SMALL CAP PORTFOLIO (CONT.) - -------------------------------------------------------------------------------- FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at December 31, 2000, the Portfolio is obligated to deliver or is to receive foreign currency in exchange for U.S. dollars as indicated below:
CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN/(LOSS) (000) (000) DATE (000) (000) (000) - ------------- ----- --------- ------------- --------- ----------- HKD 4,690 $ 601 1/02/01 U.S.$ 601 $ 601 -- U.S.$ 601 601 1/02/01 EUR 649 608 $ 7 U.S.$ 68 68 1/03/01 DKK 545 69 1 GBP 7,400 11,076 4/17/01 U.S.$ 10,797 10,797 (279) U.S.$ 10,797 10,797 4/17/01 EUR 12,505 11,792 995 ------- -------- ----- $23,143 $23,867 $724 ======= ======== =====
- ------------------------------------------------------------------------------- SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
VALUE PERCENT SECTOR (000) OF NET ASSETS - -------------------------------------------------------------------------------- Consumer Discretionary ...................... $ 76,462 20.4% Consumer Staples ............................ 37,376 10.0 Financials .................................. 35,223 9.4 Health Care ................................. 19,558 5.2 Industrials ................................. 114,961 30.7 Information Technology ...................... 20,705 5.5 Materials ................................... 53,398 14.3 -------- ----- $357,683 95.5% ======== =====
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- International Small Cap Portfolio 65 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ JAPANESE EQUITY PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------ [CHART] Household Durables (12.0%) Machinery & Engineering (11.1%) Computers & Peripherals (10.1%) Electric Equipment & Instruments (9.3%) Leisure Equipment & Products (7.7%) Chemicals (7.2%) Pharmaceuticals (6.9%) Office Electronics (6.2%) Automobiles (5.3%) Diversified Telecommunication Services (2.6%) Other (21.6%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------- [GRAPH]
Japanese Equity Portfolio- MSCI Japan Class A Index (1) --------------- ---------- 1994 $500,000 $500,000 1995 -------- -------- 1996 -------- -------- 1997 -------- -------- 1998 -------- -------- 1999 -------- -------- 2000 $576,383 $405,344
* Commenced operations on April 25, 1994 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) JAPAN INDEX(1) - ------------------------------------------------------------------------------
TOTAL RETURNS(2) ------------------------------- AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION ------ -------- ---------- PORTFOLIO -- CLASS A.......... -23.69% 4.01% 2.15% PORTFOLIO -- CLASS B.......... -23.93 N/A 3.66 INDEX -- CLASS A.............. -28.16 -4.70 -3.16 INDEX -- CLASS B.............. -28.16 N/A -4.55
1. The MSCI Japan Index is an unmanaged index of common stocks. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The investment objective of the Japanese Equity Portfolio is to seek long-term capital appreciation by investing primarily in equity securities of Japanese issuers. Equity securities are defined as common and preferred stocks, convertible securities and rights and warrants to purchase common stocks. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of - -23.69% for the Class A shares and -23.93% for the Class B shares compared to - -28.16% for the Morgan Stanley Capital International (MSCI) Japan Index (the "Index"). For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was 4.01% compared to -4.70% for the Index. For the period from inception on April 25, 1994 through December 31, 2000, the average annual total return for the Class A shares was 2.15% compared to -3.16% for the Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 3.66% compared to -4.55% for the Index. The Japanese equity market, together with global equity markets, faced a challenging environment during 2000. In the case of Japan, significantly above consensus earnings revisions by leading companies had virtually no positive effect on share prices. It seemed that negative external factors such as higher U.S. interest rates, volatile NASDAQ, escalating oil prices and mounting uncertainty of optimistic calls for a "soft landing" weighed much heavier on the minds of investors than the rapidly improving economic outlook for Japan. While we had considerable conviction earlier in the year that valuations for "Growth" stocks were excessive and that "Value" would prevail, this distinction became increasingly blurred during the last several months for Japanese equities. In particular, we had failed to estimate the skewed supply/demand equation during most of 2000. First, domestic retail investors had ballooned their - ------------------------------------------------------------------------------ CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------ Japanese Equity Portfolio 66 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ JAPANESE EQUITY PORTFOLIO (CONT.) purchases for "new economy" companies and long margin positions ballooned to over $50 billion at the peak of the market in March 2000. As these stocks fell these individual investors became forced sellers in a rapidly declining market. In addition, further adding to the supply were foreign investors raising cash and Japanese institutions which aggressively unloaded their "cross-holdings" into the September half-year book-closing. Domestic banks were particularly noteworthy with their sales shortly after the Bank of Japan terminated the "0" interest rate policy in August. Although we had forecasted a modest rise in interest rates during the third quarter of 2000, we had not considered the negative impact it will have on accelerating institutional stock sales. In our view, most of 2000 can be characterized as one of "Macro Vice, Micro Virtue." While first quarter 2000 GDP (at 10% annualized) and second quarter GDP (at 4.2% annualized) were ahead of consensus expectations, the carefully watched improvement in consumer spending was not evidenced by published economic data, which might be attributed to data quality problems. Corporate profit growth on the other hand showed remarkable gains. For example, non-financial companies during the April-June 2000 period reported an aggregate 3% top line growth while profits jumped 39% - a clear indication to us that the efforts of restructuring are bearing abundant fruit. In the case of results in the first half of 2000, announced in November, the Tokyo Stock Exchanges' first section non-financial firms reported a 43.6% rise in recurring profits, which was one of the largest increases in profitability for corporate Japan in almost 20 years. Many observers of Japan expected a more favorable flow into equities when the huge redemption of 10-year postal deposits began to mature, commencing in early 2000. These colossal deposits are estimated to total almost 20% of Japan's annual GDP over an 18-month maturity period. Despite related optimism, the retail investor, faced with highly volatile markets and political uncertainty with the early demise of Prime Minister Obuchi in May, reinvested capital gains and proceeds back into postal savings or bank deposits. We believe that economic activity, which has improved rapidly and stock market sentiment, which declined sharply, has become excessively polarized over the last several months. After an enormous net $85 billion of purchases of Japanese equities in 1999 and marred by uncertain global economic prospects that Greenspan will prevail and growth will dramatically slow, foreign investors were particularly prevalent with their sales in 2000. Finally, during the fourth quarter of 2000, internal crisis in Japan such as the large scale collapse of Sogo Department Store, Kyoei and Chiyoda Life Insurance together with the political turmoil caused by Mr. Kato's "no confidence" run on Prime Minister Mori put heavy additional pressure on the markets. In a final blow for negative sentiment in 2000, the potential large scale changes to the MSCI calculation of free float for Japanese shares insured that any potential buyers would wait for the outcome of MSCI's formal announcement before any allocations to Japan will be made. PORTFOLIO REVIEW The Portfolio did well both relative to the Index and our peer group during the last 12 months. Reasonably priced equities held in the Portfolio, including select Japanese high tech companies, benefited as a "safe harbor" when relatively expensive stocks in Japan collapsed. In particular, the "bell cow" TMT stocks of 1999 and early 2000 such as Hikari Tsushin, Softbank and Oracle Japan lost almost 95% of their market value by year-end. The Portfolio avoided such richly valued companies and our shift earlier in the year to select food, warehousing and utility stocks together with high quality technology blue chips provided the basis for relative outperformance. Our holding in Fuji Photo, Ono and Yamanouchi Pharma-ceuticals, Nippon Meat Packers and utilities such as Tokyo Electric Power also helped performance. Also, Nissan Motors and Mitsubishi Heavy Industries, arguably some of the best examples of restructuring in 2000, contributed meaningfully to the Portfolio's performance during the year. OUTLOOK Over the last several months, valuations for Japanese equities have become increasingly reasonable in a yet relatively expensive world. Although anemic, a macro recovery and continuing aggressive cost cutting by leading companies have begun to show the best signs of real growth over the last decade, particularly on the corporate level. Japan has committed to foster information technology, including establishing a "Minister of IT," a new dedicated office to promote IT within government on a national level. The free cash flow generated by blue chip companies are now directed to increasing return on equity and productivity through IT, much as the U.S. experienced during the early 1990's. Furthermore, the Fair Trade Commission's report on NTT's access issues published in the fourth quarter of 2000, suggests that NTT may face a similar "Japanese style" break-up as with ATT of the U.S. in the early 1980's. This will likely provide a huge platform to exploit Japan's pre-eminence in digital technology, particularly the I-mode, over the next several years. On a bigger picture, just as Japan dominated the production of TV's and VCR's during the 1970's / 80's, we believe Japan will also again do so with digital consumer products globally. - ------------------------------------------------------------------------------ Japanese Equity Portfolio 67 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ JAPANESE EQUITY PORTFOLIO (CONT.) In addition, the recent weakness in the yen, a result of investors' negative vote for Japan's recovery and perhaps related to the markets view of a new republican policy towards Japan, should contribute positively to leading international blue chip earnings over the next several months. Manufacturers in Japan have significantly increased their operating efficiency over the last 5 years and a weaker yen should increase both return on equity and operating margins notably. Perhaps the biggest catalyst for a re-evaluation of Japan over the next year will be the accounting changes from book to mark-to-market. Balance sheets will become increasingly transparent and with recent amendments to the commercial code these accounting changes may spur a flurry of mergers and acquisition activity, including hostile take-overs for the first time in Japan. Our optimistic outlook is based on the premise of a "soft landing" in the U.S. and that volatility in the U.S. markets will stabilize shortly. In our view the downside for Japanese equities appear limited while the rewards for a substantial rally based on low valuations and improving economic activity are high and therefore a good opportunity to re-allocate assets to Japan may present itself before the fiscal year-end in March 2001. If our assumptions are correct, we believe the Portfolio is currently positioned to benefit under the above mentioned scenario. John R. Alkire PORTFOLIO MANAGER Kunihiko Sugio PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------ Japanese Equity Portfolio 68 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ JAPANESE EQUITY PORTFOLIO - ------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------------- COMMON STOCKS (96.0%) AUTO COMPONENTS (1.1%) 68,000 Nifco, Inc. ..................................... $ 636 AUTOMOBILES (5.3%) (a)200,000 Nissan Motor Co., Ltd. .......................... 1,150 88,000 Suzuki Motor Co., Ltd. .......................... 938 35,000 Toyota Motor Corp. .............................. 1,116 -------------- 3,204 -------------- BANKS (0.4%) 25,000 Bank of Tokyo-Mitsubishi Ltd. ................... 248 -------------- BUILDING PRODUCTS (0.4%) 124,000 Sanwa Shutter Corp. ............................. 248 -------------- CHEMICALS (7.2%) 250,000 Daicel Chemical Industries Ltd. ................. 758 125,000 Denki Kagaku Kogyo K K .......................... 430 153,000 Kaneka Corp. .................................... 1,445 64,000 Lintec Corp. .................................... 572 213,000 Mitsubishi Chemical Corp. ....................... 560 99,000 Shin-Etsu Polymer Co., Ltd. ..................... 538 -------------- 4,303 -------------- COMMERCIAL SERVICES & SUPPLIES (2.3%) 75,000 Dai Nippon Printing Co., Ltd. ................... 1,114 50,000 Nissha Printing Co., Ltd. ....................... 255 -------------- 1,369 -------------- COMPUTERS & PERIPHERALS (10.1%) 117,000 Fujitsu Ltd. .................................... 1,722 51,000 Mitsumi Electric Co., Ltd. ...................... 846 95,000 NEC Corp. ....................................... 1,735 268,000 Toshiba Corp. ................................... 1,789 -------------- 6,092 -------------- CONSTRUCTION & ENGINEERING (1.5%) 71,000 Kurita Water Industries Ltd. .................... 927 -------------- DISTRIBUTORS (0.5%) 30,000 Nissei Sangyo Co., Ltd. ......................... 322 -------------- DIVERSIFIED FINANCIALS (2.0%) 63,500 Hitachi Capital Corp. ........................... 1,207 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES (2.6%) 220 Nippon Telegraph & Telephone Corp. .............. 1,582 -------------- ELECTRIC UTILITIES (1.1%) 26,000 Tokyo Electric Power Co. ........................ 644 -------------- ELECTRICAL EQUIPMENT (1.1%) 37,000 Furukawa Electric Co., Ltd. ..................... 645 -------------- ELECTRONIC EQUIPMENT & INSTRUMENTS (9.3%) 195,000 Hitachi Ltd. .................................... 1,734 14,200 Kyocera Corp. ................................... 1,547 39,000 Ryosan Co. ...................................... 665 17,000 TDK Corp. ....................................... 1,652 -------------- 5,598 -------------- FOOD & DRUG RETAILING (1.3%) 31,400 FamilyMart Co., Ltd. ............................ 792 -------------- FOOD PRODUCTS (1.6%) 32,000 House Foods Corp. ............................... 416 38,000 Nippon Meat Packers, Inc. ....................... 517 -------------- 933 -------------- HOUSEHOLD DURABLES (12.0%) 29,000 Aiwa Co., Ltd. .................................. 222 103,000 Casio Computer Co., Ltd. ........................ 869 79,000 Matsushita Electric Industrial Co., Ltd. ........ 1,884 32,800 Rinnai Corp. .................................... 542 17,000 Sangetsu Co., Ltd. .............................. 224 141,000 Sekisui Chemical Co. ............................ 400 105,000 Sekisui House Co., Ltd. ......................... 959 30,400 Sony Corp. ...................................... 2,098 -------------- 7,198 -------------- LEISURE EQUIPMENT & PRODUCTS (7.7%) 45,000 Fuji Photo Film Ltd. ............................ 1,879 12,800 Nintendo Corp., Ltd. ............................ 2,012 76,000 Yamaha Corp. .................................... 744 -------------- 4,635 -------------- MACHINERY (11.1%) 136,000 Amada Co., Ltd. ................................. 1,010 110,000 Daifuku Co., Ltd. ............................... 642 66,000 Daikin Industries Ltd. .......................... 1,269 41,000 Fuji Machine Manufacturing Co., Ltd. ............ 1,096 54,000 Fujitec Co., Ltd. ............................... 262 99,000 Minebea Co., Ltd. ............................... 915 236,000 Mitsubishi Heavy Industries Ltd. ................ 1,027 148,000 Tsubakimoto Chain Co. ........................... 445 -------------- 6,666 -------------- MARINE (0.6%) 42,000 Mitsubishi Logistics Corp. ...................... 367 -------------- OFFICE ELECTRONICS (6.2%) 52,000 Canon, Inc. ..................................... 1,817 105,000 Ricoh Co., Ltd. ................................. 1,936 -------------- 3,753 -------------- PHARMACEUTICALS (6.9%) 31,000 Ono Pharmaceutical Co., Ltd. .................... 1,211 59,000 Sankyo Co., Ltd. ................................ 1,412 36,000 Yamanouchi Pharmaceutical Co., Ltd. ............. 1,554 -------------- 4,177 -------------- REAL ESTATE (1.4%) 77,000 Mitsubishi Estate Co., Ltd. ..................... 821 -------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS (1.9%) 6,000 Rohm Co., Ltd. .................................. 1,138 -------------- TRADING COMPANIES & DISTRIBUTORS (0.4%) 62,000 Nagase & Co., Ltd ............................... 230 -------------- TOTAL COMMON STOCKS (Cost $53,720) 57,735 --------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Japanese Equity Portfolio 69 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ JAPANESE EQUITY PORTFOLIO (CONT.) - ------------------------------------------------------------------------------
FACE AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (3.0%) REPURCHASE AGREEMENT (3.0%) $ (f)1,843 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $1,843) ......................... $ 1,843 -------- TOTAL INVESTMENTS (99.0%) (COST $55,563) ........................ 59,578 -------- OTHER ASSETS (1.4%) Receivable for Portfolio Shares Sold .......................... $802 Dividends Receivable .......................................... 4 Interest Receivable ........................................... 1 Other ......................................................... 4 811 ---- LIABILITIES (-0.4%) Investment Advisory Fees Payable .............................. (126) Payable for Portfolio Shares Redeemed ......................... (18) Payable for Investments Purchased ............................. (17) Directors' Fees and Expenses Payable .......................... (13) Administrative Fees Payable ................................... (13) Custodian Fees Payable ........................................ (5) Distribution Fees Payable ..................................... (4) Bank Overdraft Payable ........................................ (4) Other Liabilities ............................................. (32) (232) ---- -------- NET ASSETS (100%) ............................................... $ 60,157 ======== NET ASSETS CONSIST OF: Paid in Capital ................................................. $93,679 Distributions In Excess of Net Investment Loss .................. (617) Accumulated Net Realized Loss ................................... (36,920) Unrealized Appreciation on Investments and Foreign Currency Translations ......................................... 4,015 -------- NET ASSETS ...................................................... $ 60,157 ======== CLASS A: - -------- NET ASSETS ...................................................... $ 56,306 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 7,388,302 outstanding $0.001 par value shares (authorized 500,000,000 shares) .............................. $ 7.62 ======== CLASS B: - -------- NET ASSETS ...................................................... $ 3,851 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 510,449 outstanding $0.001 par value shares (authorized 500,000,000 shares) ............................. $ 7.54 ========
- ---------------------------- (a) -- Non-income producing security (f) -- The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Japanese Equity Portfolio 70 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ LATIN AMERICAN PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------ Brazil (45.8%) Mexico (39.1%) Chile (5.6%) Argentina (3.1%) Venezuela (1.3%) Columbia (0.3%) Other (4.8%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------- [GRAPH]
MSCI Emerging Latin American Markets Free Portfolio- Latin American Class A Index (1) -------------- -------------- 1995 $500,000 $500,000 1996 -------- -------- 1997 -------- -------- 1998 -------- -------- 1999 -------- -------- 2000 $866,326 $659,428
* Commenced operations on January 18, 1995 ** Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS FREE LATIN AMERICA INDEX(1) - ------------------------------------------------------------------------------
TOTAL RETURNS(2) ----------------------------- AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION ------- ------- --------- PORTFOLIO -- CLASS A ........... -16.21% 13.64% 9.67% PORTFOLIO -- CLASS B ........... -16.42 N/A 12.51 INDEX-CLASS A .................. -16.57 6.69 4.18 INDEX-CLASS B .................. -16.57 N/A 6.19
1. The MSCI Emerging Markets Free Latin America Index is a broad based market cap weighted composite index covering at least 60% of markets in Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela. The Index takes into account local market restrictions for specific securities or classes of shares that may be excluded from or limited for foreign investor ownership. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The investment objective of the Latin American Portfolio is long-term capital appreciation through investment primarily in growth-oriented equity securities of Latin American issuers. The Portfolio may also invest in debt securities issued or guaranteed by a Latin American government or governmental entity. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign invest-ments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of - -16.21% for the Class A shares and -16.42% for the Class B shares compared to - -16.57% for the Morgan Stanley Capital International (MSCI) Emerging Markets Free Latin America Index (the "Index"). For the five-year period ended December 31, 2000, the Portfolio had a total return of 13.64% for the Class A shares compared to 6.69% for the Index. For the period from inception on January 18, 1995 through December 31, 2000, the average annual total return of Class A shares was 9.67% compared to 4.18% for the Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return of Class B shares was 12.51% compared to 6.19% for the Index. Both stock selection and country allocation contributed to the Portfolio's outperformance. Equity selection in Brazil contributed markedly to relative performance. Our overweight position in Brazil (index return, -11.4%) and our allocation to Mexico (-20.5%) coupled with our underweight stance in Argentina (-25.1%) and Colombia (-38.9%) added to relative performance. Stock selection in Chile, Mexico and Venezuela detracted from performance, as did our underweight stance in Chile (-15.1%). Latin American markets advanced during the early part of 2000 as investors rewarded continued macroeconomic improvements in the region and steps towards increasing fiscal responsibility. However, many first quarter gains reversed during the second quarter, amidst the backdrop of increasing volatility in the developed markets. Latin American markets fell as the region's positive economic fundamentals were overshadowed by investor concerns over - ------------------------------------------------------------------------------ CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS MEASURED BY THE MSCI EMERGING MARKETS COUNTRY OR REGIONAL INDICES, ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------ Latin American Portfolio 71 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ LATIN AMERICAN PORTFOLIO (CONT.) higher U.S. interest rates and tighter global liquidity. The markets rebounded towards the end of the second quarter as good U.S. economic numbers allayed investor concerns surrounding inflation and necessary interest rate hikes. During the third quarter, however, Latin American markets fell, driven in part by uncertainty over the path of U.S. economic growth and increased volatility in the NASDAQ. Latin American monetary policy diverged during the third quarter, as the trend in interest rates diverged -- Mexican market-driven interest rates rose while central banks cut rates in Brazil and Chile. Political highlights included Vicente Fox's victory in Mexico's presidential election and President Fujimori's call for new elections in Peru. The markets fell during the fourth quarter of 2000, weighed down by continued fears of a sharp economic slowdown in the U.S., high levels of volatility in the NASDAQ and concerns over Argentina's ability to rollover its debt. The prolonged uncertainty over the outcome of the U.S. presidential election, combined with multiple and frequent profit warnings in the U.S., further dampened sentiment toward the markets. There were also, however, encouraging signs of political and macroeconomic improvements during the quarter. Mexico's new president comforted the market with the formation of a credible cabinet and sensible economic policy announcements, while Brazil's government demonstrated continued fiscal discipline, and Chile showed signs of re-accelerating economic growth. Brazilian equities declined during the fourth quarter, hurt by Argentina's tumultuous situation and a decreased global appetite for risk. However, positive macroeconomic signs - a declining jobless rate, increasing industrial production, and a higher-than-expected consolidated fiscal surplus - - continued to emerge. During November, Spain's Banco Santander Central-Hispano (BSCH) paid 7.1 billion real ($3.6 billion U.S.) for a 30% stake in the Brazilian bank Banespa, a significant premium over the asking price. The transaction should bring significant inflows, supporting Brazil's currency and also helping to avoid further concentration among the country's top three largest local banks. At December's monthly meeting, Brazil's Monetary Policy Committee (COPOM) lowered benchmark interest rates by 75 basis points which was more than market expectations. Despite the central bank's continued neutral stance on monetary policy, we believe rates may be reduced further in the near term given a supportive macroeconomic backdrop. We continue to overweight Brazil, where we believe the pace of economic reform should continue in 2001, albeit at a much slower pace. We anticipate interest rate reductions in the near future based on the government's commitment to fiscal discipline and seemingly contained inflation. This should be the major catalyst to propel local equities and we believe the Brazilian market overall shall also fare well in the near term given the government's commitment to structural reforms, attractive valuations, falling interest rates and solid earnings growth. Mexican equities fell during the fourth quarter, weighed down by global market volatility coupled with Mexico's Central Bank tightening its monetary policy stance in November, citing inflationary pressures. Equities were buoyed earlier in the quarter by better-than-expected retail sales and overall supportive corporate earnings results. Private consumption reached its highest level in the last 30 years, and industrial production and manufacturing activity both increased in October. President-elect Vicente Fox named his cabinet members, generally perceived as market-friendly, at the end of November. He assumed presidency in December, in Mexico's first democratic transfer of power between political parties since 1929. We correctly maintain our overweight stance in Mexican equities and we believe the Mexican economy should continue to do well in 2001. We are encouraged by the new administration's proposed economic policies and its commitment to structural reform. Mexico, however, is relatively more exposed than other Latin countries to a slowdown in the U.S. and to falling oil prices. Even though we have a positive outlook, these factors may weigh on equity performance in the short term. A sharp drop in U.S. demand for Mexican exports, coupled with continued strong domestic demand, may lead to a deterioration in the balance of payments and potential currency weakness. During the fourth quarter, Argentine equities declined, driven by heightened concerns over its ability to meet debt payments and the economy's poor growth prospects. In October, the political crisis within the government's coalition deepened following President de la Rua's reshuffling of his Cabinet. The changes, which resulted from corruption allegations involving some ministers, heightened investor concerns. By mid-December, some investor skittishness was allayed when the Argentine government announced it would receive a larger-than-expected package of emergency credit over the next three years from multilateral organizations, local banks, and pension funds. We expect to maintain an underweight position in this market as we believe equities shall be weighed down by currently lackluster growth prospects in the near term and Argentina's large external financing needs make it particularly vulnerable to the global environment and liquidity in capital markets. - ------------------------------------------------------------------------------ Latin American Portfolio 72 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ LATIN AMERICAN PORTFOLIO (CONT.) The Chilean market fell, yet equities gained some support during the fourth quarter from indications confirming a reacceleration in economic activity. GDP for the first three quarters of 2000 rose higher than expected at 5.8%, and the trade balance turned from a surplus in October to a deficit in November. As expected, the Central Bank left interest rates unchanged at its monthly policy meeting in December. Although Chilean equities are defensive in down markets, they remain illiquid, and we currently maintain our underweight in this market. In Peru, equities were driven down during the fourth quarter by political turmoil as Congress rejected President Fujimori's resignation on November 20 and ousted him for "moral unfitness," barring him permanently from holding any public post in the future. In December, Moody's downgraded Peru's sovereign debt outlook from neutral to negative, and we are underweight based on lackluster growth prospects in the near term. Venezuelan equities fell during the fourth quarter, yet Venezuela was the best performing market in the region for the year 2000, advancing modestly. High oil prices during 2000 have helped Venezuela's economic perspectives and provided flexibility for managing finances in the near term. We remain concerned about the political structure and the overall macroeconomic management by the government given this and the likely fall in oil back to long-term average increases and we maintain our underweight stance in this market. Latin American equities declined 16.6% for the year ended December 31, 2000, outperforming the other emerging markets regions. We believe equities in Brazil and Mexico present attractively valued investment opportunities that are enhanced by supportive macroeconomic backdrops. We believe equities in these markets shall fare well in the near term given a more benign global backdrop and a supportive macroeconomic environment. Over the medium to longer term, we anticipate equities in Argentina and Chile may gain support should there be a longer-term improvement in growth prospects. Robert L. Meyer PORTFOLIO MANAGER Michael L. Perl PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------ Latin American Portfolio 73 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ LATIN AMERICAN PORTFOLIO
VALUE SHARES (000) - ------------------------------------------------------------------------------ COMMON STOCKS (95.2%) ARGENTINA (3.1%) (a)11,316 Acindar, Class B .................................... $ 9 2,230 Banco Frances ADR ................................... 47 (a)3,085 Grupo Financiero Galicia S.A. ....................... 46 (a)2,471 Irsa Inversiones y Representaciones S.A. ............ 41 30,005 Quilmes Industrial ADR .............................. 270 5,600 Siderar, Class A .................................... 14 25,742 Telecom Argentina ADR ............................... 404 ------ 831 ------ BRAZIL (45.8%) 18,626 Aracruz Celulose ADR ................................ 278 47,633,342 Banco Bradesco (Preferred) .......................... 342 (d)47,633,342 Banco Bradesco (Preferred) .......................... 6 8,700 Banco Bradesco ADR (Preferred) ...................... 63 7,930,650 Banco Itau (Preferred) .............................. 752 (a)(d)11,847,000 Banco Nacional (Preferred)........................... -- 4,000 Brasil Telecom Participacoes S.A. ................... 236 22,734,400 Brazil Telecom S.A. ................................. 193 (a)1,342,559 Celular CRT ......................................... 434 8,804,386 CEMIG (Preferred) ................................... 127 8,894 CEMIG ADR (Preferred) ............................... 129 (e)1,275 CEMIG ADR (Preferred) ............................... 18 916,000 Cia de Bebidas das Americas ......................... 221 8,810,000 Cia Siderurgica Nacional ............................ 281 700 Cia Siderurgica Nacional ADR ........................ 23 24,636 Companhia de Bebidas das Americas ADR ............... 634 (a)657,677 Companhia Riograndense de Telecomunicacoes (Preferred) 265 10,049 Copel ADR (Preferred) ............................... 85 31,455,880 Copel, Class B ADR (Preferred) ...................... 255 (a)5,000 CVRD ................................................ 119 (a)34,986 CVRD (Bonus Shares).................................. -- (a)6,545 CVRD ADR (Preferred) ................................ 161 (a)23,183 CVRD, Class A (Preferred) ........................... 565 38,367,061 Electrobras, Class B (Preferred) .................... 709 3,322,350 Eletrobras .......................................... 61 1,370 Eletrobras ADR ...................................... 13 450 Eletrobras, Class B ADR (Preferred) ................. 4 8,592,800 Embratel ............................................ 131 23,125 Embratel ADR ........................................ 363 11,300 Empresa Brasileira de Aeronautica S.A., ADR ......... 449 25,469,864 Gerdau (Preferred) .................................. 233 254,890 Itausa-Investimentos Itau S.A. (Preferred) .......... 252 (a)(d)10,009,300 Lojas Arapua (Preferred)............................. -- (a)(d)(e)13,460 Lojas Arapua ADR (Preferred)......................... -- 16,738 Petrobras (Preferred) ............................... 393 5,800 Petrobras ADR (Preferred) ........................... 136 6,044 Petroleo Brasileiro S.A. ............................ 150 (a)38,950 Petroleo Brasileiro S.A. ............................ 984 1,629,000 SAB ESP ............................................. 145 2,570,632 Tele Centro Sul (Preferred) ......................... 30 (a)106,582,473 Tele Leste Celular (Preferred) ...................... 71 1,350 Tele Leste Celular ADR .............................. 47 10,886,600 Tele Nordeste Celular Participacoes (Preferred) ......................................... 22 (a)250 Tele Nordeste Celular Participacoes S.A. ADR ........ 10 50,026,900 Tele Norte Celular (Preferred) ...................... 33 1,300 Tele Norte Celular S.A. ADR ......................... 44 6,969,812 Tele Norte Leste (Preferred) ........................ 150 39,806 Tele Norte Leste ADR ................................ 908 7,615 Telebras ADR (Preferred) ............................ 555 19,140 Telesp Celular ...................................... 517 267,883 Telesp Celular (Preferred) .......................... 3 12,035 Unibanco GDR (Preferred) ............................ 354 (e)1,400 Usiminas ............................................ 6 20,884 Usiminas (Preferred) ................................ 94 (a)7,840 Votorantim Celulose e Papel S.A. .................... 109 ------ 12,163 ------ CHILE (5.6%) (a)13,818 Banco Edwards ADR ................................... 186 1,170 Banco Santander ADR ................................. 18 3,703 Banco Santiago ADR .................................. 72 11,794 CCU ADR ............................................. 254 (a)25,919 Cia. de Telecomunicaciones de Chile ADR ............. 342 7,521 D&S ADR ............................................. 131 (a)6,785 Endesa ADR .......................................... 74 (a)16,096 Enersis ADR ......................................... 284 12,019 Quinenco ADR ........................................ 83 5,272 Santa Isabel ADR .................................... 33 ------ 1,477 ------ COLOMBIA (0.3%) (a)14,300 Banco Ganadero ADR .................................. 45 9,010 Bavaria ............................................. 26 ------ 71 ------ MEXICO (39.1%) 222,499 Alfa, Class A ....................................... 299 (a)617,361 Bancomer, Class O ................................... 342 (a)105,093 Banorte, Class O .................................... 142 (a)181,936 Carso Global Telecom ................................ 344 (a)50,184 Carso, Class A1 ..................................... 124 45,764 Cemex CPO ADR ....................................... 827 49,372 Cemex S.A. .......................................... 179 44,372 Corporacion Interamericana de Entretenimiento S.A. 182 (a)18,797 Empresas ICA ADR .................................... 20 (a)56,588 Empresas ICA S.A. ................................... 11 27,195 Femsa ADR ........................................... 812 (a)151,800 Grupo Aeroportuario del Sureste S.A. de C.V. ........ 245 (a)8,250 Grupo Aeroportuario del Sureste S.A. de C.V., ADR ... 137 (a)696,733 Grupo Financiero Banamex Accival S.A. ............... 1,139
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Latin American Portfolio 74 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ LATIN AMERICAN PORTFOLIO (CONT.)
VALUE SHARES (000) - ------------------------------------------------------------------------------ MEXICO (CONT.) 19,669 Grupo Industrial Bimbo, Class A ..................... $ 28 33,820 Grupo Mexico S.A., Class B .......................... 102 82,214 Grupo Modelo, Class C ............................... 210 144,162 Kimberly-Clark, Class A ............................. 399 5,950 Panamerican Beverages, Inc., Class A ................ 84 (a)3,400 Pepsi-Gemex S.A. .................................... 15 8,799 Tamsa ADR ........................................... 126 (a)16,104 Televisa CPO GDR .................................... 724 67,523 Telmex, Class L ADR ................................. 3,047 13,323 Vitro ADR ........................................... 32 (a)980 Walmart de Mexico ADR ............................... 20 (a)101,300 Walmart de Mexico, Class C .......................... 187 (a)298,053 Walmart de Mexico, Class V .......................... 592 ------ 10,369 ------ UNITED STATES (0.0%) (a)6,900 StarMedia Network, Inc. ............................. 13 ------ VENEZUELA (1.3%) 18,208 CANTV ADR ........................................... 345 ------ TOTAL COMMON STOCKS (Cost $29,008) .................................... 25,269 ------ TOTAL FOREIGN SECURITIES (95.2%) (Cost $29,008) ....................... 25,269 ------ FACE AMOUNT (000) - ------ SHORT-TERM INVESTMENT (2.1%) REPURCHASE AGREEMENT (2.1%) $ (f)546 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $546) ................................ 546 ------ FOREIGN CURRENCY (1.9%) ARP 1 Argentine Peso ....................................... 1 BRL 12 Brazilian Real ...................................... 6 MXN 4,881 Mexican Peso ..................................... 508 ------ TOTAL FOREIGN CURRENCY (Cost $514) .................................... 515 ------ TOTAL INVESTMENTS (99.2%) (COST $30,068) .............................. 26,330 ------ VALUE (000) - ------------------------------------------------------------------------------ OTHER ASSETS (2.8%) Cash .................................................. $ 1 Receivable for Investments Sold ....................... 704 Dividends Receivable .................................. 51 Other ................................................. 1 $ 757 ------ LIABILITIES (-2.0%) Payable for Investments Purchased ..................... (414) Investment Advisory Fees Payable ...................... (69) Custodian Fees Payable ................................ (16) Administrative Fees Payable ........................... (6) Directors' Fees and Expenses Payable .................. (4) Distribution Fees Payable ............................. (2) Net Unrealized Loss on Foreign Currency Exchange Contracts .................................. (1) Other Liabilities ..................................... (32) (544) ------ -------- NET ASSETS (100%)................................................... $ 26,543 ======== NET ASSETS CONSIST OF: Paid in Capital .................................................... $ 52,688 Accumulated Net Investment Loss .................................... (9) Accumulated Net Realized Loss ...................................... (22,398) Unrealized Depreciation on Investments and Foreign Currency Translations .................................... (3,738) -------- NET ASSETS (100%)................................................... $ 26,543 ======== CLASS A: - -------- NET ASSETS ......................................................... $ 25,403 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 2,714,355 outstanding $0.001 par value shares (authorized 500,000,000 shares)............................ $ 9.36 ======== CLASS B: - -------- NET ASSETS ......................................................... $ 1,140 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 121,656 outstanding $0.001 par value shares (authorized 500,000,000 shares)............................ $ 9.37 ========
- ------------------------------------------------------------------------------ (a) -- Non-income producing (d) -- Security valued at fair value -- See Note A-1 to financial statements. (e) -- 144A Security -- certain conditions for public sale may exist. (f) -- The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. ADR -- American Depositary Receipt GDR -- Global Depositary Receipt The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Latin American Portfolio 75 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ LATIN AMERICAN PORTFOLIO (CONT.) SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
VALUE PERCENT OF SECTOR (000) NET ASSETS - ----------------------------------------------------------- Consumer Discretionary ........... $ 1,704 6.4% Consumer Staples ................. 2,720 10.3 Energy ........................... 1,789 6.7 Financials ....................... 3,595 13.5 Industrials ...................... 1,621 6.1 Information Technology ........... 13 0.1 Materials ........................ 3,431 12.9 Telecommunication Services ....... 8,492 32.0 Utilities ........................ 1,904 7.2 ------- ----- $25,269 95.2% ======= =====
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at December 31, 2000, the Portfolio is obligated to deliver foreign currency in exchange for U.S. dollars as indicated below:
CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE (LOSS) (000) (000) DATE (000) (000) (000) - ------------------------ ------ ---------- --------------------- ------ ------------- BRL 142 $ 73 1/02/01 U.S.$ 72 $ 72 $(1) BRL 419 215 1/04/01 U.S.$ 215 215 -- MXN 4,803 500 1/02/01 U.S.$ 500 500 -- ---- ---- --- $788 $787 $(1) ==== ==== ====
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Latin American Portfolio 76 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- EQUITY GROWTH PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------- [CHART] Information Technology (31.2%) Industrials (19.8%) Health Care (17.7%) Consumer Discretionary (10.5%) Financials (10.0%) Consumer Staples (5.7%) Telecommunications Services (3.1%) Other (2.0%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - --------------------------------------------- [GRAPH]
Equity Growth Portfolio- S&P 500 Class A Index (1) ------------- ---------- 1991 $ 500,000 $ 500,000 10/31/92 ---------- ---------- 12/31/92 ---------- ---------- 1993 ---------- ---------- 1994 ---------- ---------- 1995 ---------- ---------- 1996 ---------- ---------- 1997 ---------- ---------- 1998 ---------- ---------- 1999 ---------- ---------- 2000 $2,387,033 $2,179,391
* Commenced operations on April 2, 1991 ** Minimum Investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE S&P 500 INDEX(1) - --------------------------------------------------------------------------------
TOTAL RETURNS(2) -------------------------------- AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION ------- ------- --------- PORTFOLIO -- CLASS A -11.78% 20.37% 17.38% PORTFOLIO -- CLASS B -12.01 N/A 19.95 INDEX -- CLASS A -9.12 18.32 16.06 INDEX -- CLASS B -9.12 N/A 18.16
1. The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies with market capitalization of $1 billion or more. These 500 companies represent approximately 100 industries chosen mainly for market size, liquidity and industry group representation. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The Equity Growth Portfolio seeks long-term capital appreciation by investing primarily in equity securities of U.S. and to a limited extent foreign companies that exhibit strong or accelerative earnings growth. For the year ended December 31, 2000, the Portfolio had a total return of - -11.78% for the Class A shares and -12.01% for the Class B shares compared to - -9.12% for the S&P 500 Index (the "Index"). For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was 20.37% compared to 18.32% for the Index. For the period from inception on April 2, 1991 through December 31, 2000, the average annual total return for Class A shares was 17.38% compared to 16.06% for the Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 19.95% compared to 18.16% for the Index. Records were set at the dawn of the new millennium (depending on who's counting) although 2000's records were in the opposite direction of 1999's sterling performances. The S&P 500 Index declined 9.12%, the worst year since 1977, the Dow Jones fell 4.67%, its worst performance since 1981 and NASDAQ had its worst year ever, losing 39.29%. In many respects, reviewing the year just completed is a mirror image of the prior year, and the wrong side of the mirror. This was a challenging environment for most investors and an especially humbling one for growth managers. Alas, most value managers were able to finally savor the sweet taste of outperformance. The Russell 1000 Growth Index fell 22.43%, while the Russell 1000 Value Index advanced 7.01%. The robust first quarter seemed like a continuation of 1999's end of millennium party. However, as the year progressed, a number of economic and market forces picked up steam, with negative implications for earnings and future growth prospects. Starting with rising interest rates and followed by rapidly rising oil prices, other alarming macroeconomic events included a sharply declining euro and heightened tensions in the Middle East. There were early warnings around earnings disappointments from companies such as Lucent and Intel, which continued and picked up momentum in the second half of the year. The fourth quarter was marked by - -------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - -------------------------------------------------------------------------------- Equity Growth Portfolio 77 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- EQUITY GROWTH PORTFOLIO (CONT.) uncertainty surrounding the outcome of the U.S. Presidential election and the increasing evidence of a slowdown in economic growth, combined with the uncertainty about the near-term outlook for many companies. This backdrop was particularly unfavorable for the technology sector and benefited value-oriented sectors such as finance, utilities and energy. The Portfolio was impacted by many of the same forces that negatively impacted its growth fund peers and the growth index averages. These forces included the underperformance of technology as well as the outperformance of the financial, utility and energy sectors as investors shifted to a more defensive posture, areas where we are traditionally underweight consistent with our philosophy and charter as a growth manager. In addition, a combination of relative underperformance in consumer staples and cyclicals and an overweight in technology (which by year-end had registered the most severe declines) were offset by relatively strong performance in healthcare and capital goods, both of which the Portfolio was overweight for most of the year. Exposure to media stocks such as Liberty Media, Time Warner and Clear Channel detracted from performance as concerns heightened about declining advertising revenue in the wake of dot com failures and a slowing economy. Investments in more traditional staples stocks such as Philip Morris, Safeway, Pepsi, Quaker, Budweiser and Keebler contributed to performance but did not offset this weakness. Exposure to retailers such as Home Depot, and Costco detracted from performance as these stocks as a group were hurt by a slowdown in consumer spending and higher labor costs. We entered 2000 at a slight overweight in technology relative to the S&P 500 Index and underweight to our growth peers. We reduced our position to about a market weight during the first quarter based on our sensitivity to the group's rich valuations and our belief that the lofty multiples assigned to most of the technology sector could not continue to expand at the pace witnessed in 1999, particularly in the largest cap names. This proved to be a prudent decision, particularly during the March to May sell- off in technology (when the NASDAQ declined 40% from its March high to its May low). We were buyers on weakness throughout the balance of the year, and the Portfolio was modestly overweight technology as measured by the S&P 500, but materially underweight the growth indexes at year-end. The technology sector's 39% decline was the biggest detractor to Portfolio performance in 2000. Leading companies such as Microsoft, Nortel and Lucent, which led the market on the way up in 1999 were among the biggest detractors to relative performance in 2000. We continue to believe that over the long-term the technology sector will generate higher earnings growth rates than most other areas of the economy and that the benefits from productivity enhancements afforded by technology advancements will be positive for the overall economy. Despite the volatility, we want the Portfolio to be positioned to participate in that growth. We maintained an overweight in industrials, emphasizing high quality diversified conglomerates such as Tyco, General Electric and United Technologies, which at year- end represented roughly 16% of the Portfolio. These three stocks were members of the top ten holdings throughout the year, and each was a strong relative performance contributor. Tyco is especially notable as it was the strongest relative performance contributor after suffering severe declines in the fourth quarter of 1999. These holdings are representative of our willingness to look for growth in less traditional names and their strong performance provided a buffer to weaker areas of the Portfolio, particularly in the fourth quarter. Tyco continues to be a steady favorite especially in this challenging environment. While the quality of the management and company fundamentals have come through, we still believe the stock is under appreciated. The clean bill of health the SEC gave Tyco gives us further confidence in the quality of this company. The growth of the underlying free cash flow continues to be stellar. Strategic accretive acquisitions continue to add value and prove out management's adept use of capital. With continued fundamental outperformance by the company in 2001, we expect the stock to outperform. United Technology remains a top ten holding. United Technology is a unique diversified quality growth company with global franchises such as OTIS Elevator, Carrier Air Conditioning and Pratt &Whitney Aircraft Engines. A strong stockholder- oriented management along with secular margin upside and strong cash flows all combine to provide likely continued outperformance in the year ahead. This "old economy" company continues to be innovative in e-commerce initiatives and strategic planning as evidenced by investments in such business opportunities such as their emerging fuel cell/ distributed power business. Prudent capital deployment in stock buybacks and accretive acquisitions enhances the sustainability of this 15% plus annual earnings growth company. Healthcare was another bright spot, as we maintained an overweight position (average of 14% of the Portfolio) in the sector for most of the year and stock selection was superior to the Index sector return. We increased our commitment to the sector early in the year based on the group's increas- ingly attractive relative earnings growth rates, and our belief that Federal Reserve interest rate increases would slow the - ------------------------------------------------------------------------------- Equity Growth Portfolio 78 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- EQUITY GROWTH PORTFOLIO (CONT.) economy, forcing investors to turn toward more stable growing companies such as the large pharmaceuticals, in- cluding Pfizer, American Home Products, Pharmacia and Bristol Myers. This proved to be correct, and effective trad- ing around election-cycle volatility added to performance. Pfizer (largely inherited from our Warner Lambert position) remains a core holding of the Portfolio and our favorite large-cap pharmaceutical stock. Expected synergies related to its acquisition of Warner Lambert and continued excell- ent prescription growth of its major in-line drugs led to 42% appreciation in 2000, better than the average 38% gain of its peers. If not for a dearth of pipeline news flow and the negative impact of wholesaler inventory destocking on reported top-line growth, relative performance would have been even better, in our view. In 2001, Pfizer's stock price should be a big beneficiary of an accelerating top line growth rate, continued Warner Lambert related cost redu- ctions, the launches of new drugs such as Zeldox (schizo-phrenia), Relpax (migraine headaches), and VFend (anti- fungal), and the likely FDA filings of Pregabalin (epilepsy and pain), Valdocoxib (arthritis), and inhaled insulin (diabetes). We also expect the company to an-nounce at least one agreement to co-promote another manufacturer's drug. Finally, unlike many of its peers, none of Pfizer's major drugs are scheduled to go off-patent through 2003. Freddie Mac, a newer position within the Portfolio, continues to achieve mid-teen, high quality earnings growth despite a volatile political and market environment. The company's success in delivering an earnings stream that is both predictable and sustainable stems from its innovation and strict adherence to its core principals. For instance, the development and implementation of a complete set of "plug-n-play" mortgage tools on the Internet are aimed at broadening the market for eligible loans and enhancing the management of credit risk. The company's focus on long- term value creation (not short-term gains) has led to the use of credit enhancements as well as sophisticated hedging strategies in order to reduce exposure to economic cycles. Freddie Mac again showed exceptional skill this year in managing its interest rate risk in a tough market environment. The company's short-term business fundamentals appear to have great momentum. With the current market environment concerned about credit quality, Freddie Mac enjoys a "safe haven" status. The increasing possibility of a "refinancing boom" stemming from the downward move in mortgage rates is another positive. Finally, our concentration in the top ten holdings, which were 47% at year-end versus 17.18% of the S&P 500, provided a positive element to performance. The top 10 holdings continue to be well diversified by sector and contain classic growth names such as Pfizer, Cisco and Microsoft as well as less traditional names such as Tyco, United Technologies, Verizon Communications, Citigroup and Bank of New York. After failing to lower interest rates at the December 2000 meeting, the Fed did lower interest rates early in January, notable both for doing so on a conference call rather than waiting for a regularly scheduled meeting, and for moving rates down 50 basis points instead of the more typical 25 basis point increment. The move toward lower interest rates should eventually be positive for many of the more eco- nomically sensitive groups of stocks. However, with many of those companies just now beginning to adjust business plans and earnings targets to the reality of a slower eco- nomy, the challenge facing investors is whether to buy these stocks now, or wait until earnings estimates have bottomed and the impact of recent and likely future interest rate cuts begin to result in a reacceleration of economic activity. We continue to take a balanced and incremental approach to managing the Portfolio and will take advantage of the opportunities that volatility creates. For example, we have added exposure to a classic financial growth company, Freddie Mac, which is expected to benefit from the likely refinancing boom resulting from the significant decline in mortgage rates. Despite these attractive fundamentals, the stock fell 15% following the Fed announcement as investors fled defensive names to participate in the ensuing rally in technology. To a lesser extent, the GSEs (Government- Sponsored Enterprises) were further impacted by the rebalancing among financials as investors, previously concerned about credit quality at the banks and weakness at the brokerages, suddenly returned to these markets. We view the decline in the price of Freddie Mac as a temporary condition, resulting from the flow of funds led by "hot money" into higher beta assets. We believe the economy will be weaker in the early part of 2001, setting the stage for a much stronger climate later in 2001 and into 2002. We see the catalysts of further Fed easing, a weakened dollar due to lower interest rates and lower economic growth in the U.S., lower oil prices and possible global tax cuts due to strong worldwide government surpluses as the backdrop for future growth. These factors create a favorable environment for equities, and large cap growth stocks in particular. Philip W. Friedman PORTFOLIO MANAGER William S. Auslander PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------- Equity Growth Portfolio 79 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- EQUITY GROWTH PORTFOLIO - -------------------------------------------------------------------------------
VALUE SHARES (000) - -------------------------------------------------------------------------------- COMMON STOCKS (98.0%) CONSUMER DISCRETIONARY (10.5%) MEDIA (5.6%) (a)1,392,000 AT&T Corp., Liberty Media Group, Class A-Common ................................ $ 18,879 (a)63,500 Comcast Corp., Class A-Common ................... 2,623 (a)272,200 Comcast Corp., Class A-Special .................. 11,364 (a)639,100 General Motors Corp., Class H ................... 14,699 30,400 Omnicom Group, Inc. ............................. 2,520 363,300 Time Warner, Inc. ............................... 18,979 ---------- 69,064 ---------- MULTILINE RETAIL (2.5%) (a)216,600 Dollar Tree Stores, Inc. ........................ 5,307 475,100 Wal-Mart Stores, Inc. ........................... 25,239 ---------- 30,546 ---------- SPECIALTY RETAIL (2.4%) 380,800 Home Depot, Inc. ................................ 17,398 489,600 The Limited, Inc. ............................... 8,354 145,200 Tiffany & Co. ................................... 4,592 ---------- 30,344 ---------- TOTAL CONSUMER DISCRETIONARY .................................... 129,954 ---------- CONSUMER STAPLES (5.7%) BEVERAGES (2.8%) 433,800 Anheuser Busch Cos., Inc. ....................... 19,738 48,900 Coca Cola Co. ................................... 2,980 251,500 PepsiCo, Inc. ................................... 12,465 ---------- 35,183 ---------- FOOD & DRUG RETAILING (1.0%) (a)209,600 Safeway, Inc. ................................... 13,100 ---------- FOOD PRODUCTS (0.6%) 72,400 Quaker Oats Co. ................................. 7,050 ---------- HOUSEHOLD PRODUCTS (0.9%) 139,900 Procter & Gamble Co. ............................ 10,973 ---------- TOBACCO (0.4%) 105,400 Philip Morris Cos., Inc. ........................ 4,638 ---------- TOTAL CONSUMER STAPLES 70,944 ---------- FINANCIALS (10.0%) BANKS (3.0%) 475,600 Bank of New York Co., Inc. ...................... 26,247 300,700 Fleet Boston Financial, Corp. ................... 11,295 ---------- 37,542 ---------- DIVERSIFIED FINANCIALS (5.4%) 188,600 American Express Co. ............................ 10,361 578,066 Citigroup, Inc. ................................. 29,517 384,300 Federal Home Loan Mortgage Corp. ................ 26,469 ---------- 66,347 ---------- INSURANCE (1.6%) 202,800 American International Group, Inc. .............. 19,989 ---------- TOTAL FINANCIALS ................................................ 123,878 ---------- HEALTH CARE (17.7%) BIOTECHNOLOGY (1.4%) (a)91,150 Amgen, Inc. ..................................... 5,828 (a)42,000 CuraGen Corp. ................................... 1,147 (a)69,900 Genentech, Inc. ................................. 5,697 (a)28,000 Invitrogen Corp. ................................ 2,418 (a)83,900 Tularik, Inc. ................................... 2,470 ---------- 17,560 ---------- HEALTH CARE EQUIPMENT & SUPPLIES 1.4%) 62,900 Applera Corp. - Applied Biosystems Group ........ 5,917 195,600 Medtronic, Inc. ................................. 11,809 ---------- 17,726 ---------- HEALTH CARE PROVIDERS & SERVICES (0.7%) 188,600 HCA - The Healthcare Company .................... 8,301 ---------- PHARMACEUTICALS (14.2%) (a)121,800 Abbott Laboratories ............................. 5,900 426,200 American Home Products Corp. .................... 27,085 251,800 Bristol-Myers Squibb Co. ........................ 18,617 42,000 Eli Lilly & Co. ................................. 3,909 97,900 Johnson & Johnson ............................... 10,286 188,800 Merck & Co., Inc. ............................... 17,676 1,530,100 Pfizer, Inc. .................................... 70,384 346,289 Pharmacia Corp. ................................. 21,124 ---------- 174,981 ---------- TOTAL HEALTH CARE ............................................... 218,568 ---------- INDUSTRIALS (19.8%) AEROSPACE & DEFENSE (6.4%) 328,700 General Dynamics Corp. .......................... 25,638 681,500 United Technologies Corp. ....................... 53,583 ---------- 79,221 ---------- INDUSTRIAL CONGLOMERATES (13.4%) 1,404,300 General Electric Co. ............................ 67,319 41,400 Textron, Inc. ................................... 1,925 1,732,700 Tyco International Ltd. ......................... 96,165 ---------- 165,409 ---------- TOTAL INDUSTRIALS ............................................... 244,630 ---------- INFORMATION TECHNOLOGY (31.2%) COMMUNICATIONS EQUIPMENT (12.1%) (a)629,300 American Tower Corp., Class A ................... 23,835 (a)97,900 CIENA Corp. ..................................... 7,967 (a)1,309,300 Cisco Systems, Inc. ............................. 50,081 160,900 Corning, Inc. ................................... 8,497 (a)419,200 Crown Castle International Corp. ................ 11,345 (a)197,900 Efficient Networks, Inc. ........................ 2,820 (a)137,500 JDS Uniphase Corp. .............................. 5,732 (a)62,900 Juniper Networks, Inc. .......................... 7,929 156,100 Nokia Corp. ..................................... 6,790 245,700 Nortel Networks Corp. ........................... 7,878 (a)35,000 SBA Communications Corp. ........................ 1,437 251,500 Scientific-Atlanta, Inc. ........................ 8,189 (a)384,500 Spectrasite Holdings, Inc. ...................... 5,095 (a)90,900 TyCom Ltd. ...................................... 2,034 ---------- 149,629 ---------- COMPUTERS & PERIPHERALS (5.0%) 600,900 Compaq Computer Corp. ........................... 9,044 The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Equity Growth Portfolio 80 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- EQUITY GROWTH PORTFOLIO - ------------------------------------------------------------------------------- VALUE SHARES (000) - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (cont.) COMPUTERS & PERIPHERALS (cont.) (a)237,800 EMC Corp. ....................................... $ 15,814 202,600 Hewlett Packard Co. ............................. 6,395 161,600 International Business Machines Corp. ........... 13,736 (a)160,700 StorageNetworks, Inc. ........................... 3,987 (a)482,100 Sun Microsystems, Inc. .......................... 13,438 ---------- 62,414 ---------- ELECTRONIC EQUIPMENT & INSTRUMENTS (1.4%) (a)195,600 Jabil Circuit, Inc. ............................. 4,963 (a)153,700 Sanmina Corp. ................................... 11,777 ---------- 16,740 ---------- INTERNET SOFTWARE & SERVICES (0.1%) (a)21,000 VeriSign, Inc. .................................. 1,558 ---------- SEMICONDUCTOR EQUIPMENT & PRODUCTS (6.4%) (a)83,900 Analog Devices, Inc. ............................ 4,295 (a)50,800 Applied Materials, Inc. ......................... 1,940 (a)63,100 Broadcom Corp., Class A ......................... 5,332 880,300 Intel Corp. ..................................... 26,629 (a)209,600 Maxim Integrated Products, Inc. ................. 10,021 (a)37,400 PMC-Sierra, Inc. ................................ 2,941 (a)83,900 QLogic Corp. .................................... 6,460 378,300 Texas Instruments, Inc. ......................... 17,922 (a)77,700 TranSwitch Corp. ................................ 3,040 ---------- 78,580 ---------- SOFTWARE (6.2%) (a)42,600 BEA Systems, Inc. ............................... 2,868 (a)34,000 Brocade Communications Systems, Inc. ............ 3,122 76,900 i2 Technologies, Inc. ........................... 4,181 (a)149,800 Intuit, Inc. .................................... 5,908 (a)42,000 McDATA Corp. .................................... 2,299 (a)621,800 Microsoft Corp. ................................. 27,048 (a)713,400 Oracle Corp. .................................... 20,733 (a)126,193 VERITAS Software Corp. .......................... 11,042 ---------- 77,201 ---------- TOTAL INFORMATION TECHNOLOGY ................................... 386,122 ---------- TELECOMMUNICATION SERVICES (3.1%) DIVERSIFIED TELECOMMUNICATION SERVICES (3.1%) (a)99,600 Qwest Communications International, Inc. ....... 4,084 502,506 Verizon Communications, Inc. ................... 25,188 (a)614,800 Worldcom, Inc. ................................. 8,607 ---------- TOTAL TELECOMMUNICATION SERVICES ............................... 37,879 ---------- TOTAL COMMON STOCKS (Cost $1,035,847) .......................... 1,211,975 ---------- FACE AMOUNT (000) - ----------- SHORT-TERM INVESTMENT (2.6%) REPURCHASE AGREEMENT (2.6%) $ (f)32,689 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $32,689).......................... 32,689 ---------- VALUE (000) - ----------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.6%) (COST $1,068,536) ...... $1,244,664 ----------- OTHER ASSETS (0.9%) Cash ............................................ $6 Receivable for Investments Sold ................. 6,053 Receivable for Portfolio Shares Sold ............ 4,030 Dividends Receivable ............................ 654 Interest Receivable ............................. 15 Other ........................................... 45 10,803 ---------- LIABILITIES (-1.5%) Payable for Investments Purchased ............... (14,670) Investment Advisory Fees Payable ................ (2,052) Payable for Portfolio Shares Redeemed ........... (694) Distribution Fees Payable ....................... (227) Administrative Fees Payable ..................... (164) Directors' Fees and Expenses Payable ............ (69) Custodian Fees Payable .......................... (32) Other Liabilities ............................... (179) (18,087) ---------- ----------- NET ASSETS (100%) $1,237,380 =========== NET ASSETS CONSIST OF: Paid in Capital .................................. $1,060,193 Accumulated Net Investment Loss .................. (67) Accumulated Net Realized Gain .................... 1,125 Unrealized Appreciation on Investments and Foreign Currency Translations..................... 176,129 ----------- NET ASSETS (100%)................................. $1,237,380 =========== CLASS A: - -------- NET ASSETS ...................................................... $ 886,824 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 43,248,976 outstanding $0.001 par value shares (authorized 500,000,000 shares)..................... $ 20.51 ========== CLASS B: - -------- NET ASSETS ...................................................... $ 350,556 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 17,247,753 outstanding $0.001 par value shares (authorized 500,000,000 shares).................................. $ 20.32 ==========
- -------------------------------------------------------------------------------- (a) -- Non-income producing security. (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- Equity Growth Portfolio 81 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- FOCUS EQUITY PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------- [CHART] Information Technology (30.1%) Industrials (22.7%) Health Care (18.0%) Consumer Discretionary (11.1%) Financials (10.1%) Consumer Staples (3.9%) Telecommunications Service (3.4%) Other (0.7%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - --------------------------------------------- [GRAPH]
Focus Equity Portfolio- S&P 500 Class A Index (1) ------------ --------- 1995 $ 500,000 $ 500,000 1996 ---------- ---------- 1997 ---------- ---------- 1998 ---------- ---------- 1999 ---------- ---------- 2000 $1,979,551 $1,509,410
* Commenced operations on March 8, 1995 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. PERFORMANCE COMPARED TO THE S&P 500 INDEX AND THE LIPPER LARGE CAP GROWTH INDEX(1) - -------------------------------------------------------------------------------
TOTAL RETURNS(2) ---------------------------- AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION ------- ------- --------- PORTFOLIO -- CLASS A ............ -11.66% 22.89% 26.66% PORTFOLIO -- CLASS B ............ -11.89 N/A 22.45 S&P 500 INDEX -- CLASS A ........ -9.12 18.32 20.92 LIPPER LARGE CAP GROWTH INDEX - -- CLASS A ..................... -19.68 17.85 20.48 S&P 500 INDEX -- CLASS B ....... -9.12 N/A 18.16 LIPPER LARGE CAP GROWTH INDEX - -- CLASS B ..................... -19.68 N/A 17.82
1. The S&P 500 Index is an unmanaged stock index comprised of 500 large-cap U.S. companies with market capitalization of $1 billion or more. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The investment objective of the Focus Equity Portfolio is to seek capital appreciation through a concentrated, non- diversified portfolio of corporate equity securities. The Portfolio's concentration of its assets in a small number of issuers and its use of equity-linked securities will subject it to greater risks. For the year ended December 31, 2000, the Portfolio had a total return of - -11.66% for the Class A shares and -11.89% for the Class B shares compared to - -9.12% for the S&P 500 Index and -19.68% for the Lipper Large Cap Growth Index. For the five-year period ended December 31, 2000, the Portfolio had a total return of 22.89% for the Class A shares compared to 18.32% for the S&P 500 Index and 17.85% for the Lipper Large Cap Growth Index. For the period from inception on March 8, 1995 through December 31, 2000, the average annual total return for the Class A shares was 26.66% compared to 20.92% for the S&P 500 Index and 20.48% for the Lipper Large Cap Growth Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 22.45% compared to 18.16% for the S&P 500 Index and 17.82% for the Lipper Large Cap Growth Index. Records were set at the dawn of the new millennium (depending on who's counting) although 2000's records were in the opposite direction of 1999's sterling performances. The S&P 500 Index declined 9.12%, the worst year since 1977, the Dow Jones fell 4.67%, its worst performance since 1981 and NASDAQ had its worst year ever, losing 39.29%. In many respects, reviewing the year just completed is a mirror image of the prior year, and the wrong side of the mirror. This was a challenging environment for most investors and an especially humbling one for growth managers. Alas, most value managers were able to finally savor the sweet taste of outperformance. The Russell 1000 Growth Index fell 22.43%, while the Russell 1000 Value Index advanced 7.01%. The robust first quarter seemed like a continuation of 1999's end of millennium party. However, as the year progressed, a number of economic and market forces picked up steam, with negative implications for earnings and future growth prospects. Starting with rising interest rates and - ------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PORTFOLIO'S CONCENTRATION OF ITS ASSETS IN A SMALL NUMBER OF ISSUERS AND ITS USE OF EQUITY-LINKED SECURITIES WILL SUBJECT IT TO GREATER RISKS. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------- Focus Equity Portfolio 82 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- FOCUS EQUITY PORTFOLIO (CONT.) followed by rapidly rising oil prices, other alarming macroeconomic events included a sharply declining euro and heightened tensions in the Middle East. There were early warnings around earnings disappointments from companies such as Lucent and Intel, which continued and picked up momentum in the second half of the year. The fourth quarter was marked by uncertainty surrounding the outcome of the U.S. Presidential election and the increasing evidence of a slowdown in economic growth, combined with the uncertainty about the near-term outlook for many companies. This backdrop was particularly unfavorable for the technology sector and benefited value-oriented sectors such as finance, utilities and energy. The Portfolio was impacted by many of the same forces that negatively impacted its growth fund peers and the growth Index averages. These forces included the underperformance of technology as well as the outperformance of the financial, utility and energy sectors as investors shifted to a more defensive posture, areas where we are traditionally underweight consistent with our philosophy and charter as a growth manager. In addition, a combination of relative underperformance in consumer staples and cyclicals and an overweight in technology (which by year-end had registered the most severe declines) were offset by relatively strong performance in healthcare and capital goods, both of which the Portfolio was overweight for most of the year. Exposure to media stocks such as Liberty Media, Time Warner and Clear Channel detracted from performance as concerns heightened about declining advertising revenue in the wake of dot com failures and a slowing economy. Investments in more traditional staples stocks such as Safeway, Quaker, Anheuser Busch and Keebler contributed to performance but did not offset this weakness. Exposure to retailers such as Home Depot, and Costco detracted from performance as these stocks as a group were hurt by a slowdown in consumer spending and higher labor costs. We entered 2000 at a slight overweight in technology relative to the S&P 500 Index and underweight versus our growth peers. We cut our position to about a market weight during the first quater, based on our sensitivity to the group's rich valuations and our belief that the lofty multiples assigned to most of the technology sector could not continue to expand at the pace witnessed in 1999, particularly in the largest cap names. This proved to be a prudent decision, particularly during the March to May sell-off in technology (when the NASDAQ declined 40% from its March high to its May low). We were buyers on weakness throughout the balance of the year, and the Portfolio was modestly overweight technology as measured by the Index, but materially underweight the growth Indices at year-end. The technology sector's 42% decline was the biggest detractor to Portfolio performance in 2000. Leading companies such as Microsoft, Nortel, and Lucent, which led the market on the way up in 1999 were among the biggest detractors to relative performance in 2000. We continue to believe that over the long-term the technology sector will generate higher earnings growth rates than most other areas of the economy and that the benefits from productivity enhancements afforded by technology advancements will be positive for the overall economy. Despite the volatility, we want the Portfolio to be positioned to participate in that growth. We maintained an overweight in industrials, emphasizing high quality diversified conglomerates such as Tyco and United Technologies. These two stocks were members of the top ten holdings throughout the year, and each was a strong relative performance contributor. Tyco is especially notable as it was the strongest relative performance contributor after suffering severe declines in the fourth quarter of 1999. These holdings are representative of our willingness to look for growth in less traditional names and their strong performance provided a buffer to weaker areas of the Portfolio, particularly in the fourth quarter. Tyco continues to be a steady favorite especially in this challenging environment. While the quality of the management and company fundamentals have come through, we still believe the stock is under appreciated. The clean bill of health the SEC gave Tyco gives us further confidence in the quality of this company. The growth of the underlying free cash flow continues to be stellar. Strategic accretive acquisitions continue to add value and prove out management's adept use of capital. With continued fundamental outperformance by the company in 2001, we expect the stock to outperform. United Technology remains a top ten holding. United Technology is a unique diversified quality growth company with global franchises such as OTIS Elevator, Carrier Air Conditioning, and Pratt & Whitney Aircraft Engines. A strong stockholder- oriented management along with secular margin upside and strong cash flows all combine to provide likely continued outperformance in the year ahead. This "old economy" company continues to be innovative in e- commerce initiatives and strategic planning as evidenced by investments in such business opportunities such as their emerging fuel cell/ distributed power business. Prudent capital deployment in stock buybacks and accretive acquisitions enhances the sustainability of this 15% plus annual earnings growth company. Healthcare was another bright spot, as we maintained an overweight position (average of 14% of the Portfolio) in the sector for most of the year and stock selection was superior to the Index sector - ------------------------------------------------------------------------------- Focus Equity Portfolio 83 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- FOCUS EQUITY PORTFOLIO (CONT.) return. We increased our commitment to the sector early in the year based on the group's increasingly attractive relative earnings growth rates, and our belief that Federal Reserve interest rate increases would slow the economy, forcing investors to turn toward more stable growing companies such as the large pharmaceuticals, including Pfizer, American Home Products, and Pharmacia. This proved to be correct, and effective trading around election-cycle volatility added to performance. Pfizer (largely inherited from our Warner Lambert position) remains a core holding of the Portfolio and our favorite large-cap pharmaceutical stock. Expected synergies related to its acquisition of Warner Lambert and continued excellent prescription growth of its major in-line drugs led to 42% appreciation in 2000, better than the average 38% gain of its peers. If not for a dearth of pipeline newsflow and the negative impact of wholesaler inventory destocking on reported top-line growth, relative performance would have been even better, in our view. In 2001, Pfizer's stock price should be a big beneficiary of an accelerating top line growth rate, continued Warner Lambert related cost reductions, the launches of new drugs such as Zeldox (schizophrenia), Relpax (migraine headaches), and VFend (antifungal), and the likely FDA filings of Pregabalin (epilepsy and pain), Valdocoxib (arthritis), and inhaled insulin (diabetes). We also expect the company to announce at least one agreement to co-promote another manufacturer's drug. Finally, unlike many of its peers, none of Pfizer's major drugs are scheduled to go off-patent through 2003. Freddie Mac, a newer position within the Portfolio, continues to achieve mid-teen, high quality earnings growth despite a volatile political and market environment. The company's success in delivering an earnings stream that is both predictable and sustainable stems from its innovation and strict adherence to its core principals. For instance, the development and implementation of a complete set of "plug-n-play" mortgage tools on the Internet are aimed at broadening the market for eligible loans and enhancing the management of credit risk. The company's focus on long-term value creation (not short-term gains) has led to the use of credit enhancements as well as sophisticated hedging strategies in order to reduce exposure to economic cycles. Freddie Mac again showed exceptional skill this year in managing its interest rate risk in a tough market environment. The company's short-term business fundamentals appear to have great momentum. With the current market environment concerned about credit quality, Freddie Mac enjoys a "safe haven" status. The increasing possibility of a "refinancing boom" stemming from the downward move in mortgage rates is another positive. Finally, our concentration in the top ten holdings, which were 47% at year-end versus about 18% of the S&P 500, provided a positive element to performance. The top ten holdings continue to be well diversified by sector and contain classic growth names such as Pfizer, Cisco and Microsoft as well as less traditional names such as Tyco, United Technologies, Verizon Communications, Citigroup and Bank of New York. After failing to lower interest rates at the December 2000 meeting, the Fed did lower interest rates early in January, notable both for doing so on a conference call rather than waiting for a regularly scheduled meeting, and for moving rates down 50 basis points instead of the more typical 25 basis point increment. The move toward lower interest rates should eventually be positive for many of the more economically sensitive groups of stocks. However, with many of those companies just now beginning to adjust business plans and earnings targets to the reality of a slower economy, the challenge facing investors is whether to buy these stocks now, or wait until earnings estimates have bottomed and the impact of recent and likely future interest rate cuts begin to result in a reacceleration of economic activity. We continue to take a balanced and incremental approach to managing the Portfolio and will take advantage of the opportunities that volatility creates. For example, we have added exposure to a classic financial growth company, Freddie Mac, which is expected to benefit from the likely refinancing boom resulting from the significant decline in mortgage rates. Despite these attractive fundamentals, the stock fell 15% following the Fed announcement as investors fled defensive names to participate in the ensuing rally in technology. To a lesser extent, the GSEs (Government- Sponsored Enterprises) were further impacted by the rebalancing among financials as investors, previously concerned about credit quality at the banks and weakness at the brokerages, suddenly returned to these markets. We view the decline in the price of Freddie Mac as a temporary condition, resulting from the flow of funds led by "hot money" into higher beta assets. We believe the economy will be weaker in the early part of 2001, setting the stage for a much stronger climate later in 2001 and into 2002. We see the catalysts of further Fed easing, a weakened dollar due to lower interest rates and lower economic growth in the U.S., lower oil prices and possible global tax cuts due to strong worldwide government surpluses as the backdrop for future growth. These factors create a favorable environment for equities, and large cap growth stocks in particular. Philip W. Friedman PORTFOLIO MANAGER William S. Auslander PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------- Focus Equity Portfolio 84 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- FOCUS EQUITY PORTFOLIO - -------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------- COMMON STOCKS (99.3%) CONSUMER DISCRETIONARY (11.1%) MEDIA (6.2%) (a)354,114 AT&T- Liberty Media Corp., Class A .............. $ 4,802 (a)100,900 General Motors Corp., Class H ................... 2,321 35,800 Time Warner, Inc. ............................... 1,870 --------- 8,993 --------- MULTILINE RETAIL (2.1%) 57,500 Wal-Mart Stores, Inc. ........................... 3,055 SPECIALTY RETAIL (2.8%) --------- 57,150 Home Depot, Inc. ................................ 2,611 83,500 Limited, Inc. ................................... 1,425 --------- 4,036 --------- TOTAL CONSUMER DISCRETIONARY .............................. 16,084 --------- CONSUMER STAPLES (3.9%) BEVERAGES (1.8%) 57,600 Anheuser Busch Cos., Inc. ....................... 2,621 --------- FOOD & DRUG RETAILING (1.0%) (a)24,600 Safeway, Inc. ................................... 1,538 --------- FOOD PRODUCTS (1.1%) 16,200 Quaker Oats Co. ................................. 1,577 --------- TOTAL CONSUMER STAPLES .................................... 5,736 --------- FINANCIALS (10.1%) BANKS (3.1%) 81,700 Bank of New York Co., Inc. ...................... 4,509 --------- DIVERSIFIED FINANCIALS (7.0%) 21,000 American Express Co. ............................ 1,154 80,400 Citigroup, Inc. ................................. 4,105 70,600 Federal Home Loan Mortgage Association .......... 4,862 --------- 10,121 --------- TOTAL FINANCIALS........................................... 14,630 --------- HEALTH CARE (18.0%) HEALTH CARE EQUIPMENT & SUPPLIES (1.0%) 22,900 Medtronic, Inc. ................................. 1,383 --------- PHARMACEUTICALS (17.0%) 85,000 American Home Products Corp. .................... 5,402 41,200 Bristol-Myers Squibb Co. ........................ 3,046 22,100 Merck & Co., Inc. ............................... 2,069 212,050 Pfizer, Inc. ................................... 9,754 73,800 Pharmacia Corp. ................................. 4,502 --------- 24,773 --------- TOTAL HEALTH CARE ......................................... 26,156 --------- INDUSTRIALS (22.7%) AEROSPACE & DEFENSE (6.8%) 38,000 General Dynamics Corp. .......................... 2,964 88,700 United Technologies Corp. ....................... 6,974 --------- 9,938 --------- INDUSTRIAL CONGLOMERATES (15.9%) 209,500 General Electric Co. ............................ 10,043 234,900 Tyco International Ltd. ......................... 13,037 --------- 23,080 --------- TOTAL INDUSTRIALS ............................................ 33,018 --------- INFORMATION TECHNOLOGY (30.1%) COMMUNICATIONS EQUIPMENT (12.6%) (a)100,300 American Tower Corp., Class A .................. 3,799 (a)220,500 Cisco Systems, Inc. ............................ 8,434 26,000 Corning, Inc. .................................. 1,373 (a)72,600 Crown Castle International Corp. ................ 1,965 (a)35,700 Efficient Networks, Inc. ........................ 509 (a)23,400 JDS Uniphase Corp. .............................. 975 39,800 Nortel Networks Corp. ........................... 1,276 --------- 18,331 --------- COMPUTERS & PERIPHERALS (5.0%) 75,100 Compaq Computer Corp. ........................... 1,130 (a)35,100 EMC Corp. ....................................... 2,334 21,900 International Business Machines Corp. ........... 1,861 (a)72,200 Sun Microsystems, Inc. .......................... 2,013 --------- 7,338 --------- ELECTRONIC EQUIPMENT & INSTRUMENTS (1.3%) (a)24,300 Sanmina Corp. ................................... 1,862 SEMICONDUCTOR EQUIPMENT & PRODUCTS (5.9%) --------- 109,900 Intel Corp. ..................................... 3,325 (a)56,500 Maxim Integrated Products, Inc. ................. 2,701 55,300 Texas Instruments, Inc. ......................... 2,620 --------- 8,646 --------- SOFTWARE (5.3%) (a)86,400 Microsoft Corp. ................................. 3,758 (a)85,600 Oracle Corp. .................................... 2,488 16,100 VERITAS Software Corp. .......................... 1,409 --------- 7,655 --------- TOTAL INFORMATION TECHNOLOGY .............................. 43,832 --------- TELECOMMUNICATION SERVICES (3.4%) DIVERSIFIED TELECOMMUNICATION SERVICES (3.4%) 78,082 Verizon Communications, Inc. .................... 3,914 (a)68,300 Worldcom, Inc. .................................. 956 --------- TOTAL TELECOMMUNICATION SERVICES .......................... 4,870 --------- TOTAL COMMON STOCKS (Cost $142,180) ......................... 144,326 --------- FACE AMOUNT (000) - ------ SHORT-TERM INVESTMENTS (0.6%) REPURCHASE AGREEMENT (0.6%) $(f)931 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $931) ............. 931 ---------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Focus Equity Portfolio 85 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- FOCUS EQUITY PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
VALUE (000) --------- TOTAL INVESTMENTS (99.9%) (Cost $143,111) $ 145,257 ---------- OTHER ASSETS (1.5%) Cash ......................................... $ 141 Receivable for Investments Sold .............. 1,193 Receivable for Portfolio Shares Sold ......... 790 Dividends Receivable ......................... 55 Other ........................................ 5 2,184 -------- LIABILITIES (-1.4%) Payable for Investments Purchased ............ (1,633) Investment Advisory Fees Payable ............. (304) Administrative Fees Payable .................. (19) Directors' Fees and Expenses Payable ......... (14) Distribution Fees Payable .................... (12) Custodian Fees Payable ....................... (10) Other Liabilities ............................ (42) (2,034) -------- ---------- NET ASSETS (100%) ........................................ $ 145,407 ========== NET ASSETS CONSIST OF: Paid in Capital .......................................... $ 141,914 Accumulated Net Investment Loss .......................... (14) Accumulated Net Realized Gain ............................ 1,361 Unrealized Appreciation on Investments and Foreign Currency Translations .................................. 2,146 NET ASSETS $ 145,407 ========= VALUE (000) --------- CLASS A: - -------- NET ASSETS ............................................... $ 126,531 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 8,265,980 outstanding $0.001 par value shares (authorized 500,000,000 shares) ............... $ 15.31 ========== CLASS B: - -------- NET ASSETS ............................................... $ 18,876 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 1,251,023 outstanding $0.001 par value shares (authorized 500,000,000 shares) ............... $ 15.09 ==========
(a) -- Non-Income producing security. (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Focus Equity Portfolio 86 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ SMALL COMPANY GROWTH PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------ [CHART] Other (5.9%) Utilities (2.1%) Auto & Transportation (2.2%) Other Energy (3.6%) Financial Services (6.3%) Producer Durables (9.5%) Health Care (18.4%) Technology (25.5%) Consumer Discretionary (26.5%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------------------ [GRAPH]
Small Cap Growth Portfolio- Russell 2000 Russell 2000 Class A Growth Index(1) Index(1) ----------------- --------------- ------------ 1990 $ 500,000 $ 500,000 $ 500,000 1991 ---------- ---------- ---------- 10/31/92 ---------- ---------- ---------- 12/31/92 ---------- ---------- ---------- 1993 ---------- ---------- ---------- 1994 ---------- ---------- ---------- 1995 ---------- ---------- ---------- 1996 ---------- ---------- ---------- 1997 ---------- ---------- ---------- 1998 ---------- ---------- ---------- 1999 ---------- ---------- ---------- 2000 $2,926,449 $1,375,558 $1,719,688
* Commenced operations on November 1, 1989 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE RUSSELL 2000 GROWTH INDEX AND THE RUSSELL 2000 INDEX(1) - -------------------------------------------------------------------------------
TOTAL RETURNS(2) ---------------------------------- AVERAGE ANNUAL -------------------------- ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION ------ ------ ------ --------- PORTFOLIO -- CLASS A -6.64% 21.99% 18.17% 17.14% PORTFOLIO -- CLASS B -6.81 N/A N/A 21.67 RUSSELL 2000 GROWTH INDEX -- CLASS A -22.43 7.14 12.80 9.70 RUSSELL 2000 INDEX -- CLASS A -3.02 10.31 15.53 11.70 RUSSELL 2000 GROWTH INDEX -- CLASS B -22.43 N/A N/A 7.13 RUSSELL 2000 INDEX -- CLASS B -3.02 N/A N/A 10.27
1. The Russell 2000 Growth Index is a market capitalization-weighted index comprised of those companies of the Russell 2000 Index with higher forcasted growth values and higher price-to-book ratios. The Russell 2000 Index is comprised of the 2,000 smallest companies in the Russell 3000 Index. The companies have an average market capitalization of approximately $600 million. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The Small Company Growth Portfolio invests primarily in growth-oriented equity securities of small U.S. and, to a limited extent, foreign companies. Such companies generally have market capitalizations less than $2.5 billion. Investments in small- to medium-sized corporations are more vulnerable to financial risks and other risks than larger corporations and may involve a higher degree of price volatility than investments in the general equity markets. Effective December 31, 2000, the portfolio has elected to change its primary benchmark from the Russell 2000 Index to the Russell 2000 Growth Index, as the Russell 2000 Growth Index is more representative of the investments held by the Portfolio. For the year ended December 31, 2000, the Portfolio had a total return of - -6.64% for the Class A shares and -6.81% for the Class B shares compared to - -22.43% for the Russell 2000 Growth Index and -3.02% for the Russell 2000 Index. For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was 21.99% compared to 7.14% for the Russell 2000 Growth Index and 10.31% for the Russell 2000 Index. For the ten- year period ended December 31, 2000, the average annual total return for the Class A shares was 18.17% compared to12.80% for the Russell 2000 Growth Index and 15.53% - ------------------------------------------------------------------------------ CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------ Small Company Growth Portfolio 87 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ SMALL COMPANY GROWTH PORTFOLIO (CONT.) for the Russell 2000 Index. For the period from inception on November 1, 1989 through December 31, 2000, the average annual total return for the Class A shares was 17.14% compared to 9.70% for the Russell 2000 Growth Index and 11.70% for the Russell 2000 Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 21.67% compared to 7.13% for the Russell 2000 Growth Index and 10.27% for the Russell 2000 Index. Similar to the last two years, our relative outperformance was driven by stock selection. In fact, over 100% of our positive results relative to the Index were due to strong stock picking. This number exceeded 100% as a result of our negative attribution from sector allocation. On average for 2000, most of the Portfolio sector allocations were within 5% of the benchmark weights. There were two notable exceptions, both of which detracted from performance. First, the portfolio was overweight in the consumer discretionary sector by roughly 10% for the year. While these companies tended to underperform the benchmark and undermined our relative performance, our stock picking was strong in the category such that the consumer discretionary category was actually added relative value for the year. Second, the Portfolio was underweight in healthcare by approximately 10% for the year, which hurt our results. However, the extent of this negative allocation decision was again mitigated to a large degree by strong stock selection within the healthcare group. Our investment process continues to be driven by bottom up, fundamental research. We tend to favor companies with exceptional earnings and cash flow growth potential, strong leadership positions within their industry, high levels of profitability and top notch management teams. In addition, we emphasize companies with scalable business models, high incremental profitability as well as high quality earnings relative to cash flow. Our largest position at year-end, Corporate Executive Board (CEB), is indicative of our investment approach. The company is the leading provider of best practices research to Fortune 500 companies. Their business model is unique in the consulting business. CEB offers 15 distinct research programs on an annual subscription basis to its clients. The company boasts extremely high renewal rates for its products (80+%), as well as pricing power of over 5% annually due to lack of competition. In addition, CEB's business model is extremely scalable, as each incremental subscription sale has minimal associated variable costs and, hence, represents free cash flow. We believe the company can continue to achieve over 30% revenue and even higher free cash flow growth, as well as rising profitability over the next several years due to its dominance in the fast growing niche of the consulting business. SBA Communications continues to be another of our favorite names. The company is a leader in the fast growing communication tower industry. Over the past two years, the Portfolio has invested significantly in tower companies due to the strong revenue and cash flow growth generation and high barriers to entry associated with this business. Towers are unique assets because zoning restrictions make them difficult to build. With wireless communications exploding, national telecom companies like AT&T and Sprint are looking to increase the quality of service for their customers by "co-locating" or installing additional antennas on existing tower sites. Because tower space is a rare commodity, SBA is able to negotiate favorable long-term contracts that include 5% annual price escalators with wireless service providers for use of their tower space. Specifically, we favor SBA due to its industry leading revenue and cash flow growth rates (30%+) on both existing and new build towers. During the fourth quarter of 2000, we also increased our position in Radio One. Radio One owns a unique platform of radio stations throughout the United States, which target African American listeners. Given that this demographic has a faster population and income growth rate than the general populace, and has been historically underpenetrated by large advertisers, we anticipate Radio One's revenue growth to exceed the general radio industry going forward. Generally, we view radio station ownership as a good business with high barriers to entry due to government regulation and steady historical revenue growth characteristics. In addition, we favor the high incremental profitability and cash flow associated with radio station revenue growth- almost every incremental dollar of sales represents free cash flow as there are virtually no costs with charging higher prices for radio inventory or "air time". We prefer Radio One due to its specific focus on one of the most attractive growth segments of the radio market. Looking forward, we continue to see opportunities for capital appreciation in small to mid-sized companies. With the Fed recently lowering interest rates by 50 basis points and with more potential rate cuts ahead, we are cautiously optimistic on the economic outlook and ability for small cap companies to grow their businesses and maintain access to capital markets. Alexander L. Umansky PORTFOLIO MANAGER Dennis P. Lynch PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------- Small Company Growth Portfolio 88 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- SMALL COMPANY GROWTH PORTFOLIO - -------------------------------------------------------------------------------
VALUE SHARES (000) - ---------------------------------------------------------------------------------- COMMON STOCKS (94.1%) AUTO & TRANSPORTATION (2.2%) TRANSPORTATION MISCELLANEOUS (2.2%) 125,900 C.H. Robinson Worldwide, Inc. ................... $3,958 ---------- CONSUMER DISCRETIONARY (26.5%) ADVERTISING AGENCIES (1.0%) (a)70,462 R.H. Donnelly Corp. ............................. 1,713 ---------- CABLE TELEVISION SERVICES (0.1%) (a)29,700 Liberty Livewire Corp. .......................... 228 ---------- CASINOS & GAMBLING (0.9%) (a)102,650 Station Casinos, Inc. ........................... 1,533 ---------- COMMUNICATIONS & MEDIA (0.2%) (a)104,300 Radio Unica Corp. ............................... 391 ---------- EDUCATION SERVICES (2.3%) (a)14,200 Apollo Group, Inc., Class A .................... 698 (a)47,100 Career Education Corp. .......................... 1,843 (a)44,000 DeVry, Inc. ..................................... 1,661 ---------- 4,202 ---------- HOTEL/MOTEL (1.0%) 14,200 Four Seasons Hotels, Inc. ....................... 904 (a)42,200 Orient-Express Hotels Ltd. ...................... 910 ---------- 1,814 ---------- HOUSEHOLD FURNISHINGS (1.9%) (a)160,900 Furniture Brands International,Inc. ............. 3,389 ---------- LEISURE TIME (1.7%) (a)89,500 American Classic Voyages Co. .................... 1,253 (a)65,400 Championship Auto Racing Teams,Inc. ............. 1,374 (a)24,100 Ducati Motor Holdings, Inc. ..................... 426 ---------- 3,053 ---------- PUBLISHING: NEWSPAPERS (0.2%) 9,300 Pulitzer, Inc. .................................. 436 ---------- RADIO & TV BROADCASTERS (5.6%) (a)156,100 Acme Communications, Inc. ....................... 1,424 (a)118,700 Liberty Satellite & Technology,Inc. ............. 375 (a)88,300 Pegasus Communications Corp. .................... 2,274 (a)444,100 Radio One, Inc., Class A ........................ 4,885 (a)20,900 Sirius Satellite Radio, Inc. .................... 626 (a)11,800 ValueVision International, Inc. ................. 149 (a)25,300 XM Satellite Radio Holdings, Inc. ............... 406 ---------- 10,139 ---------- RESTAURANTS (0.7%) (a)30,400 P.F. Chang's China Bistro, Inc. ................. 956 (a)14,850 Sonic Corp. ..................................... 346 ---------- 1,302 ---------- RETAIL (5.8%) 46,100 Abercrombie & Fitch Co., Class A ................ 922 (a)30,300 BJ's Wholesale Club, Inc. ....................... 1,163 (a)60,300 Chico's FAS, Inc. ............................... 1,259 (a)32,200 Christopher & Banks Corp. ....................... 908 (a)56,800 Coach, Inc. ..................................... 1,633 30,000 Dollar Tree Stores, Inc. ........................ 735 (a)68,100 J. Jill Group, Inc. (The) ....................... 1,056 (a)85,000 PurchasePro.com, Inc. ........................... 1,487 (a)103,000 Tuesday Morning Corp. ........................... 547 (a)66,000 Tweeter Home Entertainment Group,Inc. ........... 804 --------- 10,514 --------- SERVICES: COMMERCIAL (5.1%) (a)18,900 Diamond Technology Partners, Inc. ............... 576 3,300 DiamondCluster International, Inc. Class A ........................................ 101 (a)72,000 Latitude Communications ......................... 279 (a)205,200 The Corporate Executive Board Co. ............... 8,160 --------- 9,116 --------- TOTAL CONSUMER DISCRETIONARY .................................. 47,830 --------- FINANCIAL SERVICES (6.3%) INSURANCE: MULTI-LINE (1.9%) 94,900 Reinsurance Group of America, Inc. (Non-Voting) .................................... 3,369 --------- INVESTMENT MANAGEMENT COMPANIES (0.3%) 31,000 Allied Capital Corp. II ......................... 647 --------- REAL ESTATE INVESTMENT TRUSTS (REIT) (4.1%) 53,500 Amli Residential Properties Trust REIT .......... 1,321 53,900 Arden Realty, Inc. REIT ......................... 1,354 51,300 Federal Realty Investment Trust REIT ............ 975 (a)132,600 Pinnacle Holdings, Inc. ......................... 1,202 42,322 PS Business Parks, Inc. REIT .................... 1,176 56,600 Public Storage, Inc. REIT ....................... 1,376 --------- 7,404 --------- TOTAL FINANCIAL SERVICES ........................................ 11,420 --------- HEALTH CARE (18.4%) BIOTECHNOLOGY RESEARCH & PRODUCTION (3.3%) (a)25,900 Ciphergen Biosystems, Inc. ...................... 343 (a)30,400 Corixa Corp. .................................... 847 (a)42,200 Exelixis, Inc. .................................. 617 (a)73,800 Genaissance Pharmaceuticals ..................... 1,329 111,200 Harvard Bioscience, Inc. ........................ 1,098 (a)19,600 Invitrogen Corp. ................................ 1,693 --------- 5,927 --------- DRUGS & PHARMACEUTICALS (2.2%) (a)77,700 Array Biopharma, Inc. ........................... 694 (a)62,700 Pain Therapeutics, Inc. ......................... 933 (a)57,600 Priority Healthcare Corp. ....................... 2,351 --------- 3,978 --------- HEALTH CARE FACILITIES (3.7%) (a)91,600 Community Health Systems, Inc. .................. 3,206 (a)103,500 Triad Hospitals, Inc. ........................... 3,370 --------- 6,576 --------- HEALTH CARE SERVICES (1.5%) (a)53,600 Accredo Health, Inc. ............................ 2,690 --------- MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (3.7%) (a)50,000 Aradigm Corp. ................................... 731 (a)86,800 Biosource International, Inc. ................... 1,329 (a)52,700 Bruker Daltonics, Inc. .......................... 1,242 55,500 Cooper Cos., Inc. ............................... 2,213 (a)30,700 Techne Corp. .................................... 1,107 --------- 6,622 ---------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Small Company Growth Portfolio 89 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- SMALL COMPANY GROWTH PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
VALUE SHARES (000) - --------------------------------------------------------------------------------- HEALTH CARE (CONT.) MEDICAL SERVICES (0.5%) 28,850 Specialty Laboratories .......................... $956 --------- MISCELLANEOUS HEALTH CARE (3.5%) (a)118,700 Allos Therapeutics .............................. 957 (a)20,800 CV Therapeutics, Inc. ........................... 1,472 (a)62,900 Ista Pharmaceuticals, Inc. ...................... 708 (a)38,900 NPS Pharmaceuticals, Inc. ....................... 1,867 (a)47,300 Tularik, Inc. ................................... 1,392 --------- 6,396 --------- TOTAL HEALTH CARE ............................................... 33,145 --------- ENERGY (3.6%) ENERGY MISCELLANEOUS (1.8%) 28,100 Forest Oil Corp. ................................ 1,036 29,000 Pennaco Energy, Inc. ............................ 569 (a)54,200 Triton Energy Ltd. .............................. 1,626 --------- 3,231 --------- OIL: CRUDE PRODUCERS (1.8%) (a)31,100 Barret Resources Corp. .......................... 1,767 (a)31,800 Louis Dreyfus Natural Gas Corp. ................. 1,457 --------- 3,224 --------- TOTAL ENERGY..................................................... 6,455 --------- PRODUCER DURABLES (9.5%) IDENTIFICATION CONTROL & FILTER DEVICES (0.6%) (a)26,953 Veeco Instruments, Inc. ......................... 1,081 --------- TELECOMMUNICATIONS EQUIPMENT (8.9%) (a)41,100 L-3 Communications Corp. ........................ 3,165 (a)18,700 Plantronics, Inc. ............................... 879 (a)173,000 SBA Communications Corp. ........................ 7,104 (a)366,600 Spectrasite Holdings, Inc. ...................... 4,857 --------- 16,005 --------- TOTAL PRODUCER DURABLES.......................................... 17,086 --------- TECHNOLOGY (25.5%) COMMUNICATIONS TECHNOLOGY (6.6%) (a)39,800 Advanced Fibre Communications, Inc. ............. 719 (a)38,900 AudioCodes Ltd. ................................. 528 121,700 CFW Communications Co. .......................... 2,145 (a)71,454 CoreComm Ltd. ................................... 354 (a)84,400 Ditech Communications Corp. ..................... 1,356 (a)160,600 Efficient Networks, Inc. ........................ 2,288 (a)6,900 Exfo Electro Optical Engineering,Inc. ........... 180 (a)128,100 Harmonic Lightwaves, Inc. ....................... 728 (a)32,100 Optical Communication Products,Inc. ............. 361 66,900 Proxim, Inc. .................................... 2,877 5,400 SpeechWorks International, Inc. ................. 265 --------- 11,801 --------- COMPUTER SERVICES SOFTWARE & SYSTEMS (8.1%) (a)14,800 Cacheflow, Inc. ................................. 253 (a)65,400 Digitalthink, Inc. .............................. 1,116 (a)13,900 Documentum, Inc. ................................ 691 (a)39,400 Forrester Research, Inc. ........................ 1,972 (a)97,600 Informatica Corp. ............................... 3,861 16,100 Informax, Inc. .................................. 167 (a)38,600 Micromuse, Inc. ................................... 2,330 (a)89,000 Netratings, Inc. .................................. 1,307 (a)15,100 Packeteer, Inc. ................................... 187 (a)33,400 Resonate, Inc. .................................... 317 (a)47,600 SkillSoft Corp. ................................... 892 (a)34,200 StorageNetworks, Inc. ............................. 849 25,300 Stratos Lightwave, Inc. ........................... 432 36,200 Vitria Technology, Inc. ........................... 281 --------- 14,655 --------- COMPUTER TECHNOLOGY (0.7%) (a)24,150 Netegrity, Inc. ................................. 1,313 --------- ELECTRONICS (1.8%) (a)22,300 Conductus, Inc. ................................. 117 (a)52,100 Datum, Inc. ..................................... 1,153 (a)66,600 DDI Corp. /CA ................................... 1,815 (a)16,000 Satcon Technology Corp. ......................... 158 --------- 3,243 --------- ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS (7.9%) (a)51,900 ASM International N.V. .......................... 483 (a)8,100 ASM International N.V. .......................... 76 (a)14,800 Bookham Technology plc .......................... 194 (a)45,200 Cirrus Logic, Inc. .............................. 848 (a)14,500 HI/FN, Inc. ..................................... 399 (a)31,300 Lattice Semiconductor Corp. ..................... 575 (a)66,000 Micrel, Inc. .................................... 2,223 (a)10,500 Orbotech Ltd. ................................... 392 (a)74,400 Powerwave Technologies, Inc. .................... 4,352 (a)120,850 TranSwitch Corp. ................................ 4,728 --------- 14,270 --------- ELECTRONICS: TECHNOLOGY (0.4%) (a)16,900 C-Mac Industries, Inc. .......................... 750 --------- TOTAL TECHNOLOGY................................................. 46,032 --------- UTILITIES (2.1%) UTILITIES: ELECTRICAL (0.3%) 25,300 Avista Corp. .................................... 519 --------- UTILITIES: GAS DISTRIBUTORS (0.6%) 30,800 Western Gas Resources, Inc. ..................... 1,037 --------- UTILITIES: TELECOMMUNICATIONS (1.2%) 50,600 Conestoga Enterprises, Inc. ..................... 873 (a)41,700 CTC Communications Group, Inc. .................. 193 (a)181,400 FLAG Telecom Holdings Ltd. ...................... 1,134 (a)42,200 NET2000 Communications, Inc. .................... 72 --------- 2,272 --------- TOTAL UTILITIES ............................................... 3,828 --------- TOTAL COMMON STOCKS (Cost $185,195) ........................... 169,754 --------- PREFERRED STOCKS (0.6%) TECHNOLOGY (0.6%) COMMUNICATIONS TECHNOLOGY (0.6%) (a)(d)210,500 Warp 10 Technologies, Inc. (Cost $784).. 1,052 ---------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Small Company Growth Portfolio 90 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ SMALL COMPANY GROWTH PORTFOLIO (CONT.) - ------------------------------------------------------------------------------
NO. OF VALUE WARRANTS (000) - ------------------------------------------------------------------------------- WARRANTS (0.0%) COMPUTER SERVICES SOFTWARE & SYSTEMS (0.0%) (a)(d)16,275 Zi Corp (Cost $--) ................................ $ -- --------- FACE AMOUNT (000) ------ SHORT-TERM INVESTMENTS (6.5%) REPURCHASE AGREEMENT (6.5%) $(f)11,708 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $11,708) ................. 11,708 --------- TOTAL INVESTMENTS (101.2%) (Cost $197,687) ......................... $182,514 --------- OTHER ASSETS (1.5%) Cash ........................................ $31 Receivable for Portfolio Shares Sold ........ 1,489 Receivable for Investments Sold ............. 1,222 Dividends Receivable ........................ 60 Interest Receivable ......................... 5 Other ....................................... 11 2,818 -------- LIABILITIES (-2.7%) Payable for Investments Purchased ........... (4,237) Investment Advisory Fees Payable ............ (489) Distribution Fees Payable ................... (57) Administrative Fees Payable ................. (25) Custodian Fees Payable ...................... (12) Directors' Fees and Expenses Payable ........ (9) Other Liabilities ........................... (67) (4,896) -------- --------- NET ASSETS (100%) ....................................... $180,436 ========= VALUE (000) - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Paid in Capital ........................................ $200,012 Accumulated Net Investment Loss ........................ (8) Distributions In Excess of Net Realized Gain............ (4,395) Unrealized Depreciation on Investments and Foreign Currency Translations........................ (15,173) -------- NET ASSETS ............................................. $180,436 ========= CLASS A: - ------- NET ASSETS ............................................. $ 89,367 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 8,134,480 outstanding $0.001 par value shares (authorized 500,000,000 shares).................................... $ 10.99 ======== CLASS B: - -------- NET ASSETS ............................................. $ 91,069 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 8,530,814 outstanding $0.001 par value shares (authorized 500,000,000 shares)..................................... $ 10.68 ========
- ------------------------------------------------------------------------------ (a) -- Non-income producing security (d) -- Security valued at fair value See Note A-1 to financial statements. (f) -- The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. REIT -- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Small Company Growth Portfolio 91 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- TECHNOLOGY PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------- [CHART] Other (1.7%) Micro Computer Mfg (1.2%) Information Processing (1.6%) Medical Technology (1.9%) Data Storage & Processing (3.4%) Other Technology (6.4%) Semiconductor Mfg (9.9%) Biotechnology (10.6%) Electronic Equipment (11.4%) Software Products (20.7%) Data Communications (31.2%)
COMPARISON OF THE CHANGE IN VALUE OF A $250,000** INVESTMENT - ------------------------------------------------------------ [GRAPH]
Technology Technology NASDAQ Portfolio- Portfolio- S&P 500 Composite Class A Class B Index(1) Index(1) ---------- ---------- ---------- --------- 1996 $ 250,000 $ 50,000 $250,000 $250,000 1997 ---------- -------- -------- -------- 1998 ---------- -------- -------- -------- 1999 ---------- -------- -------- -------- 2000 $1,139,984 $225,952 $513,394 $517,295
* Commenced operations on September 16, 1996 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different fees assessed to that class. The S&P 500 Index value at December 31, 2000 assumes a minimum investment of $250,000; if a minimum initial investment of $50,000 (the minimum investment for Class B shares) is assumed, the value at December 31, 2000 would be $59,145. PERFORMANCE COMPARED TO THE NASDAQ COMPOSITE INDEX AND THE S&P 500 INDEX(1) - -------------------------------------------------------------------------------
TOTAL RETURNS(2) ------------------- AVERAGE ANNUAL ONE SINCE YEAR INCEPTION -------- ---------- PORTFOLIO-- CLASS A ................... -22.67% 42.42% PORTFOLIO-- CLASS B ................... -22.86 42.13 NASDAQ COMPOSITE INDEX ................ -39.29 18.47 S&P 500 INDEX ......................... -9.12 18.29
(1.) The Nasdaq Composite Index is a market capitalization-weighted index comprised of all common stocks listed on Nasdaq Stock Market. The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies with market capitalization of $1 billion or more. These 500 companies represent approximately 100 industries chosen mainly for market size, liquidity, and industry group representation. (2.) Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The investment objective of the Technology Portfolio is to achieve long-term capital appreciation by investing primarily in equity securities of companies expected to benefit from their involvement in technology and technology-related industries. The focus of the Portfolio is to identify significant long-term technology trends and to invest in those premier companies we believe are positioned to materially gain from these trends. Stocks selected for the Portfolio are also expected to meet comprehensive selection criteria. The Portfolio's concentration in the technology sector makes it subject to greater risk and volatility than portfolios that are more diversified, and the value of its shares may be substantially affected by economic events. In addition, the Portfolio may invest up to 35% of its assets in securities of foreign issuers. For the year ended December 31, 2000, the Portfolio had a total return of - -22.67% for the Class A shares and -22.86% for the Class B shares compared to - -39.29% for the Nasdaq Composite Index and -9.12% for the S&P 500 Index. For the period from inception on September 16, 1996 through December 31, 2000, the Portfolio had an average annual total return of 42.42% for the Class A shares and 42.13% for the Class B shares compared to 18.47% for the Nasdaq Composite Index 18.29% for the S&P 500 Index. We have a comprehensive set of stock selection criteria. We tend to favor companies with exceptional earnings and cash flow growth potential, strong leadership positions within their industry, high levels of profitability and top notch management teams. In addition, we emphasize companies with scalable business models, high incremental profitability and high quality earnings relative to cash flow. During 2000, we continued to focus our investments primarily in infrastructure companies that enable the proliferation of broadband connectivity, as well as wireless and internet communications. We tend to prefer such infrastructure suppliers (or "arms dealers") over their service provider customers because we expect them to benefit as long as wireless and wireline communication demands continue to grow. Because of market volatility this past year, access to capital became an issue for emerging telecommunication service providers. While the collateral impact on the infrastructure companies has been to limit - ------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. 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. - ------------------------------------------------------------------------------- Technology Portfolio 92 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- TECHNOLOGY PORTFOLIO (CONT.) visibility on near-term product demand, we view telecommunications as an area of relatively strong growth within technology over the next three to five years and infrastructure companies as the best positioned beneficiaries. At year-end, many of our top ten holdings- Cisco Systems, American Tower, Powerwave Technologies, and Alcatel- stand to benefit from future growth of wireless and internet communications. Over the past year, we also continued to be significantly underweight companies that operate in the personal computer (PC) industry. Due to high worldwide penetration gains over the past decade and fierce competition among PC makers, unit and sales growth continue to decline as the personal computer becomes more of a commodity. As slowing growth and profitability has infected the entire PC industry, we have focused our efforts and investments elsewhere. High profile earnings disappointments by former market darlings (Intel, Microsoft, and Dell among others) in 2000 supported our strategy to de-emphasize the PC sector. Starting with rising interest rates and followed by rapidly rising oil prices, other alarming macroeconomic events included a sharply declining euro and heightened tensions in the Middle East. There were early warnings around earnings disappointments from companies such as Lucentand Intel, which continued and picked up momentum in the second half of the year. The fourth quarter was marked by uncertainty surrounding the outcome of the U.S. Presidential election and the increasing evidence of a slowdown in economic growth, combined with the uncertainty about the near-term outlook for many companies. This backdrop was particularly unfavorable for the technology sector and benefited value-oriented sectors such as finance, utilities and energy. Stock selection was ahead of the Index for the year. Companies such as Saga Systems, Efficient Networks and Harmonic Lightwaves were among the biggest detractors to relative performance in 2000. The semiconductor sector was the best performer relative to the Index. An overweight position coupled with good stock selection in companies suchas Transwitch added to relative performance. A slight overweight in biotechnology also helped relative performance given it was one of the only sectors in 2000 with positive returns. We continue to believe that over the long-term the technology sector will generate higher earnings growth rates than most other areas of the economy and that the benefits from productivity enhancements afforded by technology advancements will be positive for the overall economy. Despite the volatility, we want the portfolio to be positioned to participate in that growth. Despite a difficult 2000, we continue to see opportunities for capital appreciation in technology and technology- related companies. With the Fed recently lowering interest rates by 50 basis points and with more potential rate cuts ahead, we are cautiously optimistic on the economic outlook and ability for technology companies to grow their businesses and maintain access to capital markets. Alexander L. Umansky PORTFOLIO MANAGER Dennis P. Lynch PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------- Technology Portfolio 93 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- TECHNOLOGY PORTFOLIO - -------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------- COMMON STOCK (99.5%) TECHNOLOGY (99.0%) BIOTECHNOLOGY (10.6%) (a)15,400 Amgen, Inc. ..................................... $ 985 (a)12,400 CuraGen Corp. ................................... 339 (a)7,900 CV Therapeutics, Inc. ........................... 559 (a)13,300 Diversa Corp. ................................... 238 (a)51,750 Exelixis, Inc. .................................. 757 (a)47,700 Genaissance Pharmaceuticals, Inc. ............... 858 (a)17,300 Genentech, Inc. ................................. 1,410 (a)10,500 Gilead Sciences, Inc. ........................... 871 (a)38,500 Harvard Bioscience, Inc. ........................ 380 (a)9,500 Human Genome Sciences, Inc. ..................... 658 (a)2,900 Idec Pharmaceuticals Corp. ...................... 550 12,800 Immunex Corp. ................................... 520 (a)15,200 Invitrogen Corp. ................................ 1,313 (a)10,300 MedImmune, Inc. ................................. 491 (a)19,850 NPS Pharmaceuticals, Inc. ....................... 953 (a)17,800 Tularik, Inc. ................................... 524 ------------ 11,406 ------------ DATA COMMUNICATIONS (31.2%) (a)42,600 Advanced Fibre Communications, Inc. ............. 770 35,400 Alcatel Alsthom ADR ............................. 1,980 (a)59,450 American Tower Corp., Class A ................... 2,252 (a)48,100 AT&T Wireless Group ............................. 833 (a)15,200 CIENA Corp. ..................................... 1,237 (a)147,650 Cisco Systems, Inc. ............................. 5,648 (a)13,200 Corvis Corp. .................................... 314 (a)35,500 Crown Castle International Corp. ................ 961 (a)41,550 Ditech Communications Corp. ..................... 667 (a)105,200 Efficient Networks, Inc. ........................ 1,499 (a)5,500 Exfo Electro-Optical Engineering, Inc. .......... 144 (a)26,600 Finisar Corp. ................................... 771 (a)70,300 FLAG Telecom Holdings Ltd. ...................... 439 (a)25,400 General Motors Corp., Class H ................... 584 45,700 Nokia Corp. ..................................... 1,988 (a)21,050 Pegasus Communications Corp. .................... 542 (a)6,200 Phone.com, Inc. ................................. 297 (a)33,300 Powerwave Technologies, Inc. .................... 1,948 (a)25,800 Proxim, Inc. .................................... 1,109 (a)17,800 QUALCOMM, Inc. .................................. 1,463 (a)16,700 Qwest Communications International, Inc. ........ 685 (a)38,100 RF Micro Devices, Inc. .......................... 1,045 (a)37,400 SBA Communications Corp. ........................ 1,536 24,200 Scientific-Atlanta, Inc. ........................ 788 (a)97,200 Spectrasite Holdings, Inc. ...................... 1,288 51,400 Telefonaktiebolaget LM Ericsson ADR ............. 575 (a)11,300 Time Warner Telecom, Inc. ....................... 717 (a)32,000 Transwitch Corp. ................................ 1,252 (a)16,400 Tycom Ltd. ...................................... 367 -------- 33,699 -------- DATA STORAGE & PROCESSING (3.4%) (a)15,600 EMC Corp. ....................................... 1,037 (a)40,650 StorageNetworks, Inc. ........................... 1,009 (a)18,750 VERITAS Software Corp. .......................... 1,641 --------- 3,687 --------- ELECTRONIC EQUIPMENT (11.4%) (a)14,900 Applera Corp-Applied Biosystems Group ........... 1,402 10,000 Celestica, Inc. ................................. 543 (a)22,100 DDI Corp. ....................................... 602 (a)20,400 Emulex Corp. .................................... 1,631 (a)35,700 Exodus Communications, Inc. ..................... 714 (a)16,800 Foundry Networks, Inc. .......................... 252 (a)31,100 Jabil Circuit, Inc. ............................. 789 (a)11,500 Juniper Networks, Inc. .......................... 1,450 (a)29,450 Micrel, Inc. .................................... 992 (a)13,500 Network Appliance, Inc. ......................... 867 3,000 Newport Corp. ................................... 236 (a)16,500 ONI Systems Corp. ............................... 653 (a)22,400 Optical Communication Products, Inc. ............ 252 5,500 PerkinElmer, Inc. ............................... 577 (a)9,100 Quest Software, Inc. ............................ 255 (a)14,400 Sanmina Corp. ................................... 1,103 --------- 12,318 --------- INFORMATION PROCESSING (1.6%) (a)6,000 Check Point Software Technologies Ltd. .......... 802 (a)10,600 Nuance Communications, Inc. ..................... 457 (a)11,700 The Corporate Executive Board Co. ............... 465 --------- 1,724 --------- MEDICAL TECHNOLOGY (1.9%) (a)25,600 Bruker Daltonics, Inc. .......................... 603 12,100 Medtronic, Inc. ................................. 730 (a)19,850 Specialty Laboratories, Inc. .................... 658 --------- 1,991 --------- MICRO COMPUTER MFG (1.2%) 62,000 Compaq Computer Corp............................ 933 (a)12,500 Sun Microsystems, Inc........................... 349 --------- 1,282 --------- MINI & MAINFRAME COMPUTER MFG (0.2%) (a)8,000 Palm, Inc........................................ 226 --------- OTHER (6.4%) (a)20,300 Apollo Group, Inc., Class A ................... 998 (a)7,000 Brocade Communications Systems, Inc. ............ 643 18,100 Comcast Corp., Class A .......................... 756 (a)16,100 Extreme Networks, Inc. .......................... 630 (a)14,300 Hispanic Broadcasting Corp. ..................... 365 (a)7,900 McData Corp. .................................... 432 (a)8,075 Netegrity, Inc. ................................. 439 (a)13,800 Redback Networks, Inc. .......................... 566 24,450 Tyco International Ltd. ......................... 1,357 (a)9,242 VeriSign, Inc. .................................. 685 -------- 6,871 -------- SEMICONDUCTOR MFG (9.9%) (a)21,100 Altera Corp. .................................... 555 (a)11,200 Analog Devices, Inc. ............................ 573 (a)11,900 Applied Micro Circuits Corp. .................... 893 (a)9,850 Bookham Technology plc .......................... 129
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Technology Portfolio 94 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- TECHNOLOGY PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------- TECHNOLOGY (CONT.) SEMICONDUCTOR MFG (CONT.) (a)15,400 Broadcom Corp., Class A ......................... $ 1,302 (a)41,300 Conexant Systems, Inc. .......................... 635 (a)11,100 hi/fn, Inc. ..................................... 305 (a)29,400 Kopin Corp. ..................................... 325 (a)12,750 Maxim Integrated Products, Inc. ................. 610 (a)23,800 Micron Technology, Inc. ......................... 845 (a)8,600 PMC-Sierra, Inc. ................................ 676 (a)28,200 QLogic Corp. .................................... 2,172 14,400 Texas Instruments, Inc. ......................... 682 (a)23,000 Triquint Semiconductor, Inc. .................... 1,005 --------- 10,707 --------- SOFTWARE PRODUCTS (20.7%) 7,600 Adobe Systems, Inc. ............................. 442 (a)11,200 Ariba, Inc. ..................................... 602 (a)25,500 Art Technology Group, Inc. ...................... 779 (a)28,400 BEA Systems, Inc. ............................... 1,912 (a)268,000 BrandEra.com, Inc. .............................. 1,340 (a)9,350 Cacheflow, Inc. ................................. 160 (a)27,900 Documentum, Inc. ................................ 1,386 (a)4,900 E.piphany, Inc. ................................. 264 (a)21,762 Gemstar-TV Guide International, Inc. ............ 1,009 (a)31,400 I2 Technologies, Inc. ........................... 1,707 (a)30,400 Intuit, Inc. .................................... 1,199 (a)18,350 Mercury Interactive Corp. ....................... 1,656 (a)21,200 Micromuse, Inc. ................................. 1,280 (a)37,000 Microsoft Corp. ................................. 1,610 (a)31,600 Oracle Corp. .................................... 918 (a)24,550 Peoplesoft, Inc. ................................ 913 (a)51,300 Portal Software, Inc. ........................... 402 (a)52,500 PurchasePro.com, Inc. ........................... 919 (a)25,100 Rational Software Corp. ......................... 977 (a)6,500 Research In Motion Ltd. ......................... 520 (a)25,100 Resonate, Inc. .................................. 239 8,100 Siebel Systems, Inc. ............................ 549 (a)5,500 SpeechWorks International, Inc. ................. 270 (a)8,100 TIBCO Software, Inc. ............................ 388 (a)29,850 Vignette Corp. .................................. 537 (a)37,000 Vitria Technology, Inc. ......................... 287 ------- 22,265 ------- TEST, ANALYSIS & INSTRUMENTATION EQUIPMENT (0.5%) (a)12,583 Veeco Instruments, Inc. ............................. 505 -------- TOTAL TECHNOLOGY .............................................. 106,681 -------- HEALTH CARE (0.5%) Biotechnology Research & Production (0.5%) (a)20,500 Corixa Corp. ........................................ 571 -------- TOTAL COMMON STOCKS (Cost $128,411) ........................... 107,252 -------- WARRANTS (0.0%) SOFTWARE PRODUCTS (0.0%) (a)(d)29,950 Zi Corp (Cost $--) ............................... -- -------- FACE AMOUNT (000) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (1.6%) REPURCHASE AGREEMENT (1.6%) $(f)1,727 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01(Cost $1,727) ............. $ 1,727 --------- TOTAL INVESTMENTS (101.1%) (Cost $130,138) 108,979 --------- OTHER ASSETS (4.3%) Cash .................................... $ 25 Receivable for Investments Sold ......... 3,296 Receivable for Portfolio Shares Sold .... 1,277 Dividends Receivable .................... 3 Interest Receivable ..................... 1 Other ................................... 12 4,614 ------- LIABILITIES (-5.4%) Payable for Investments Purchased ....... (5,323) Investment Advisory Fees Payable ........ (341) Administrative Fees Payable ............. (18) Custodian Fees Payable .................. (10) Directors' Fees and Expenses Payable .... (7) Distribution Fees Payable ............... (5) Other Liabilities ....................... (50) (5,754) ------- ---------- NET ASSETS (100%) $107,839 ========== NET ASSETS CONSIST OF: Paid in Capital ............................................... $127,623 Undistributed Net Investment Income ........................... 1 Accumulated Net Realized Gain ................................. 1,374 Unrealized Depreciation on Investments and Foreign Currency Translations ............................... (21,159) ---------- NET ASSETS .................................................... $107,839 ========== CLASS A: - -------- NET ASSETS .................................................... $101,588 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 3,934,207 outstanding $0.001 par value shares (authorized 500,000,000 shares) ............ $ 25.82 ========== CLASS B: - -------- NET ASSETS .................................................... $ 6,251 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 244,368 outstanding $0.001 par value shares (authorized 500,000,000 shares) ............ $ 25.58 ==========
- ------------------------------------------------------------------------------- (a) --Non-income producing security (d) --Security valued at fair value-- See Note A-1 to financial statements. (f) --The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Technology Portfolio 95 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- U.S. EQUITY PLUS PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - -------------------------------------------------------------------------------- [CHART] Information Technology (21.5%) Financials (16.7%) Health Care (14.9%) Industrials (10.8%) Consumer Discretionary (9.9%) Consumer Staples (7.9%) Energy (6.7%) Telecommunications Services (5.7%) Utilities (3.8%) Materials (2.3%) Other (-0.2%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------- [GRAPH]
U.S. Equity Plus Portfolio- S&P 500 Class A Index (1) --------------- --------- 1997 $500,000 $500,000 1998 -------- -------- 1999 -------- -------- 2000 $681,263 $724,397
* Commenced operations on July 31, 1997 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. PERFORMANCE COMPARED TO THE S&P INDEX(1) - --------------------------------------------------------------------------------
TOTAL RETURNS(2) -------------------------- ONE AVERAGE ANNUAL YEAR SINCE INCEPTION ------- ---------------- PORTFOLIO -- CLASS A ............ -10.10% 9.46% INDEX ........................... -9.12 11.45
1. The S&P 500 Index is comprised of the stocks of 500 large-cap U.S. companies with market capitalization of $1 billion or more. These 500 companies represent approximately 100 industries chosen mainly for market size, liquidity and industry group representation. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The U.S. Equity Plus Portfolio seeks long-term capital appreciation by investing primarily in equity securities of issuers in the S&P 500 Index (the "Index"). Equity securities include common and preferred stocks, convertible securities, and rights and warrants to purchase common stocks. For the year ended December 31, 2000, the Portfolio had a total return of - -10.10% for the Class A shares compared to -9.12% for the Index. For the period from inception on July 31, 1997 through December 31, 2000, the Portfolio had an average annual total return of 9.46% for the Class A shares compared to 11.45% for the Index. The Portfolio is sector neutral to the Index, so sector weights had no impact on incremental performance. The performance of a sector in U.S. Equity Plus is completely driven by stock selection (and relative weights) within the sector. Based on stock selection, our best performing sectors were finance, multi-industries and healthcare. Our worst performing sectors were space & defense, beverages & home products and basic industries. Virtually all of the performance differential between the Portfolio and the Index came from active stock selection. The three largest contributions to our performance relative to the S&P 500 came from the following stocks: 1) Corning - returned over 130% in the first three quarters of 2000 propelled by strong sales and continued earnings surprises. 2) Cigna - turned in a strong performance as it experienced a stronger than expected earnings and sales growth. 3) PPL - almost doubled when the whole energy sector rallied on rising oil prices and expectations of an unusually cold winter in the U.S. On the other side, the three most negative contributions to our performance relative to the S&P 500 came from the following stocks: 1) Procter & Gamble - declined as it reported several earnings disappointments. 2) Nortel - dropped as its loss widened on acquisition costs and its inability to install all of the equipment it made. 3) Home Depot - returned almost -23% as market participants concentrated on potentially lower than expected sales during the holiday season. - -------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - -------------------------------------------------------------------------------- U.S. Equity Plus Portfolio 96 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- U.S. EQUITY PLUS PORTFOLIO (CONT.) For most of this year it has been a tale of two markets. The Index has oscillated around the 1435 level and declined in the fourth quarter to end up with a return of only -9.1%. Nasdaq, on the other hand exhibited a tremendous volatility which reached almost 60% in the first half of 2000 on an annualized basis and beat the 44% seen in the second half of 1987. It also declined sharply at the end and lost -39.1% for the year. Finally, it looks like the U.S. economy has slowed down and the Federal Reserve is now intent on stimulating the economy by lowering interest rates. It remains to be seen whether easing interest rates will be sufficient to provide a "soft landing" for the economy. Clearly, the U.S. stock market has moved away from an environment dominated by sector tilts and price momentum. There has been a significant broadening with value stocks sharply outperforming growth. That signals the return of "relative value" and stock selection as major performance drivers, which should bode well for the Portfolio. Narayan Ramachandran PORTFOLIO MANAGER January 2001 - -------------------------------------------------------------------------------- U.S. Equity Plus Portfolio 97 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- U.S. EQUITY PLUS PORTFOLIO - --------------------------------------------------------------------------------
VALUE SHARES (000) - -------------------------------------------------------------------------------- COMMON STOCKS (100.2%) CONSUMER DISCRETIONARY (9.9%) AUTO COMPONENTS (0.2%) 700 TRW, Inc. ....................................... $ 27 710 Visteon Corp. ................................... 8 ------------ 35 ------------ AUTOMOBILES (0.6%) 1,500 Ford Motor Co. .................................. 35 700 General Motors Corp. ............................ 36 900 Harley-Davidson, Inc. ........................... 36 ------------ 107 ------------ HOTELS, RESTAURANTS & LEISURE (0.7%) 300 Darden Restaurants, Inc. ........................ 7 (a)300 Harrah's Entertainment, Inc. .................... 8 400 Marriot International, Inc., Class A ............ 17 1,600 McDonald's Corp. ................................ 54 (a)600 Tricon Global Restaurants, Inc. ................. 20 300 Wendy's International, Inc. ..................... 8 ------------ 114 ------------ HOUSEHOLD DURABLES (0.6%) 600 Centex Corp. .................................... 23 900 Fortune Brands, Inc. ............................ 27 400 Kaufman & Broad Home Corp. ...................... 13 300 Newell Rubbermaid, Inc. ......................... 7 700 Pulte Corp. ..................................... 29 600 Tupperware Corp. ................................ 12 ------------ 111 ------------ LEISURE EQUIPMENT & Products (0.1%) 700 Brunswick Corp. ................................. 12 200 Polaroid Corp. .................................. 1 ------------ 13 ------------ MEDIA (2.3%) (a)600 Clear Channel Communications, Inc. .............. 29 (a)900 Comcast Corp., Class A .......................... 38 200 Interpublic Group of Companies, Inc. ............ 9 500 Omnicom Group, Inc. ............................. 41 400 The Walt Disney Co. ............................. 12 2,300 Time Warner, Inc. ............................... 120 (a)2,700 Viacom, Inc., Class B ........................... 126 160 Vivendi Universal S.A., ADR ..................... 10 ------------ 385 ------------ MULTILINE RETAIL (3.5%) 900 Dillard's Inc., Class A ......................... 11 (a)500 Federated Department Stores, Inc. ............... 18 (a)1,200 Kohl's Corp. .................................... 73 3,800 May Department Stores, Co. ...................... 124 1,500 Sears, Roebuck & Co. ............................ 52 2,200 Target Corp. .................................... 71 4,600 Wal-Mart Stores, Inc. ........................... 244 ------------ 593 ------------ SPECIALTY RETAIL (1.3%) (a)1,000 Autozone, Inc. .................................. 29 (a)500 Bed, Bath & Beyond, Inc. ....................... 11 2,150 Home Depot, Inc. ................................ 98 200 Lowe's Cos., Inc. ............................... 9 1,100 The Limited, Inc. ............................... 19 1,300 Tiffany & Co. ................................... 41 300 TJX Cos., Inc. .................................. 8 ------------ 215 ------------ TEXTILES & Apparel (0.6%) 1,100 Liz Claiborne, Inc. ............................. 46 400 Nike, Inc., Class B ............................. 22 (a)500 Reebok International, Ltd. ...................... 14 200 Russell Corp. ................................... 3 600 VF Corp. ........................................ 22 ------------ 107 ------------ TOTAL CONSUMER DISCRETIONARY .................................... 1,680 ------------ CONSUMER STAPLES (7.9%) BEVERAGES (3.1%) 2,900 Anheuser Busch Cos., Inc. ....................... 132 300 Brown-Forman Corp., Class B .................... 20 3,400 Coca Cola Co. ................................... 207 200 Coors (Adolph), Inc., Class B ................... 16 2,800 PepsiCo, Inc. ................................... 139 ------------ 514 ------------ FOOD & Drug Retailing (1.6%) 600 CVS Corp. ....................................... 36 (a)500 Kroger Co. ...................................... 14 (a)900 Safeway, Inc. ................................... 56 3,200 SUPERVALU, Inc. ................................. 44 3,200 SYSCO Corp. ..................................... 96 700 Walgreen Co. .................................... 29 ------------ 275 ------------ FOOD PRODUCTS (0.7%) 1,300 Archer-Daniels-Midland Co. ...................... 20 600 ConAgra, Inc. ................................... 16 500 General Mills, Inc. ............................. 22 400 Heinz (H.J.) Co. ................................ 19 300 Quaker Oats Co. ................................. 29 700 Ralston-Ralston Purina Group .................... 18 ------------ 124 ------------ HOUSEHOLD PRODUCTS (1.2%) 300 Clorox Co. ...................................... 11 400 Colgate-Palmolive Co. ........................... 26 500 Kimberly-Clark Corp. ............................ 35 1,600 Procter & Gamble Co. ............................ 125 ------------ 197 ------------ PERSONAL PRODUCTS (0.2%) 900 Gillette Co. .................................... 33 TOBACCO (1.1%) 3,700 Philip Morris Cos., Inc. ........................ 163 1,000 UST, Inc. ....................................... 28 ------------ 191 ------------ TOTAL CONSUMER STAPLES 1,334 ------------
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- U.S. Equity Plus Portfolio 98 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- U.S. EQUITY PLUS PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
VALUE SHARES (000) - -------------------------------------------------------------------------------- ENERGY (6.7%) ENERGY EQUIPMENT & Services (0.3%) 900 Baker Hughes, Inc. .............................. $ 37 300 XCEL Energy, Inc. ............................... 9 ------------ 46 ------------ OIL & GAS (6.4%) 200 Amerada Hess Corp. .............................. 15 600 Anadarko Petroleum Corp. ........................ 43 600 Apache Corp. .................................... 42 1,700 Chevron Corp. ................................... 143 100 Coastal Corp. ................................... 9 700 Conoco, Inc. .................................... 20 5,028 Exxon Mobile Corp. .............................. 437 300 Kerr McGee Corp. ................................ 20 2,300 Occidental Petroleum Corp. ...................... 56 100 Phillips Petroleum Co. .......................... 6 2,800 Royal Dutch Petroleum Co. ....................... 169 1,300 Sunoco, Inc. .................................... 44 1,100 Texaco, Inc. .................................... 68 500 Tosco Corp. ..................................... 17 ------------ 1,089 ------------ TOTAL ENERGY 1,135 ------------ FINANCIALS (16.7%) BANKS (5.7%) 1,400 Bank of New York Co., Inc. ...................... 77 500 Bank One Corp. .................................. 18 2,300 BankAmerica Corp. ............................... 106 800 BB & T Corp. .................................... 30 1,750 Chase Manhattan Corp. ........................... 80 1,400 Comerica, Inc. .................................. 83 1,600 First Union Corp. ............................... 45 2,700 Fleet Boston Financial Corp. .................... 101 800 Golden West Financial Corp. ..................... 54 2,000 KeyCorp ......................................... 56 500 Mellon Bank Corp. ............................... 25 300 Nothern Trust Corp. ............................. 24 100 PNC Bank Corp. .................................. 7 500 SunTrust Banks, Inc. ............................ 32 700 U.S. Bancorp .................................... 20 1,700 Washington Mutual, Inc. ......................... 90 1,900 Wells Fargo Co. ................................. 106 ------------ 954 ------------ DIVERSIFIED FINANCIALS (7.6%) 1,400 American Express Co. ............................ 77 500 Bear Stearns Cos., Inc. ......................... 25 100 Capital One Financial Corp. ..................... 7 1,900 Charles Schwab Corp. ............................ 54 8,258 Citigroup, Inc. ................................. 422 100 Countrywide Credit Industries, Inc. ............. 5 1,400 Federal Home Loan Mortgage Corp. ................ 96 1,900 Federal National Mortgage Association ........... 165 800 Household International, Inc. ................... 44 600 Lehman Brothers Holdings, Inc. .................. 41 2,100 MBNA Corp. ...................................... 77 1,000 Merrill Lynch & Co. ............................. 68 400 Morgan (J.P.) & Co., Inc. ....................... 66 1,000 Providian Financial Corp. ....................... 57 200 State Street Corp. .............................. 25 500 The CIT Group, Inc. Class A .................... 10 700 USA Education, Inc. ............................. 48 ------------ 1,287 ------------ INSURANCE (3.4%) 300 AFLAC, Inc. ..................................... 22 300 Allstate Corp. .................................. 13 100 American General Corp. .......................... 8 3,250 American International Group, Inc. .............. 320 800 Conseco, Inc. ................................... 11 700 Jefferson-Pilot Corp. ........................... 52 200 Lincoln National Corp. .......................... 10 300 Marsh & McLennan Companies, Inc. ................ 35 100 MBIA, Inc. ...................................... 7 500 MGIC Investment Corp. ........................... 34 200 St. Paul Cos., Inc. ............................. 11 1,100 Torchmark Corp. ................................. 42 600 UnumProvident Corp. ............................. 16 ------------ 581 ------------ TOTAL FINANCIALS ................................................ 2,822 ------------ HEALTH CARE (14.9%) BIOTECHNOLOGY (0.5%) (a)1,200 Amgen, Inc. ..................................... 77 (a)100 Biogen, Inc. .................................... 6 ------------ 83 ------------ HEALTH CARE EQUIPMENT & SUPPLIES (1.0%) 200 Allergan, Inc. .................................. 19 (a)200 Alza Corp., Class A ............................. 9 (a)200 Applera Corp-Applied Biosystems Group ........... 19 100 Baxter International, Inc. ...................... 9 500 Becton Dickinson & Co. .......................... 17 (a)200 Guidant Corp. ................................... 11 1,300 Medtronic, Inc. ................................. 78 ------------ 162 ------------ HEALTH CARE PROVIDERS & SERVICES (2.0%) 300 Aetna, Inc. ..................................... 12 500 Cardinal Health, Inc. ........................... 50 700 CIGNA Corp. ..................................... 93 800 HCA - The Healthcare Company .................... 35 (a)1,000 HEALTHSOUTH Corp. ............................... 16 (a)600 Manor Care, Inc. ................................ 12 200 McKesson HBOC, Inc. ............................. 7 1,300 Tenet Healthcare Corp. .......................... 58 (a)600 UnitedHealth Group, Inc. ........................ 37 (a)200 Wellpoint Health Networks, Inc. ................. 23 ------------ 343 ------------ PHARMACEUTICALS (11.4%) 3,100 Abbott Laboratories ............................. 150 1,200 American Home Products Corp. .................... 76 3,500 Bristol-Myers Squibb Co. ........................ 259
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- U.S. Equity Plus Portfolio 99 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- U.S. EQUITY PLUS PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------- HEALTH CARE (CONT.) PHARMACEUTICALS (CONT.) 1,900 Eli Lilly & Co. ................................. $ 177 (a)200 Forest Laboratories, Inc. ....................... 26 2,200 Johnson & Johnson ............................... 231 (a)200 King Pharmaceuticals, Inc. ...................... 11 3,500 Merck & Co., Inc. ............................... 328 9,450 Pfizer, Inc. .................................... 435 1,552 Pharmacia Corp. ................................. 95 2,400 Schering-Plough Corp. ........................... 136 ------- 1,924 ------- TOTAL HEALTH CARE .............................................. 2,512 ------- INDUSTRIALS (10.8%) AEROSPACE & DEFENSE (1.4%) 1,500 Boeing Co. ...................................... 99 800 Honeywell International, Inc. ................... 38 200 Northrop Grumman Corp. .......................... 17 1,100 United Technologies Corp. ....................... 86 ------- 240 ------- AIR FREIGHT & COURIERS (0.1%) (a)600 FedEx Corp. ........................................ 24 ------- AIRLINES (0.5%) 900 AMR Corp. ....................................... 36 200 Delta Air Lines, Inc. ........................... 10 900 Southwest Airlines Co. .......................... 30 ------- 76 ------- COMMERCIAL SERVICES & SUPPLIES (1.2%) 1,300 Automatic Data Processing, Inc. ................. 82 (a)300 Convergys Corp. ................................. 14 1,300 First Data Corp. ................................ 68 100 IMS Health, Inc. ................................ 3 600 Paychex, Inc. ................................... 29 ------- 196 ------- ELECTRICAL EQUIPMENT (0.8%) 800 Cooper Industries, Inc. ......................... 37 200 Emerson Electric Co. ............................ 16 (a)1 Energizer Holdings, Inc. ........................ -- 3,100 National Service Industries, Inc. .............. 79 (a)100 Power-One, Inc. ................................. 4 ------- 136 ------- INDUSTRIAL CONGLOMERATES (5.9%) 14,300 General Electric Co. ............................ 685 1,600 ITT Industries, Inc. ............................ 62 600 Minnesota Mining & Manufacturing Co. ............ 72 3,200 Tyco International Ltd. ......................... 178 ------- 997 ------- MACHINERY (0.8%) 300 Briggs & Stratton Corp. ......................... 13 700 Danaher Corp. ................................... 48 100 Illinois Tool Works, Inc. ....................... 6 400 Ingersoll-Rand Co. .............................. 17 (a)600 Navistar International Corp. .................... 16 300 Pall Corp. ...................................... 6 600 Parker-Hannifin Corp. ........................... 26 ------- 132 ------- ROAD & RAIL (0.1%) 200 Ryder System, Inc. .............................. 3 300 Stilwell Financial, Inc. ........................ 12 200 Union Pacific Corp. ............................. 10 ------- 25 ------- TRADING COMPANIES & DISTRIBUTORS (0.0%) 100 Grainger (W.W.), Inc. ........................... 4 ------- TOTAL INDUSTRIALS .............................................. 1,830 ------- INFORMATION TECHNOLOGY (21.5%) COMMUNICATIONS EQUIPMENT (6.3%) (a)700 ADC Telecommunications, Inc. .................... 13 (a)12,200 Cisco Systems, Inc. ............................. 467 300 Comverse Technology, Inc. ....................... 32 1,500 Corning, Inc. ................................... 79 (a)1,700 JDS Uniphase Corp. .............................. 71 2,100 Lucent Technologies, Inc. ....................... 28 3,500 Motorola, Inc. .................................. 71 4,500 Nortel Networks Corp. ........................... 144 (a)1,200 Qualcomm, Inc. .................................. 99 300 Scientific-Atlanta, Inc. ........................ 10 (a)900 Tellabs, Inc. ................................... 51 ------- 1,065 ------- COMPUTERS & PERIPHERALS (4.7%) 1,500 Compaq Computer Corp. ........................... 23 (a)2,500 Dell Computer Corp. ............................. 44 (a)3,700 EMC Corp. ....................................... 246 (a)400 Gateway 2000, Inc. .............................. 7 1,300 Hewlett Packard Co. ............................. 41 2,400 International Business Machines Corp. ........... 204 (a)300 Lexmark International Group, Inc. ............... 13 (a)700 Network Appliance, Inc. ......................... 45 (a)941 Palm, Inc. ...................................... 27 (a)5,400 Sun Microsystems, Inc. .......................... 150 ------- 800 ------- ELECTRONIC EQUIPMENT & INSTRUMENTS (0.6%) (a)800 Agilent Technologies, Inc. ...................... 44 100 PerkinElmer, Inc. ............................... 10 (a)400 Sanmina Corp. ................................... 31 (a)400 Solectron Corp. ................................. 13 200 Tektronix, Inc. ................................. 7 ------- 105 ------- INTERNET SOFTWARE & SERVICES (1.0%) (a)4,000 America Online, Inc. ............................ 139 (a)900 Yahoo!, Inc. .................................... 27 ------- 166 ------- IT CONSULTING & SERVICES (0.2%) 500 Electronic Data Systems Corp..................... 29 (a)100 Sapient Corp. ................................... 1 ------- 30 ------- SEMICONDUCTOR EQUIPMENT & PRODUCTS (4.1%) (a)200 Advanced Micro Devices, Inc. .................... 3
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- U.S. Equity Plus Portfolio 100 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- U.S. EQUITY PLUS PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
VALUE SHARES (000) - ------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (CONT.) SEMICONDUCTOR EQUIPMENT & PRODUCTS (CONT.) (a)200 Altera Corp. .................................... $5 (a)800 Analog Devices, Inc. ............................ 41 (a)1,100 Applied Materials, Inc. ......................... 42 (a)500 Broadcom Corp., Class A ......................... 42 (a)300 Conexant Systems, Inc. .......................... 5 10,100 Intel Corp. ..................................... 306 (a)600 KLA Tencor Corp. ................................ 20 800 Linear Technology Corp. ......................... 37 (a)200 LSI Logic Corp. ................................. 3 400 Maxim Integrated Products, Inc. ................. 19 (a)400 Micron Technology, Inc. ......................... 14 (a)200 Novellus Systems Inc. ........................... 7 (a)200 Teradyne, Inc. .................................. 8 2,800 Texas Instruments, Inc. ......................... 133 (a)300 Xilinx, Inc. .................................... 14 ------- 699 ------- SOFTWARE (4.6%) 300 Adobe Systems, Inc. ............................. 17 (a)200 Citrix Systems, Inc. ............................ 5 200 Computer Associates International, Inc. ......... 4 (a)200 Mercury Interactive Corp. ....................... 18 (a)7,800 Microsoft Corp. ................................. 339 (a)8,600 Oracle Corp. .................................... 250 (a)100 Parametric Technology Corp. ..................... 1 (a)100 Peoplesoft, Inc. ................................ 4 (a)800 Siebel Systems, Inc. ............................ 54 (a)889 VERITAS Software Corp. .......................... 78 ------- 770 ------- TOTAL INFORMATION TECHNOLOGY ................................... 3,635 ------- MATERIALS (2.3%) CHEMICALS (0.6%) 300 Air Products & Chemicals, Inc. .................. 12 400 Ashland, Inc. ................................... 14 500 Dow Chemical Co. ................................ 19 900 E.I. du Pont de Nemours & Co. ................... 44 (a)200 FMC Corp. ....................................... 14 ------- 103 ------- CONSTRUCTION MATERIALS (0.3%) 900 Vulcan Materials Co. ............................ 43 ------- CONTAINERS & PACKAGING (0.0%) (a)400 Pactiv Corp. .................................... 5 ------- METALS & MINING (0.9%) 300 Alcan Aluminum Ltd. ............................. 10 1,100 Alcoa, Inc. ..................................... 37 800 Allegheny Teledyne, Inc. ........................ 13 500 Barrick Gold Corp. .............................. 8 (a)1,500 Inco Ltd. ....................................... 25 1,000 Nucor Corp. ..................................... 40 1,500 Placer Dome, Inc. ............................... 14 ------- 147 ------- PAPER & FOREST PRODUCTS (0.5%) 500 Georgia-Pacific Group .............................. 16 100 Weyerhauser Co. ................................. 5 1,300 Willamette Industries, Inc. ..................... 61 ------- 82 ------- TOTAL MATERIALS................................................. 380 ------- TELECOMMUNICATION SERVICES (5.7%) DIVERSIFIED TELECOMMUNICATION SERVICES (5.3%) 1,100 Alltel Corp. .................................... 69 1,614 AT&T Corp. ...................................... 28 1,900 Bellsouth Corp. ................................. 78 1,800 CenturyTel, Inc. ................................ 64 (a)700 Global Crossing Ltd. ............................ 10 (a)3,200 Qwest Communications International, Inc. ........ 131 5,726 SBC Communications, Inc. ........................ 274 500 Sprint Corp. .................................... 10 4,474 Verizon Communications, Inc. .................... 224 (a)950 Worldcom, Inc. .................................. 13 ------- 901 ------- WIRELESS TELECOMMUNICATION SERVICES (0.4%) (a)1,500 Nextel Communications, Inc., Class A ............ 37 (a)1,200 Sprint Corp. (PCS Group) ........................ 25 ------- 62 ------- TOTAL TELECOMMUNICATION SERVICES................................ 963 ------- UTILITIES (3.8%) ELECTRIC UTILITIES (1.4%) (a)100 AES Corp. ....................................... 6 100 Ameren Corp. .................................... 5 400 Cinergy Corp. ................................... 14 100 Duke Power Co. .................................. 9 600 Edison International ............................ 9 200 Exelon Corp. .................................... 14 1,600 PG&E Corp. ...................................... 32 800 PPL Corp. ....................................... 36 1,800 Public Service Enterprise Group, Inc. ........... 87 500 Reliant Energy, Inc. ............................ 22 100 TXU Corp......................................... 4 ------- 238 ------- GAS UTILITIES (1.6%) 1,500 KeySpan Corp..................................... 63 600 NICOR, Inc....................................... 26 600 Oneok, Inc....................................... 29 7,000 Sempra Energy.................................... 163 ------- 281 ------- MULTI - UTILITIES (0.8%) 500 Dynergy, Inc..................................... 28 900 Enron Corp....................................... 75 700 Williams Cos., Inc............................... 28 ------- 131 ------- TOTAL UTILITIES................................................. 650 ------- TOTAL COMMON STOCKS (Cost $16,802).............................. 16,941 -------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- U.S. Equity Plus Portfolio 101 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- U.S. EQUITY PLUS PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
VALUE - ------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.2%) (COST $16,802)........................... $16,941 -------- OTHER ASSETS (0.2%) Cash........................................... $ 9 Dividend Receivable............................ 16 Other.......................................... 6 31 -------- LIABILITIES (-0.4%) Advisory Fees Payable.......................... (18) Administration Fees Payable.................... (6) Custodian Fees Payable......................... (5) Directors's Fees and Expenses Payable.......... (2) Other Liabilities.............................. (29) (60) -------- -------- NET ASSETS (100%)................................................... $16,912 ======== NET ASSETS CONSIST OF: Paid in Capital..................................................... $17,119 Accumulated Net Investment Loss..................................... (1) Distributions In Excess of Net Realized Gain........................ (345) Unrealized Appreciation on Investments and Foreign Currency Translations............................................ 139 -------- NET ASSETS.......................................................... $16,912 ======== CLASS A: - -------- NET ASSETS.......................................................... $16,912 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 1,612,159 outstanding $0.001 par value shares (authorized 500,000,000 shares)................... $ 10.49 ========
- ------------------------------------------------------------------------------- (a) -- Non-income producing security The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- U.S. Equity Plus Portfolio 102 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- U.S. REAL ESTATE PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - -------------------------------------------------------------------------------- [CHART] Other (3.3%) Real Strip Centers (3.0%) Residential Manufactured Homes (4.6%) Diversified (4.9%) Self Storage (5.4%) Mixed (5.5%) Lodging/Resorts (6.0%) Industrial (6.5%) Retail Regional Malls (7.5%) Office (32.3%) Residential Apartments (21.0%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------- [GRAPH]
U.S. Real NAREIT Estate Portfolio- Equity Class A Index(1) ----------------- -------- 1995 $ 500,000 $500,000 1996 ---------- -------- 1997 ---------- -------- 1998 ---------- -------- 1999 ---------- -------- 2000 $1,207,902 $933,659
* Commenced operations on February 24, 1995 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS (NAREIT) EQUITY INDEX(1) - --------------------------------------------------------------------------------
TOTAL RETURNS(2) --------------------------- AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION ------ --------- ---------- PORTFOLIO -- CLASS A.......... 29.65% 14.81% 16.26% PORTFOLIO -- CLASS B.......... 29.36 N/A 14.35 INDEX -- CLASS A.............. 26.36 10.10 11.19 INDEX -- CLASS B.............. 26.36 N/A 10.11
1. The NAREIT Equity Index is an unmanaged market weighted index of tax qualified REITs listed on the New York Stock Exchange, American Stock Exchange and the NASDAQ National Market System, including dividends. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The U.S. Real Estate Portfolio seeks to provide above average current income and long-term capital appreciation by investing primarily in equity securities of companies in the U.S. real estate industry, including real estate investment trusts ("REITs") and real estate operating companies. The Portfolio's concentration in the real estate sector makes it subject to greater risk and volatility than other Portfolios that are more diversified and the value of its shares may be substantially affected by economic events in the real estate industry. For the year ended December 31, 2000, the Portfolio had a total return of 29.65% for the Class A shares and 29.36% for the Class B share compared to 26.36% for the National Association of Real Estate Investment Trusts (NAREIT) Equity Index (the "Index"). For the five-year period ended December 31, 2000, the Portfolio had a total return of 14.81% for the Class A shares compared to 10.10% for the Index. For the period from inception on February 24, 1995 through December 31, 2000, the average annual total return for the Class A shares was 16.26% compared to 11.19% for the Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 14.35% compared to 10.11% for the Index. REITs finished the year with a continuation of the strong performance that commenced in mid-March and coincided with the decline of technology, media and telecommunications (TMT) stocks, posting an impressive return of 3.7% in the fourth quarter as measured by the Index. For the full calendar year, REITs provided a total return of 26.4%. Perhaps the more dramatic aspect is the level by which REIT returns exceeded the major equity indexes in both the fourth quarter and for the full year. In the fourth quarter, REITs outperformed NASDAQ and the S&P 500 Index, which declined approximately 33% and 8%, respectively. For the full year, REITs had outperformed NASDAQ, which declined 39% and the S&P, which declined 9%, by more than 65% and 35%, respectively. It is interesting to note that for most of the year REITs demonstrated an inverse correlation to the broader equity markets, and particularly to NASDAQ. Investors appeared to be attracted to the sector's defensive characteristics as a - ------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------- U.S. Real Estate Portfolio 103 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- U.S. REAL ESTATE PORTFOLIO (CONT.) separate asset class, particularly as they repositioned their portfolios in response to the year's price declines and increased volatility. In addition, amid a slew of negative earnings announcements from companies in a broad array of sectors, REITs exhibited stable to increasing earnings versus analyst estimates. At certain points in the year, REITs performed in line with certain other value-oriented or defensive sectors of the equity markets, particularly utilities and small cap value stocks. While REITs may share market movements with certain sectors for periods of time, over the long-term, we believe REITs remain a separate asset class and will perform most similarly to private real estate values. Following a disappointing 1999 (recall that REITs did not participate in that year's strong equity market performance), REITs proceeded to perform poorly from the beginning of the year until mid-March, when NASDAQ began its decline. REITs followed with strong gains in the rest of the year. On many trading days, REITs performed very well in the face of weak and volatile equity markets, as the defensive nature of the sector appeared to attract investors. REITs did retreat several times in the year. First, they fell in August, a month in which the equity markets had their strongest performance of the year, as it appeared that a subset of non-dedicated investors took profits out of the REIT sector and moved funds back to the broader equity markets; and, again in October as a large equity issuance and an earnings disappointment from a prominent REIT slowed the sector. After declining 4.3% in October, the sector regained its defensive posture in the month of November gaining 1.3% and again in December, rallying 7.0% in the face of weak performance for the broader equity markets. Throughout the fourth quarter, there was increasing evidence that the U.S. economy was slowing. As a result, investors and analysts tested their theories on the consequences to the real estate market of both a slowdown and a more bearish recession scenario. The general consensus with regard to the U.S. real estate market is that it is well positioned for a slowdown in the demand for real estate space. This opinion is based on the modest level of new development, which is equal to pipelines of approximately 1% to 3% of the existing stock of properties, significant reported levels of pre-leasing for these projects, and the current below average vacancy rates in most markets. We will continue to monitor the lease-up progress and the credit quality of tenants for new developments. We have described a real estate soft landing as the scenario that translates to the equilibrium phase for the property markets. This would be a more normalized level for the sector, characterized by flat occupancy levels and rental rate growth more comparable to the rate of inflation. However, the hard landing scenario, in which demand is negligible, would result in vacancy pressure from the non pre-leased portion of the supply pipeline and perhaps retard rental growth as the new developments compete on a price basis to attract tenants. It is interesting to note that despite visible signs of slowing elsewhere in the economy, there was little evidence of a slowdown in the demand for real estate space in the fourth quarter. In this environment, the demand for real estate can be viewed as a lagging indicator, and as a result, the slowdown being experienced elsewhere has been slow to materialize in real estate. Owners of real estate properties were able to exhibit pricing power in many markets during the quarter; although there was a slowdown in the rate of growth from earlier in the year. The combination of good demand for space and a slowdown in new supply continued to allow for rental rate and occupancy gains. Once again, the strongest results were posted by companies with more exposure to markets with higher barriers to new supply, including central business district locations and the West Coast, the results of which had the greatest impact on rental and occupancy growth in the office and apartment sectors. Markets with scarcity of sites for new development should continue to post rental growth in excess of inflation. Our investment perspective is that over the medium and long-term the largest determinant of the value of real estate stocks will be underlying real estate fundamentals. We measure the sector based on the Price (share price) to Net Asset Value (underlying real estate value) per share ratio ("P/NAV"). Given the large and active private real estate market, we believe that there are limits as to the level of premium or discount at which the sector should trade relative to its NAV. These limits can be viewed as the point at which the arbitrage opportunity between owning real estate in the private versus public markets becomes compelling. As a result of the recent strong performance of the sector, some analysts are debating whether pricing in the sector has reduced its defensive qualities. From our P/NAV perspective, much of this year's price appreciation was matched by NAV growth. The result is that by year-end, REITs traded at a 7.5% discount to the underlying value of their assets, preserving their discount. After strong performance throughout the year, the weak performance for the sector in October was notable. At the time, we believed that there were two possible interpretations. The first was that the concerns over weakness in the economy and related concerns for cyclical stocks spilled from the broad markets to the REIT sector and caused investors to question the potential for a - ------------------------------------------------------------------------------ U.S. Real Estate Portfolio 104 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- U.S. REAL ESTATE PORTFOLIO (CONT.) significant decline in the earnings growth rate. The second thesis was that the weak performance was due to the combined effect of two specific events, the pre-release of below consensus earnings by Post Properties and the announcement by Boston Properties that it had launched a $600 million equity offering. The significance of the Post announcement was that the company had long been considered one of the preeminent apartment REITs and as a result the news was very unexpected. This announcement may have alarmed non-dedicated investors that moved part of their portfolio allocation to REITs for defensive purposes and to participate in a sector in which companies were meeting or exceeding earnings estimates. Post management also raised the notion that their issues may have been more sector-wide than company specific. The Boston Properties equity offering raised concerns that REITs may place a temporary ceiling on their share prices when they raise equity, that it may be followed by more equity offerings and that it may soak-up excess demand for other stocks in the sector. In retrospect, it may have been a combination of both interpretations. Clearly, the lack of both additional negative earnings announcements and additional equity offerings helped the sector, but also the analysis that the current real estate market is less susceptible to an economic slowdown was also received favorably. The Boston Properties deal was the only significant public offering of common shares completed in the year. (Equity Office Properties completed a large $345 million convertible debt deal in the third quarter.) Clearly, other top tier companies monitored this successful offering and may explore similar strategies in 2001. Despite the recovery in stock prices, companies were restrained with regard to equity issuance. This is the result of a number of factors. The primary rationale is that despite the improvement, many companies continue to trade at levels below their NAV. This factor is combined with a recent period in which many companies embraced self-funding strategies, which mitigated the requirement to continuously require access to the equity markets. As a result, notwithstanding their price recovery, we note that companies are proceeding with their capital recycling programs, which involves the process of working their portfolios to create value as opposed to simply growing their portfolios. There were a small number of small, public equity deals issued by companies trading at a premium to NAV. Issuers included Kimco Realty ($76.5 million) and Alexandria ($40 million) in the third quarter and Centerpoint in the fourth quarter ($65 million). Equity issuance is likely to remain a sensitive issue for REITs, which are engaged in a capital intensive business. The key concern is that REITs may cap their share price upside by issuing equity. Other defensive sectors such as utilities have not exhibited this need to issue equity. The more recent focus on the slowdown in the economy caused industry observers to take a closer look at concerns over development. Until recently, development has not been a significant issue since there has been buoyant demand and most sectors have been under-supplied for years. As a result, REITs have met or exceeded pro forma development returns. However, there were a few warning signs of lower than expected development returns in the apartment and retail areas in the fourth quarter. In addition these warnings were being delivered in a strong economic environment, which raises the concern over to-be-completed projects that may be delivered in a much weaker economic environment. A related concern that received more attention this quarter was the ancillary (non-property) revenue earned by REITs as a component of recurring earnings. In particular, there was a renewed focus on fee revenues from build-to-suit development in the industrial sector. Clearly, this income stream would decline in a less buoyant economic environment. In 2000, the lodging stocks were the best performers in the sector, outperforming the Index by almost 20% as the strong economy provided high levels of demand and the stocks had ended the previous year at depressed pricing levels. The next best sectors were office and apartments, each outperformed by nearly 10%. Both of these sectors were able to generate strong rental growth, particularly in urban and coastal markets. The office sector benefited from a record level of absorption, which unexpectedly allowed for an additional year of improved occupancies as well as rental rate spikes. The apartment sector continued to rally in the fourth quarter based on the additional benefit of its defensive characteristics relative to other real estate sectors. Industrial property companies modestly outperformed based on strong demand and defensive characteristics. The retail sector underperformed by about 10% for the year, but the regional mall sub-sector performed only modestly below index levels as a result of improved sentiment over competition from e-commerce, a boost from the Urban Shopping Centers takeover and a low valuation level. The manufactured home sub-sector of the residential sector rallied in the fourth quarter. It dramatically surpassed the self-storage sector and avoided the unwelcome distinction as the worst performing sector. Both are small sectors, which were unable to attract the attention of non-dedicated investors in 2000 due to their size and an inability to generate meaningful upward earnings revisions. We attribute the manufactured home rally to its defensive characteristics; although it still underperformed the index by - ---------------------------------------------------------------- U.S. Real Estate Portfolio 105 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- U.S. REAL ESTATE PORTFOLIO (CONT.) 5%. For the full year, self-storage underperformed by 12%. In defense of the self-storage sector (and our overweighting), new supply continues to fall significantly, managements assert that the sector has been recession-resistant, the sector faces weak comparables, and the stocks trade at significant discounts to underlying value. As a result, this may prove to be a more defensive sector in a less robust environment and appears unlikely to repeat on the bottom of next year's list. We continue to shape the Portfolio with companies offering attractive fundamental valuations relative to their underlying real estate value. The top-down weightings in the Portfolio remain similar to last quarter with a modest shift to a more defensive stance within the sector weightings. We increased our overweighting to the companies focused on central business district and coastal office markets as there continues to be a large gap between existing lease rates and current market rents and vacancy rates remain below equilibrium levels. We reduced our exposure to more generic suburban office to offset this movement. In addition we added to both the apartment and self-storage sectors for the more defensive factors discussed above. Finally, we reduced our weighting in the retail sector to reflect the continuation of oversupply and tenant problems in the sector and to the hotel sector, which is the most economically sensitive sector based on the one-day average lease term and modest degree of advance booking. An interesting aspect to the bottom-up changes to the Portfolio this quarter was the opportunistic nature of additions. We purchased Post, Prologis and Macerich as each of the stocks overreacted by falling by far more than the NAV dilution from their negative earnings announcements. The other opportunity was the ability to add to Spieker toward year-end from a large individual seller and to Archstone in mid-quarter as fears of a stock overhang caused selling pressure. The outlook for the REIT market continues to be favorable. We focus on two key factors: the health of the physical property markets and the public market pricing for the securities. The private real estate markets remained strong in 2000, based on the strong U.S. economy for most of the year and a rational level of new supply. We are encouraged that the development pipelines either peaked or are in the process of peaking for the vast majority of property types and there is a significant level of pre-leasing. Clearly, the slowdown in the economy in 2001 will create a more challenging environment to complete the leasing for these pipelines. However, given the declining levels of construction, the modest level of construction versus total supply outstanding, and historically low vacancy rates, the U.S. real estate market is better prepared for a slowdown in the economy. This factor, when combined with a REIT market that trades at a 7.5% discount to its private valuation, provides the foundation for a defensive asset class. It is noteworthy that despite the strong price performance of REIT shares, REITs ended the year at a discount to their underlying property value. This was because the strong property fundamentals experienced by the real estate companies throughout the year caused underlying property value (NAV) to move up in tandem with price, thereby preserving much of the discount from the start of the year. Our key measures for considering total returns for the sector are the growth rate of NAV (which we define as the private market Net Asset Value for the underlying properties owned by the companies) and the resulting P/NAV (share price versus NAV) plus the return from the dividend. While we think that underlying property values will continue to grow, we think that the rate of growth will decline based on slowing rental growth, peak occupancy levels and a modest decline in private market multiples for certain asset classes (particularly, suburban office and retail). Predicting the P/NAV level has proven to be most difficult in the REIT market. Based on the current discount to its NAV and the sector's ability to demonstrate its defensive characteristics as a separate asset class, we believe the sector should be able to produce returns close to its historical average returns, which investors may find attractive given the recent performance and volatility in the equity markets. Theodore R. Bigman PORTFOLIO MANAGER Douglas A. Funke PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------- U.S. Real Estate Portfolio 106 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- U.S. REAL ESTATE PORTFOLIO - --------------------------------------------------------------------------------
VALUE SHARES (000) - -------------------------------------------------------------------------------- COMMON STOCKS (96.9%) REAL ESTATE (96.9%) DIVERSIFIED (4.9%) 413,000 Pacific Gulf Properties, Inc. REIT .............. $ 2,530 67,700 Pennsylvania REIT ............................... 1,295 (a)385,500 Pinnacle Holdings, Inc. REIT .................... 3,493 32,300 Rouse Co. REIT .................................. 824 424,400 Vornado Realty Trust REIT ....................... 16,260 (a)327,449 Wellsford Real Properties, Inc. ................. 5,157 ------------- 29,559 ------------- HEALTH CARE (0.1%) (a)349,300 Meditrust Corp. REIT ............................ 895 ------------- INDUSTRIAL (6.5%) 312,900 AMB Property Corp. .............................. 8,077 304,900 Cabot Industrial Trust .......................... 5,850 412,400 Prime Group Realty Trust REIT ................... 5,928 873,080 Prologis Trust REIT ............................. 19,426 ------------- 39,281 ------------- LODGING/RESORTS (5.8%) (a)74,700 Candlewood Hotel Company, Inc. .................. 187 218,200 Hilton Hotels Corp. ............................. 2,291 149,400 Host Marriot Corp. .............................. 1,933 (a)32,838 Interstate Hotels Corp. ......................... 54 (a)108,300 John Q Hammons Hotels, Inc., Class A ............ 657 795,693 Starwood Lodging Trust REIT ..................... 28,048 (a)1,157,554 Wyndham International, Inc. ..................... 2,026 ------------- 35,196 ------------- MIXED (5.5%) 79,300 Bedford Property Investors, Inc. REIT ........... 1,606 251,910 PS Business Parks, Inc. Class A REIT ............ 7,003 489,900 Spieker Properties, Inc. REIT ................... 24,556 ------------- 33,165 ------------- OFFICE (32.3%) 1,131,500 Arden Realty, Inc. REIT ......................... 28,429 (d)335,100 Beacon Capital Partners, Inc. ................... 4,002 622,500 Boston Properties, Inc. REIT .................... 27,079 158,254 Brandywine Realty Trust REIT .................... 3,274 1,652,901 Brookfield Properties Corp. (Canada) ............ 29,087 784,230 CarrAmerica Realty Corp. REIT ................... 24,556 1,213,106 Equity Office Properties Trust REIT ............. 39,578 595,600 Great Lakes, Inc. REIT .......................... 10,348 31,400 Highwoods Properties, Inc. ...................... 781 53,600 Koger Equity Inc. REIT .......................... 834 136,100 Mack-Cali Realty Corp. REIT ..................... 3,887 1,557,400 Trizec Hahn Corp. ............................... 23,556 ------------- 195,411 ------------- OTHER (0.3%) (a)548,284 Atlantic Gulf Communities Corp. ............... 27 105,100 Frontline Capital Group ......................... 1,398 (a)(d)18,428 Internap Network Services Corp. ................. 122 ------------- 1,547 ------------- RESIDENTIAL APARTMENTS (21.0%) 487,700 Amli Residential Properties Trust REIT .......... 12,040 710,514 Archstone Communities Trust REIT ................ 18,296 669,262 Avalon Bay Communities, Inc. REIT ............... 33,547 3,200 BRE Properties, Class A ......................... 101 350,940 Equity Residential Properties Trust REIT ........ 19,411 325,800 Essex Property Trust, Inc. REIT ................. 17,837 302,400 Post Properties, Inc. REIT ..................... 11,359 289,800 Smith (Charles E.) Residential Realty, Inc. REIT ....................................... 13,621 28,300 Summit Properties, Inc. ......................... 736 14,400 United Dominion Realty Trust .................... 156 ------------- 127,104 ------------- RESIDENTIAL MANUFACTURED HOMES (4.6%) 543,752 Chateau Communities, Inc. REIT .................. 16,550 377,500 Manufactured Home Communities, Inc. REIT ........ 10,947 9,000 Sun Communities, Inc. REIT ...................... 302 ------------- 27,799 ------------- RETAIL REGIONAL MALLS (7.5%) 351,000 Macerich Co. REIT ............................... 6,735 1,122,900 Simon Property Group, Inc. REIT ................. 26,950 1,060,778 Taubman Centers, Inc. REIT ...................... 11,602 ------------- 45,287 ------------- RETAIL STRIP CENTERS (3.0%) 132,800 Acadia Realty Trust REIT ........................ 747 944,890 Burnham Pacific Property Trust REIT ............. 4,370 689,400 Federal Realty Investment Trust REIT ............ 13,098 2,300 Ramco-Gershenson Properties Trust REIT .......... 30 ------------- 18,245 ------------- SELF STORAGE (5.4%) 1,219,690 Public Storage, Inc. REIT ....................... 29,654 114,700 Shurgard Storage Centers, Inc., Series A REIT .......................................... 2,803 ------------- 32,457 ------------- TOTAL COMMON STOCKS (Cost $523,765) ............................. 585,946 ------------- PREFERRED STOCKS (0.3%) REAL ESTATE (0.3%) LODGING/RESORTS (0.2%) (d)16,187 Wyndham, Series B ............................... 1,402 ------------- OTHER (0.1%) (a)(d)107,021 Atlantic Gulf Communities Corp. ................. 448 ------------- TOTAL PREFERRED STOCKS (Cost $2,472) ............................ 1,850 ------------- CONVERTIBLE PREFERRED STOCKS (0.1%) REAL ESTATE (0.1%) OTHER (0.1%) (a)(d)75,765 Atlantic Gulf Communities Corp., Series B ..................................................... 317 ------------- TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $758)................... 317 -------------
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- U.S. Real Estate Portfolio 107 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- U.S. REAL ESTATE PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
VALUE NO OF RIGHTS (000) - -------------------------------------------------------------------------------- RIGHTS (0.0%) OTHER (0.0%) (a)(d)59,764 Cyprus Trading Corp., Ltd. (Cost $252) .......... $ 54 ------------ NO OF WARRANTS - --------------- WARRANTS (0.0%) OTHER (0.0%) (a)(d)112,510 Atlantic Gulf Communities Corp., Class A......... -- (a)(d)112,510 Atlantic Gulf Communities Corp., Class B......... -- (a)(d)112,510 Atlantic Gulf Communities Corp., Class C......... -- ------------ TOTAL WARRANTS (Cost $ --)....................................... -- ------------ FACE AMOUNT (000) - -------- SHORT-TERM INVESTMENT (2.7%) REPURCHASE AGREEMENT (2.7%) $(f)16,045 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01(Cost $16,045)............... 16,045 ------------ TOTAL INVESTMENTS (100.0%) (Cost $543,292)....................... $ 604,212 ------------ OTHER ASSETS (1.7%) Cash............................................ $ 1,098 Receivable for Investments Sold................. 5,401 Dividends Receivable............................ 3,533 Receivable for Portfolio Shares Sold............ 224 Interest Receivable............................. 16 Other........................................... 17 10,289 ------------ LIABILITIES (-1.7%) Payable for Investments Purchased............... (8,664) Investment Advisory Fees Payable................ (1,105) Administrative Fees Payable..................... (78) Directors' Fees and Expenses Payable............ (26) Payable for Portfolio Shares Redeemed........... (19) Custodian Fees Payable.......................... (14) Distribution Fees Payable....................... (12) Other Liabilities............................... (85) (10,003) ------------ ------------ NET ASSETS (100%)................................................ $ 604,498 ============ AMOUNT (000) - ------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Paid in Capital................................................. $ 540,246 Distributions in Excess of Net Investment Income................ (5) Accumulated Net Realized Gain................................... 3,332 Unrealized Appreciation on Investments and Foreign Currency Translations......................................... 60,925 ----------- NET ASSETS $ 604,498 =========== CLASS A: - -------- NET ASSETS ...................................................... $ 584,263 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 40,289,342 outstanding $0.001 par value shares (authorized 500,000,000 shares) ........................ $ 14.50 =========== CLASS B: - -------- NET ASSETS ...................................................... $ 20,235 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 1,400,147 outstanding $0.001 par value shares (authorized 500,000,000 shares)......................... $ 14.45 ===========
- -------------------------------------------------------------------------------- (a)--Non-income producing (d)--Security valued at fair value--See Note A-1 to financial statements. (f)--The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. REIT--Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- U.S. Real Estate Portfolio 108 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- VALUE EQUITY PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) [CHART] Financial Services (35.2%) Technology (13.7%) Utilities (11.9%) Integrated Oils (8.2%) Health Care (6.7%) Consumer Discretionary (5.8%) Auto & Transportation (5.5%) Producer Durables (4.4%) Materials & Processing (3.1%) Consumer Staples (0.3%) Other (5.2%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------------------ [GRAPH]
Value Equity Portfolio- S&P 500 Russell 1000 Class A Index(1) Value Index(2) ------------ ---------- -------------- 1991 $ 500,000 $ 500,000 $ 500,000 10/31/92 ---------- ---------- ---------- 12/31/92 ---------- ---------- ---------- 1993 ---------- ---------- ---------- 1994 ---------- ---------- ---------- 1995 ---------- ---------- ---------- 1996 ---------- ---------- ---------- 1997 ---------- ---------- ---------- 1998 ---------- ---------- ---------- 1999 ---------- ---------- ---------- 2000 $2,153,014 $2,589,748 $2,425,154
* Commenced operations on January 31, 1990 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE RUSSELL 1000 VALUE INDEX AND S&P 500 INDEX(1) - --------------------------------------------------------------------------------
TOTAL RETURNS(2) ---------------------------------------------- AVERAGE AVERAGE AVERAGE ANNUAL ANNUAL ANNUAL ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION ------- ---------- ---------- ---------- PORTFOLIO-- CLASS A 18.08% 17.28% 16.46% 14.30% PORTFOLIO-- CLASS B 17.92 N/A N/A 16.79 RUSSELL 1000 VALUE INDEX-- CLASS A 7.02 16.91 17.34 15.57 S&P 500 INDEX-- CLASS A -9.12 18.32 17.45 16.28 RUSSELL 1000 VALUE INDEX-- CLASS B 7.02 N/A N/A 16.78 S&P 500 INDEX-- CLASS B -9.12 N/A N/A 18.16
1. The Russell 1000 Value Index consists of the largest 1000 companies in the Russell 3000 Index. This index represents the universe of large capitalization stocks from which most active money managers typically select. The index was developed with a base value of 130.00 as of December 31, 1986. The S&P 500 Index is comprised of 500 large-cap U.S. companies with market capitalization of $1 billion or more. These 500 companies are a representative sample of some 100 industries chosen mainly for market size, liquidity and industry group representation. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The Value Equity Portfolio seeks high total return by investing primarily in equity securities which the investment advisor believes to be undervalued relative to the stock market in general at the time of purchase. On December 5, 2000, the Portfolio's benchmark changed its primary benchmark from the S&P 500 to the Russell 1000 Value Index. The Adviser believes the Russell 1000 Value Index is more representative of the value-oriented companies in the Portfolio. Our value philosophy is to own "great" companies at fair valuations, "good" companies at cheap valuations, and, problem/turnaround companies at fire-sale valuations. We wait for the market to provide value investing opportunities rather than forcing decisions. The Portfolio is characterized by distinctly below average price-to-earnings and price-to-book ratios.
1999 2000 PRICE- PRICE-EARNINGS PRICE-EARNINGS BOOK YIELD -------------- -------------- ----- ---- PORTFOLIO 15 TIMES 14 TIMES 4.9 TIMES 2.0% S&P 500 32 TIMES 28 TIMES 8.6 TIMES 1.1%
- ------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. - ------------------------------------------------------------------------------- Value Equity Portfolio 109 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- VALUE EQUITY PORTFOLIO (CONT.) For the year ended December 31, 2000, the Portfolio had a total return of 18.08% for the Class A shares and 17.92% for the Class B shares compared to 7.02% for the Russell 1000 Value Index and -9.12% for the S&P 500 Index. For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was 17.28% compared to 16.91% for the Russell 1000 Value Index and 18.32% for the S&P 500 Index. For the ten-year period ended December 31, 2000, the average annual total return for the Class A shares was 16.46% compared to 17.34% for the Russell 1000 Value Index and 17.45% for the S&P 500 Index. For the period from inception on January 31, 1990 through December 31, 2000, the average annual total return for the Class A shares was 14.30% compared to 15.57% for the Russell 1000 Value Index and 16.28% for the S&P 500 Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 16.79% compared to 16.78% for the Russell 1000 Value Index and 18.16% for the S&P 500 Index. For the year 2000, traditional value stocks rebounded from their unloved and oversold levels of late 1999 and early 2000. This rebound accounted for much of 2000's outperformance. By late 1999 into early 2000 it was all-technology all-the-time, with 100's of billions of dollars flowing into growth funds and technology funds; while at the same time billions were being withdrawn from value funds. This liquidity event pushed the Portfolio down over 10% by mid-February. The rebound was driven by compelling valuations, with prices down 35% to 50%, while earnings continued to grow at 8% to 15%. The subsequent rebound was then amplified when the technology companies signaled that growth would slow--it then became all-technology, all-the-time, except this time it was all-selling, all-the-time. During the year, we added a few high quality growth companies when market fears pushed their valuations to under 10 times earnings. A good example is Freddie Mac, purchased this year when regulatory fears pushed its valuation to under 10 times earnings; earnings that are growing 15%. By year end Freddie Mac was up over 50% since our purchase in mid-year. The fourth quarter marked the end of a disappointing year for U.S. equity markets. Sentiment was affected by both market related factors-including a string of earnings disappointments and year-end tax selling-as well as exogenous factors, such as tensions in the Middle East, the clear slowdown in U.S. economic growth and the period of uncertainty around the Presidential election outcome. There was a sharp dichotomy in the performance of the Russell 1000 Value and Growth Indices that was masked by the broad market index returns. In the fourth quarter the Value Index returned 3.60% versus a decline of 21.34% for the Growth Index. Within the Portfolio, each sector was weighted within 6% of the index weight. The largest sector was financial services, which comprised about 33% of the Portfolio versus 31% for the Index, where stock selection outperformed the Index sector return by 5%. Allstate, Freddie Mac and Loews were core positions that had strong relative results, each up over 20%. Stock selection in technology, which included Litton (up on a takeover bid from Northrop) and General Dynamics (benefiting from a run in defense related stocks), was particularly strong versus the Index sector. In addition, earlier in the year Cordant Technologies (at the time an 8 P/E technology stock) was up 100% when Alcoa made a 100% cash bid for Cordant. Telecom holdings suffered along with the general decline for these stocks, with AT&T, Worldcom and Sprint detracting from relative results. We added to Worldcom and Sprint in the fourth quarter. The 2001 outlook is defined by the slowing U.S. economy and a potential earnings recession; this will be offset by lower interest rates. The Fed lowered the Fed Funds rate by 50 basis points on January 3, 2001. In addition to the economy slowing, the equity and high-yield markets have closed for all practical purposes. High-yield spreads are now higher than in the Long-Term-Capital induced financial crisis of 1998. Compounding this, banks are reducing earnings expectations, increasing loan loss reserves, and decreasing balance sheet levels. The result: cash-strapped new economy companies are filing for bankruptcy; suppliers, like Lucent and Cisco are increasing reserves for bad debt; and all companies with increased leverage have seen their valuations continue to compress. It is clear the economy is slowing and that new economy stocks are subject to old economic rules; and, this has created value opportunities. The collapse in valuations of many technology companies, some down 70% to 80%, has been so swift that many valuations are now quite reasonable. Some technology valuations are equal to or below some of the biggest stocks in the Russell 1000 Value Index. For example Texas Instruments, the leading wireless semiconductor maker, was purchased at $37, valued at 23 times 2001 expected earnings. At that time, American International Group, 3% of the Russell 1000 Value Index, was valued at 34 times 2001 expected earnings. We have added positions in Texas Instruments, Scientific Atlanta, and Lucent. All three of these companies are leaders in the continued expansion of global wireless and broadband networks. These are markets with 25% plus sales growth - ------------------------------------------------------------------------------- Value Equity Portfolio 110 - ------------------------------------------------------------------------------- [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- VALUE EQUITY PORTFOLIO (CONT.) and are at the heart of the broadband and wireless transformation of the global economy. We continue to believe that the internet (broadband) and wireless technologies are an economic tsunami that has unleashed a multi-year wave of global created destruction. This creative destruction will affect all companies, value and growth; U.S. and non-U.S. We continue to focus our efforts on owning good companies in all sectors that meet our value criteria and that will benefit from these economic changes. Summarized below are excerpts from prior reports where we discussed the internet and wireless and creative destruction and value investing. The structure of the internet lets any device (PC, Mainframe, PDA, Cell Phone) connect to any other device any where in the world. Much like voice mail, the connection is not time dependent, so you can connect at any time on any day. The connection can then carry data, voice, and video, and the data arrives in discreet packets that are very cheap to transport relative to existing dedicated phone circuits. This structure has enormous implications for the economics of how business-to-business transactions occur and how consumers price and then buy services. The economics of the internet harness three powerful factors: (1) the falling cost of computers (Moore's law with costs falling approximately 50% every 18 months); (2) The falling cost of optical data transmission, with costs falling approximately 50% every 9 months; and (3), Metcalfe's law which says that the power of a network approaches the number of users in the network squared. Currently more than 250 million people are connected through the Internet. The expectation is that by 2003 the number of wired and wireless internet users will exceed 1 billion. This world-wide economic event is based on data/telecommunications protocols (rules) known by the acronym TCP/IP, which stands for Transmission Control Protocol/Internet Protocol. The protocols are exactly the same worldwide and specify how information (voice, data, music, and video) is encoded, transmitted, and then decoded. What will work on a personal computer on a corporate network in the U.S. (or anywhere), will also work on a cell phone in Japan or soon on a cell phone in China--The internet is borderless, connectionless, and cheap to use. In some industries such as telephony, every aspect of the business has been changed by the Internet. In others, such as entertainment, the technology of the Internet combined with the digitization of music and movies has transformed the business outlook so that Time Warner agreed to merge with AOL. For industrial companies, major B2B exchanges are being planned for the automobile industry, the oil industry and the chemical industry. The goal of these exchanges is to significantly decrease the costs of input components and to decrease the costs of transacting business. "Old-world" companies that have not adapted to change to an interneted economy have started to run up the white flag. The most notable is Xerox, caught in the transition from an analog (copiers) world to a digital world (networks and network printers). Xerox's stock is down 82%; it has revised earnings estimates downward five times in the last year, and it has cut its dividend 75%. It recently said its current business model will not work and it was forced to fend off rumors of bankruptcy while attempting to restructure its global businesses. (Note: we have avoided stocks like Xerox that we believe are currently on the wrong side of the digital divide.) We believe this sort of creative destruction should continue, with most "new-world" dot-coms eventually imploding and many "old-world" companies failing to make the transition to an interneted economy. During this process, good companies will make the transition to the interneted economy and should maintain or accelerate their earnings growth. In addition, value opportunities should emerge in both the dot-bombed stocks and the struggling "old-world" stocks like Xerox and Lucent. Our goal is to own the good companies, find the struggling stocks with real value, and to avoid the "old-world" value traps. Stephen C. Sexauer PORTFOLIO MANAGER January 2001 Value Equity Portfolio 111 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- VALUE EQUITY PORTFOLIO
VALUE SHARES (000) - -------------------------------------------------------------------------------- COMMON STOCKS (97.1%) AUTO & TRANSPORTATION (5.5%) AIR TRANSPORT (1.6%) (a)21,100 Continental Airlines, Inc., Class B ................ $ 1,089 ----------- AUTO TRUCKS & PARTS (2.9%) 183,249 Meritor Automotive, Inc. .......................... 2,085 ----------- AUTOMOBILES (1.0%) 14,200 General Motors Corp. ............................... 723 ----------- TOTAL AUTO & TRANSPORTATION ................................... 3,897 ----------- CONSUMER DISCRETIONARY (5.8%) CABLE TELEVISION SERVICES (0.5%) (a)23,300 AT&T Corp., Liberty Media Group, Class A ........... 316 ----------- HOUSEHOLD FURNISHINGS (1.3%) (a)26,118 Philips Electronics N.V. (NY Shares) ............... 947 ----------- RETAIL (4.0%) 102,900 TJX Cos., Inc. .................................... 2,855 ----------- TOTAL CONSUMER DISCRETIONARY .................................... 4,118 ----------- CONSUMER STAPLES (0.3%) TOBACCO (0.3%) 4,500 Philip Morris Cos., Inc. ............................ 198 ----------- FINANCIAL SERVICES (35.2%) BANKS: NEW YORK CITY (7.0%) 36,700 Bank of New York Co., Inc. ............................ 2,025 48,150 Chase Manhattan Corp. ................................. 2,188 4,700 Morgan (J.P.) & Co., Inc. .............................. 778 ----------- 4,991 ----------- BANKS: OUTSIDE NEW YORK CITY (7.5%) 25,200 Bank of America Corp. ................................. 1,156 83,645 Fleet Boston Financial Corp. .......................... 3,142 14,600 PNC Bank Corp. ........................................ 1,067 ------------ 5,365 ------------ DIVERSIFIED FINANCIAL SERVICES (4.2%) 37,100 American General Corp. ................................ 3,024 ------------ FINANCE COMPANIES (1.4%) 20,000 Mellon Bank Corp. ..................................... 984 ------------ FINANCIAL MISCELLANEOUS (4.5%) 46,900 Federal Home Loan Mortgage Corp........................ 3,230 ------------ INSURANCE: MULTI-LINE (10.6%) 80,900 Allstate Corp. ........................................ 3,524 58,500 Lincoln National Corp. ................................ 2,768 13,300 Torchmark Corp. ....................................... 511 27,700 UnumProvident Corp. ................................... 744 ------------ 7,547 ------------ TOTAL FINANCIAL SERVICES ........................................ 25,141 ------------ HEALTH CARE (6.7%) DRUGS & PHARMACEUTICALS (6.7%) 30,600 Abbott Laboratories ................................ 1,482 27,400 American Home Products Corp. ....................... 1,741 21,200 Bristol-Myers Squibb Co. ........................... 1,568 ------------ TOTAL HEALTH CARE ............................................... 4,791 ------------ INTEGRATED OILS (8.2%) OIL: INTEGRATED DOMESTIC (4.1%) 12,100 BP Amoco plc ADR ................................... 579 VALUE SHARES (000) - -------------------------------------------------------------------------------- 81,200 Conoco, Inc. ....................................... 2,325 ------------ 2,904 ------------ OIL: INTEGRATED INTERNATIONAL (4.1%) 33,800 Exxon Mobil Corp. .................................. 2,938 ------------ TOTAL INTEGRATED OILS ........................................... 5,842 ------------ MATERIALS & PROCESSING (3.1%) BUILDING MATERIALS (1.1%) 30,700 Masco Corp. ........................................ 788 ------------ CHEMICALS (1.0%) 38,400 Milennium Chemicals, Inc. .......................... 696 ------------ MISC. MATERIALS & PROCESSING (1.0%) 161,800 USEC, Inc. .......................................... 698 ------------ TOTAL MATERIALS & PROCESSING .................................... 2,182 ------------ MULTI-SECTOR COMPANIES (1.8%) 12,100 Loews Corp. ......................................... 1,253 ------------ PRODUCER DURABLES (4.4%) AEROSPACE (3.8%) 35,000 United Technologies Corp. .......................... 2,752 ------------ MACHINERY: CONSTRUCTION & HANDLING (0.6%) 8,800 Caterpillar, Inc. .................................. 416 ------------ TOTAL PRODUCER DURABLES ......................................... 3,168 ------------ TECHNOLOGY (14.2%) COMMUNICATIONS TECHNOLOGY (10.5%) (a)45,800 3Com Corp. ......................................... 389 12,874 Alcatel Alsthom ADR ................................ 720 (a)37,900 AT&T Wireless Group ................................ 656 18,500 ECI Telecom Ltd. ................................... 259 (a) 4,500 Efficient Networks, Inc. ........................... 64 (a) 8,900 Harmonic, Inc. ..................................... 51 27,300 Lucent Technologies, Inc. .......................... 369 51,600 Motorola, Inc. ..................................... 1,045 5,600 Scientific-Atlanta, Inc. ........................... 183 (a) 3,800 TyCom, Ltd. ........................................ 85 50,400 Verizon Communications, Inc. ....................... 2,526 (a)82,300 WorldCom, Inc. ..................................... 1,152 ------------ 7,499 ------------ ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS (0.9%) 13,300 Texas Instruments, Inc. ............................ 630 ------------ ELECTRONICS: TECHNOLOGY (2.8%) 15,400 General Dynamics Corp. ............................. 1,201 26,950 Harris Corp. ....................................... 826 ------------ 2,027 ------------ TOTAL TECHNOLOGY ................................................ 10,156 ------------ UTILITIES (11.9%) UTILITIES: ELECTRICAL (5.9%) 113,300 NiSource, Inc. .................................... 3,484 25,505 Xcel Energy, Inc. ................................. 741 ------------ 4,225 ------------ UTILITIES: TELECOMMUNICATIONS (6.0%) 24,758 AT&T Corp. ......................................... 429
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- Value Equity Porfolio 112
VALUE SHARES (000) - -------------------------------------------------------------------------------- UTILITIES: TELECOMMUNICATIONS (CONT.) 23,400 BellSouth Corp. ................................... $ 958 (a)122,400 FLAG Telecom Holdings Ltd. ........................ 765 (a)3,678 Qwest Communications International, Inc. ............ 151 73,900 Sprint Corp. ........................................ 1,501 17,625 Telesp Celular Participacoes S.A. ADR ............... 476 ------------ 4,280 ------------ TOTAL UTILITIES ............................................... 8,505 ------------ TOTAL COMMON STOCKS (Cost $59,536) ............................ 69,251 ------------ FACE AMOUNT (000) - --------------- SHORT-TERM INVESTMENT (4.0%) REPURCHASE AGREEMENT (4.0%) $(f)2,880 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $2,880) 2,880 ------------ TOTAL INVESTMENTS (101.1%) (Cost $62,416) ..................... 72,131 ------------ OTHER ASSETS (0.6%) Cash ........................................... $ 14 Receivable for Investments Sold ................ 254 Dividends Receivable ........................... 92 Receivable for Portfolio Shares Sold ........... 37 Interest Receivable ............................ 1 Other .......................................... 5 403 ------------ LIABILITIES (-1.7%) Payable for Investments Purchased ............... (1,055) Investment Advisory Fees Payable ................ (76) Administrative Fees Payable ..................... (13) Directors' Fees and Expenses Payable ............ (9) Custodian Fees Payable .......................... (4) Distribution Fees Payable ....................... (1) Other Liabilities ................................ (31) (1,189) ------------ ------------ NET ASSETS (100%) ............................................... $71,345 =========== AMOUNT (000) - ------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Paid in Capital ................................................. $ 63,251 Undistributed Net Investment Income ............................. 25 Distributions In Excess of Net Realized Loss .................... (1,646) Unrealized Appreciation on Investments and Foreign Currency Translations ......................................... 9,715 ------------ NET ASSETS $ 71,345 =========== CLASS A: NET ASSETS ...................................................... $ 70,454 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 6,824,612 outstanding $0.001 par value shares (authorized 500,000,000 shares) ............................. $ 10.32 =========== CLASS B: NET ASSETS $ 891 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 86,389 outstanding $0.001 par value shares (authorized 500,000,000 shares) ............................... $ 10.32 ===========
(a) -- Non-income producing (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. ADR -- American Depositary Receipt The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- Value Equity Porfolio 113 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- EMERGING MARKETS DEBT PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - -------------------------------------------------------------------------------- [CHART] Other (18.4%) Algeria (1.9%) Philippines (2.1%) Colombia (2.4%) Bulgaria (3.8%) South Korea (4.1%) Venezuela (4.5%) Argentina (8.9%) Russia (11.1%) Brazil (19.2%) Mexico (23.6%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------------------ [GRAPH]
J.P. Morgan Emerging Markets Emerging Markets J.P. Morgan Debt Portfolio- Bond Plus Emerging Markets Class A Index(1) Global Index(1) ---------------- ---------------- ---------------- 1994 $500,000 $500,000 $500,000 1995 -------- -------- -------- 1996 -------- -------- -------- 1997 -------- -------- -------- 1998 -------- -------- -------- 1999 -------- -------- -------- 2000 $914,022 $969,130 $973,217
* Commenced operations on February 1, 1994 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. - -------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. 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. PERFORMANCE COMPARED TO THE J.P. MORGAN EMERGING MARKETS BOND GLOBAL INDEX AND THE J.P. MORGAN EMERGING MARKETS BOND PLUS INDEX(1) - --------------------------------------------------------------------------------
TOTAL RETURNS(2) ---------------------------------------- AVERAGE AVERAGE ONE ANNUAL ANNUAL SINCE YEAR FIVE YEARS INCEPTION -------- ------------- --------------- PORTFOLIO -- CLASS A ............. 12.81% 10.78% 9.20% PORTFOLIO -- CLASS B ............. 12.50 N/A 10.29 EMERGING MARKETS 14.41 13.73 10.11 GLOBAL INDEX -- CLASS A EMERGING MARKETS BOND PLUS INDEX -- CLASS A ............ 15.66 14.46 10.75 EMERGING MARKETS GLOBAL INDEX -- CLASS B ........... 14.41 N/A 13.47 EMERGING MARKETS BOND PLUS INDEX -- CLASS B ........... 15.66 N/A 14.21
1. The J.P. Morgan Emerging Markets Bond Global Index tracks total returns for U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities, Brady Bonds, loans, Eurobonds and local market instruments for 27 emerging market countries. The J.P. Morgan Emerging Markets Bond Plus Index is a market weighted index composed of all Brady bonds, out-standing loans and Eurobonds, as well as U.S. Dollar local market instruments outstanding and including Argentina, Brazil, Bulgaria, Colombia, Ecuador, Mexico, Morocco, Nigeria, Panama, Peru, the Philippines, Poland, Russia, South Korea and Venezuela. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The investment objective of the Emerging Markets Debt Portfolio seeks high total return through investment primarily in debt securities of government and government-related issuers and, to a lesser extent, of corporate issuers located in emerging market countries. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of 12.81% for the Class A shares and 12.50% for the Class B shares compared to 14.41% for the J.P. Morgan Emerging Markets Bond Global Index and 15.66% for the J.P. Morgan Emerging Markets Bond Plus Index. For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was 10.78% compared to 13.73% for the J.P. Morgan Emerging Markets Bond Global Index and 14.46% for the J.P. Morgan Emerging Markets Bond Plus Index. For the period from inception on February 1, 1994 through December 31, 2000, the average annual total return for the Class A shares was 9.20% compared to 10.11% for the J.P. Morgan Emerging Markets Bond Global Index and 10.75% for the J.P. Morgan Emerging Markets Bond Plus Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 10.29% compared to 13.47% for the J.P. Morgan Emerging - ------------------------------------------------------------------------------- Emerging Markets Debt Portfolio 114 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- EMERGING MARKETS DEBT PORTFOLIO (CONT.) Markets Bond Global Index and 14.21% for the J.P. Morgan Emerging Markets Bond Plus Index. As of December 31, 2000, the Portfolio had a SEC 30-day yield of 11.83% for the Class A shares and 11.58% for the Class B shares. Relative to other non-Treasury sectors, the Portfolio performed quite well in 2000. The vast majority of the positive performance was the result of their higher yields. Price appreciation was minimal during the year as yield spreads ended the year roughly unchanged from a year ago. Overweights in Russia and Jordan, underweights in Argentina, Korea, and Nigeria, and security selection in Turkey all helped Portfolio returns. Portfolio returns were hurt by overweights in Colombia, Peru, and Philippines - all credits whose asset prices tumbled following unexpected political surprises. There were four recurring emerging market debt (EMD) themes last year. Perhaps the most important was the culmination of EMD's "healing" from 1997-98's Asian and Russian traumas. Many countries benefited from orthodox policy initiatives put in place as the result of crises past. Fears that global investors would eschew the asset class proved exaggerated and the year actually saw capital inflows into EMD. Volatility declined as investors' comfort level improved, helping EMD weather what was otherwise a turbulent year in international capital markets. The high price of oil and other commodities was 2000's second theme, with higher oil prices hurting importers and helping exporters. Luckily for the asset class, oil exporters are well-represented within the EMD universe. Not surprisingly, Russian, Algerian, Mexican, and Venezuelan issues outperformed most other credits. Liability management was the year's third theme. Many sovereigns engaged in bond exchanges. Some -- such as Brazil and Mexico -- entered into those from a position of strength, using these operations to extend maturities and reduce funding costs. Others occurred as a result of sovereigns curing previous defaults (e.g., Ecuador, Russia, and Pakistan). The year's final theme was a growing concern regarding Argentina and Turkey. Not coincidentally, both countries have inflexible (and overvalued) exchange rates and large fiscal imbalances. Uncertainties surrounding both credits continue to cast a shadow over the entire asset class, thereby justifying an underweight in both countries within the Portfolio. As we enter 2001, our largest overweights are in Mexico, Colombia and Bulgaria. While the situation in both Argentina and Turkey will remain a source of concern, there are more reasons for us to be optimistic about the entire EMD area in the new year. Stephen F. Esser PORTFOLIO MANAGER Abigail L. McKenna PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------- Emerging Markets Debt Portfolio 115 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- EMERGING MARKETS DEBT PORTFOLIO - --------------------------------------------------------------------------------
FACE AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- DEBT INSTRUMENTS (91.2%) ALGERIA (1.9%) SOVEREIGN (1.9%) U.S.$ 769 Republic of Algeria, Tranche 1, 7.188%, 3/31/10 ................................. $ 644 370 Republic of Algeria, Tranche 3, 7.188%, 3/31/10 ................................. 285 ------------ 929 ------------ ARGENTINA (8.9%) CORPORATE (0.1%) (e)50 Cablevision S.A., 13.75%, 5/01/09 ............... 37 ------------ SOVEREIGN (8.8%) 311 Republic of Argentina, Global Bond, 11.75%, 6/15/15 ................................. 282 20 Republic of Argentina, Global Bond, 11.75%, 6/15/15 ................................. 18 220 Republic of Argentina, Global Bond, 11.375%, 1/30/17 ................................ 197 400 Republic of Argentina, Global Bond, 10.25%, 7/21/30 ................................. 332 792 Republic of Argentina, Global Bond, Series L, (Floating Rate)(Bearer), 7.625%, 3/31/05 ................................. 721 800 Republic of Argentina, Global Bond Series L-GL, 7.562%, 3/31/23 .................... 613 2,900 Republic of Argentina, Series L-GP (Floating Rate), 6.00%, 3/31/23 ................. 2,012 ------------ 4,175 ------------ 4,212 ------------ BRAZIL (19.2%) CORPORATE (1.5%) 800 Banco Nac de Desen Econo (Registered), 11.714%, 6/16/08 ............................... 748 ------------- SOVEREIGN (17.7%) (n)800 Federative Republic of Brazil 6.00%, 4/15/24 ................................. 554 1,300 Federative Republic of Brazil, 12.25%, 3/06/30 ................................ 1,207 2,357 Federative Republic of Brazil, C Bond, PIK, 8.00%, 4/15/14 ................................. 1,826 246 Federative Republic of Brazil, C Bond, Series L, 8.00%, 4/15/14........................ 191 1,056 Federative Republic of Brazil, Front Loaded Interest Reduction Bond, Series EI-L (Floating Rate), 7.625%, 4/15/06 ............... 985 896 Federative Republic of Brazil, Front Loaded Interest Reduction Bond, Series L (Floating Rate), 14.50%, 10/15/09...... 989 1,750 Federative Republic of Brazil, Global Bond, 11.625%, 4/15/04 .................. 1,818 U.S.$ 880 Federative Republic of Brazil, Series RG, 7.625%, 4/15/06 ................................ 821 ----------- 8,391 ----------- 9,139 ----------- BULGARIA (3.8%) SOVEREIGN (3.8%) 1,070 Republic of Bulgaria, Discount Bond, Series A, 7.75%, 7/28/24 ........................ 819 700 Republic of Bulgaria, Front Loaded Interest Reduction Bond, 3.00%, 7/28/12 .................. 521 600 Republic of Bulgaria, Interest Arrears PDI Bond, (Floating Rate), 7.75%, 7/28/11 ....... 453 ----------- 1,793 ----------- COLOMBIA (2.4%) CORPORATE (0.5%) (n)300 Occidente y Caribe Cellular, 0.00%, 3/15/04 ..... 225 ----------- SOVEREIGN (1.9%) 340 Republic of Colombia, Global Bond, 9.75%, 4/23/09 .................................. 286 750 Republic of Colombia, Global Bond, 11.75%, 2/25/20 ................................. 645 ----------- 931 ----------- 1,156 ----------- INDONESIA (1.7%) CORPORATE (1.7%) 220 Indah Kiat, International Finance, Series B, 11.875%, 6/15/02 ............................... 149 840 Tjiwi Kimia International BV, Global Bond, 13.25%, 8/01/01 ................................ 655 ---------- 804 ---------- IVORY COAST (0.2%) SOVEREIGN (0.2%) (e)650 Ivory Coast, Series 1, 2.00%, 3/29/18 ........... 78 ---------- MALAYSIA (1.9%) CORPORATE (1.9%) (e)900 TM Global, Inc., 8.00%, 12/07/10 ................ 918 ----------- MEXICO (23.6%) CORPORATE (4.3%) (e)300 Grupo Iusacell S.A. de C.V., 14.25%, 12/01/06 ... 297 (e)650 Petro Mexicanos, 0.091%, 10/13/10 ............... 646 650 Petro Mexicanos, 9.50%, 9/15/27 ................. 671 (e)435 TV Azteca S.A., Series B, 10.50%, 2/15/07 ....... 411 ----------- 2,025 ----------- SOVEREIGN (19.3%) 2,400 Government of Mexico, 6.25%, 12/31/19 ........... 2,184 2,810 United Mexican States Discount Bond, Series A, 7.53%, 12/31/19 ....................... 2,796 250 United Mexican States Discount Bond, Series B, (Floating Rate), 7.60%, 12/31/19 ...... 249 The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Emerging Market Debt Portfolio 116 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- EMERGING MARKETS DEBT PORTFOLIO (CONT.) - -------------------------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- MEXICO (CONT.) SOVEREIGN (CONT.) U.S.$ 1,150 United Mexican States Discount Bond, Series D, 7.25%, 12/31/19 ....................... $1,144 50 United Mexican States Global Bond, 11.50%, 5/15/26 ................................. 61 350 United Mexican States, Series A, 9.875%, 2/01/10 ................................. 376 1,100 United Mexican States, Series W-A, 6.25%, 12/31/19 ................................. 1,001 1,250 United Mexican States, Series XW, 10.375%, 2/01/09 ................................ 1,370 ---------- 9,181 ---------- 11,206 ---------- MOROCCO (1.1%) SOVEREIGN (1.1%) 592 Government of Morocco, Reconstruction & Consolidation Agreement, Series A, (Floating Rate), 7.75%, 1/01/09 ................. 514 ----------- PANAMA (0.8%) SOVEREIGN (0.8%) 111 Republic of Panama, 7.062%, 7/17/16 ............. 85 300 Republic of Panama, Global Bond, 10.75%, 5/15/20 ................................. 296 2 Republic of Panama, PDI PIK Bond, (Floating Rate), 4.00%, 7/17/16 ................. 1 ----------- 382 ----------- PERU (1.0%) SOVEREIGN (1.0%) (e)(n)48 Republic of Peru, Front Loaded Interest Reduction Bond, 3.25%, 3/07/17 .................. 28 (n)750 Republic of Peru, Front Loaded Interest Reduction Bond, 3.25%, 3/07/17 .................. 441 ---------- 469 ---------- PHILIPPINES (2.1%) CORPORATE (0.3%) (e)500 Bayan Telecommunications 13.50%, 7/15/06 ........ 160 ---------- SOVEREIGN (1.8%) 1,000 Republic of Philippines, Global Bond, 10.625%, 3/16/25................................. 825 ---------- 985 ---------- POLAND (1.3%) CORPORATE (1.3%) 400 Netia Holdings II B.V., Series B, 13.125%, 6/15/09 ................................ 326 200 PTC International Finance II S.A., 0.113%, 12/01/09 ................................ 195 (e)100 PTC International Finance II S.A., 11.25%, 12/01/09 ................................ 97 ---------- 618 ---------- RUSSIA (11.1%) SOVEREIGN (11.1%) U.S. $350 Russia Federation, 10.00%, 6/26/07 .............. 257 (e)2,222 Russia Federation, 8.25%, 3/31/10 ............... 1,392 1,700 Russia Federation, 12.75%, 6/24/28 .............. 1,413 (e)(n)5,861 Russia Federation, 2.25%, 3/31/30 ............... 2,198 ---------- 5,260 ---------- SOUTH KOREA (4.1%) SOVEREIGN (4.1%) 1,800 Republic of Korea, Global Bond, 8.875%, 4/15/08 ................................ 1,950 ---------- TURKEY (1.2%) CORPORATE (1.2%) 570 Cellco Finance NV, 0.15%, 8/01/05 .............. 556 ---------- UKRAINE (0.4%) SOVEREIGN (0.4%) 300 Ukraine Government, 0.11%, 3/15/07 ............. 211 ---------- VENEZUELA (4.5%) SOVEREIGN (4.5%) 833 Republic of Venezuela, Debt Conversion Bond, Series DL, (Floating Rate), 7.375%, 12/18/07 ... 673 500 Republic of Venezuela, Global Bonds, 9.25%, 9/15/27 ................................. 325 1,500 Republic of Venezuela, Series W-A, 6.75%, 3/31/20 ................................. 1,122 ----------- 2,120 ----------- TOTAL DEBT INSTRUMENTS (Cost $44,172) 43,300 ----------- NO. OF RIGHTS - -------- RIGHTS (0.0%) MEXICO (0.0%) (a)(e)2,576 United Mexican States, Value Recovery Rights, expiring 6/30/03 (Cost $-)....................... -- ---------- NO. OF WARRANTS - --------- WARRANTS (0.0%) UNITED STATES (0.0%) (a)(e)12,600 Occidente y Caribe Cellular expiring 3/15/04 (Cost $8)............................... 8 ---------- FACE AMOUNT (000) - --------- SHORT-TERM INVESTMENT (7.7%) REPURCHASE AGREEMENT (7.7%) $(f)3,637 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $3,637) ....................... 3,637 ---------- The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- Emerging Markets Debt Portfolio 117 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- EMERGING MARKETS DEBT PORTFOLIO (CONT.) - -------------------------------------------------------------------------------- VALUE (000) - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (98.9%) (Cost $47,817) ......... $ 46,945 --------- OTHER ASSETS (2.7%) Interest Receivable ........................... $ 1,021 Receivable for Investments Sold ............... 154 Receivable for Portfolio Shares Sold .......... 81 Other ......................................... 8 1,264 ------------ LIABILITIES (-1.6%) Payable for Investments Purchased ............. (554) Investment Advisory Fees Payable .............. (94) Foreign Taxes Payable ......................... (23) Directors' Fees and Expenses Payable .......... (14) Administrative Fees Payable ................... (10) Custodian Fees Payable ........................ (9) Other Liabilities ............................. (38) (742) -------------- --------- NET ASSETS (100%) $ 47,467 ========= NET ASSETS CONSIST OF: Paid in Capital .................................. $143,308 Undistributed Net Investment Income .............. 49 Accumulated Net Realized Loss .................... (94,993) Unrealized Depreciation on Investments and Foreign Currency Translations (Net of accrual of foreign taxes of $23 on unrealized depreciation of investments)...................... (897) --------- NET ASSETS $ 47,467 ========= CLASS A: NET ASSETS ...................................................... $ 47,080 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 16,372,932 outstanding $0.001 par value shares (authorized 500,000,000 shares).......................... $2.88 ========= CLASS B: NET ASSETS ...................................................... $387 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 132,592 outstanding $0.001 par value shares (authorized 500,000,000 shares).......................... $2.92 =========
- ----------------------------- (a) -- Non-income producing (e) -- 144A Security -- certain conditions for public sale may exist. (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. (n) -- Step Bond -- coupon rate increases in increments to maturity. Rate disclosed is as of December 31, 2000. Maturity date disclosed is the ultimate maturity date. PDI -- Past Due Interest PIK -- Payment-In-Kind. Income may be received in additional securities or cash at the discretion of the issuer. Floating Rate -- The interest rate on these instruments are based on changes in a designated base rate. The rates shown are those in effect on December 31, 2000. The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Emerging Market Debt Portfolio 118 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- FIXED INCOME PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------ [CHART] Mortgage Pass-Through (52.9%) Corporate Bonds and Notes (31.0%) Asset Backed Securities (8.5%) U.S. Government & Agency Obligations (1.4%) Other (6.2%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------- [GRAPH]
Fixed Income Lehman Brothers Portfolio- Aggregate Class A Bond Index(1) ------------ --------------- 1992 $ 500,000 $ 500,000 1993 ---------- ---------- 1994 ---------- ---------- 1995 ---------- ---------- 1996 ---------- ---------- 1997 ---------- ---------- 1998 ---------- ---------- 1999 ---------- ---------- 2000 $1,018,639 $1,034,658
* Commenced operations on May 15, 1991 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE LEHMAN BROTHERS AGGREGATE BOND INDEX(1) - -------------------------------------------
TOTAL RETURNS(2) ------------------------------------ AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION ------ ------- --------- PORTFOLIO-- CLASS A................ 11.16% 6.24% 7.64% PORTFOLIO-- CLASS B................ 10.92 N/A 6.07 INDEX-- CLASS A.................... 11.63 6.46 7.84 INDEX-- CLASS B.................... 11.63 N/A 6.47
1. The Lehman Aggregate Bond Index is an unmanaged index comprised of the Government/Corporate Bond Index, the Mortgage-Backed Securities Index and the Asset-Backed Securities Index. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The Fixed Income Portfolio seeks to provide a high total return consistent with the preservation of capital by investing primarily in a diversified portfolio of fixed income securities. For the year ended December 31, 2000, the Portfolio had a total return of 11.16% for the Class A shares and 10.92% for the Class B shares compared to 11.63% for the Lehman Aggregate Bond Index (the "Index"). For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was 6.24% compared to 6.46% for the Index. For the period from inception on May 15, 1991 through December 31, 2000, the average annual total return for the Class A shares was 7.64% compared to 7.84% for the Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 6.07% compared to 6.47% for the Index. As of December 31, 2000, the Portfolio had a SEC 30-day yield of 7.11% for the Class A shares and 6.96% for the Class B shares. After a difficult 1999, investment-grade fixed-income investors were rewarded with outstanding absolute returns during 2000. The broader domestic bond market outperformed U.S. and international equities last year for the first time since 1990, as U.S. Treasury note and bond yields declined by between 60 and 130 basis points. This performance served as ample evidence of the powerful diversification benefits derived from higher-quality fixed-income portfolio strategies; nevertheless, fixed-income investors were challenged by a significant widening of yield spreads across all non-Treasury sectors, which caused these sectors to underperform comparable Treasury instruments during 2000. Yield spreads widened systematically in response to a combination of technical and fundamental factors, such as expectations of reduced Treasury debt supply, market fears of a significant economic slowdown, and potential declines in overall corporate credit quality. While all of the non-Treasury sectors were affected, below-investment grade - ------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE. - ------------------------------------------------------------------------------- Fixed Income Portfolio 119 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- FIXED INCOME PORTFOLIO (CONT.) issues suffered most as the high yield market posted sharply negative returns and its worst performance since the 1990 recession. Throughout 2000, we believed these sectors' yield spreads provided ample compensation for their associated risks and represented attractive value versus U.S. Treasury securities. Our disciplined value approach toward fixed-income management led us to hold very few Treasuries while emphasizing the non-Treasury sectors -- also known collectively as "spread product" -- within the Portfolio. Despite our value-based view that they were relatively unattractive, Treasuries proved to be the best performing area of the bond market last year; the 30-year Treasury bond, for example, posted a total return of nearly 20% during 2000. Given our significant underweight in Treasuries, it is perhaps not surprising that the Portfolio underperformed its Index during 2000. Our relative underperformance during 2000 was attributable to the effects of the systematic widening of yield spreads, which exceeded positive contributions from our security selection decisions and our active management of interest-rate risk. Viewed from our longer-term perspective, the persistent attractiveness of spread product relative to underlying fundamental risks justified an above-Index exposure to these sectors and a significant underweight in Treasuries; put another way, the Portfolio maintained a greater "spread duration" than the Index, or a higher sensitivity to yield spread changes. While this systematic decision worked against us during 2000, the Portfolio benefited from favorable security selection decisions as a result of our rigorous credit and prepayment risk analysis activities and our well-diversified strategy. Active management of interest-rate risk had the most favorable influence on our relative performance last year. Our interest-rate risk management actions were driven by disciplined adherence to relative valuation measures, which supported a significant above-Index sensitivity in the first part of 2000, and then a modest below-Index sensitivity as 2000 came to a close. We also initiated a small non-dollar position late in the fourth quarter of 2000, as both the euro and European real rates became relatively attractive. Of the various risks we are bearing in the Portfolio as we enter the new year, the most significant is the exposure to yield spread changes. We believe the Portfolio is ideally positioned to benefit from either a narrowing or stabilization of yield spreads in the non-Treasury sectors in 2001. We hope clients share our view that the search for superior performance through a disciplined, value investment strategy is a journey and not a race. Our conviction and belief in a value approach toward fixed-income investing have never wavered, especially at a time when we see some of the best opportunities for our style since we started managing bond portfolios in the 1970's. We are confident the Portfolio's significant yield advantage and the potential for yield spreads to narrow will generate the superior performance clients expect from the Portfolio. Warren Ackerman, III PORTFOLIO MANAGER Thomas L. Bennett PORTFOLIO MANAGER Kenneth B. Dunn PORTFOLIO MANAGER Roberto M. Sella PORTFOLIO MANAGER W. David Armstrong PORTFOLIO MANAGER January 2001 - ------------------------------------------------------------------------------- Fixed Income Portfolio 120 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------
FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------------- FIXED INCOME SECURITIES (93.8%) ASSET BACKED SECURITIES (8.5%) $ 1,325 BMW Vehicle Owner Trust, 6.65%, 2/25/03........ $ 1,331 1,805 Citibank Credit Card Issuance Trust, Series 2000-A1, Class A1, 6.90%, 10/17/07 ......... 1,861 500 Citibank Credit Card Issuance Trust, Series 2000-C1, Class C1, 7.45%, 9/15/07 .......... 511 1,200 COMED, Series 98-1, Class A2, 5.29%, 6/25/03 .. 1,195 1,310 Daimler Chysler Auto Trust, Series 2000-C, Class A3, 6.82%, 9/06/04 ......................... 1,329 299 Ford Credit Auto Owner Trust, Series 98, Class B, 5.85%, 10/15/01 ......................... 299 1,310 Ford Credit Auto Trust, Series 2000-E, Class A4, 6.74%, 6/15/04 ......................... 1,327 865 Honda Auto Receivables Owner Trust, Series 2000-1, Class A3, 6.62%, 7/15/04 ........... 873 620 MBNA Master Credit Card Trust, Series 2000-E, Class A, 7.80%, 10/15/12 ................... 684 760 MBNA Master Credit Card Trust, Series 99-B, Class A, 5.90%, 8/15/11 .................... 748 1,080 MMCA Automobile Trust, Series 2000-1, Class A3, 7.00%, 6/15/04 ............................. 1,095 1,100 Residential Funding Mortgage Securities, Series 2000-HI4, Class AI2, 7.39%, 4/25/11 ........ 1,113 (e)3,250 Team Fleet Financing Corp., Series 97-1A, 7.35%, 5/15/03 ..................................... 3,265 -------- TOTAL ASSET BACKED SECURITIES................................ 15,631 -------- CORPORATE BONDS AND NOTES (31.0%) FINANCE (15.6%) 385 American Express, 6.875%, 11/01/05 ............ 395 (e)2,000 American General Institutional Capital, Series A, 7.57%, 12/01/45 ......................... 1,794 760 Bank One Corp., MTN, Series A, 6.00%, 2/17/09 702 1,000 Chase Manhattan Corp., 6.00%, 2/15/09 ......... 936 1,345 Citigroup, Inc., 7.25%, 10/01/10 .............. 1,386 1,500 CNA Financial Corp., 6.50%, 4/15/05 ........... 1,426 (e)2,500 Farmers Exchange Capital, 7.05%, 7/15/28 ...... 2,091 1,000 FleetBoston Financial Corp., 6.375%, 5/15/08 .. 966 1,470 Ford Motor Co., 6.375%, 2/01/29 ............... 1,203 250 Ford Motors Credit Co., 7.375%, 10/28/09 ...... 250 200 General Motors Acceptance Corp. 7.48%, 2/28/03 204 (e)1,250 Goldman Sachs Group, 6.34%, 3/01/06 ........... 1,223 655 Hartford Financial Services Group, Inc. 7.75%, 6/15/05 ..................................... 691 825 Household Finance Corp., 5.875%, 2/01/09 ...... 759 (e)1,450 John Hancock, 7.375%, 2/15/24 ................. 1,398 490 Lehman Brothers Holding, Inc. 8.25%, 6/15/07 .. 515 (e)1,500 Liberty Mutual Insurance Co., 8.20%, 5/04/07 .. 1,551 (e)2,000 Lumbermans Mutual Casualty Co. 8.45%, 12/01/97 1,535 (e)660 Nisource Finance Corp., 7.875%, 11/15/10 ...... 692 825 PNC Funding Corp., 6.125%, 2/15/09 ............ 784 (e)2,500 Prudential Insurance Co., 6.375%, 7/23/06 ..... 2,447 345 State Street Boston Corp., 7.65%, 6/15/10 ..... 367 940 Washington Mutual Corp., 8.25%, 4/01/10 ....... 991 850 Wells Fargo Co., 6.625%, 7/15/04 .............. 860 (e)3,438 World Financial Credit, 6.91%, 9/01/13 ........ 3,389 ------- 28,555 ------- INDUSTRIAL (6.8%) 860 Albertson's, Inc., 7.45%, 8/01/29 ............. 771 215 Alcoa, Inc., 7.375%, 8/01/10 .................. 227 490 Clear Channel Communications, Inc. 7.65%, 9/15/10 ..................................... 496 1,330 Conoco, Inc., 6.95%, 4/15/29 .................. 1,303 425 Cox Communications, Inc., 7.75%, 11/01/10 ..... 440 315 DaimlerChysler NA Holding Corp. 8.00%, 6/15/10 320 185 Delphi Auto Systems Corp., 7.125%, 5/01/29 .... 158 840 Federated Department Stores, Inc. 6.30%, 4/01/09 ..................................... 763 (e)900 Florida Windstorm, 7.125%, 2/25/19 ............ 881 290 Ford Motor Co., 7.45%, 7/16/31 ................ 273 900 Kroger Co., 8.00%, 9/15/29 .................... 935 (e)435 Lockheed Martin Corp., 8.20%, 12/01/09 ........ 478 2,000 Lowe's Companies, Inc., 6.50%, 3/15/29 ........ 1,626 950 Lucent Technologies, 6.45%, 3/15/29 ........... 646 850 News America Holdings, 8.875%, 4/26/23 ........ 827 415 Raytheon Corp., 8.20%, 3/01/06 ................ 443 100 Raytheon Corp., 8.30%, 3/01/10 ................ 109 530 Target Corp., 7.50%, 8/15/10 .................. 559 195 Time Warner, Inc., 6.625%, 5/15/29 ............ 176 240 Time Warner, Inc., 7.25%, 9/01/08 ............. 246 830 United Technologies Corp., 6.70%, 8/01/28 ..... 799 ------- 11,476 ------- FLOATING RATE NOTES (0.1%) 120 Quebec Province, 7.125%, 2/09/24 .............. 123 ------- TELEPHONES (2.2%) 670 AT&T Corp., 6.50%, 3/15/29 .................... 536 640 Bellsouth Telecommunications, Inc. 6.375%, 6/01/28 ..................................... 554 360 GTE Corp., 6.94%, 4/15/28 ..................... 334 (e)815 Qwest Capital Funding, 7.75%, 8/15/06 .......... 837 1,750 Worldcom, Inc., 8.25%, 5/15/10 ................ 1,817 ------- 4,078 ------- YANKEE BONDS (6.3%) 1,325 Abbey National plc, 7.95%, 10/26/29 ............ 1,401 1,050 Ahold Finance USA, Inc., 6.875%, 5/01/29 ....... 907 1,000 AT&T Canada, Inc., 7.65%, 9/15/06 .............. 998 1,150 AXA S.A., 8.60%, 12/15/30 ..................... 1,180 (e)325 BNP Paribas Capital Trust, 9.003%, 12/30/49 .... 338 540 British Telecom plc, 8.625%, 12/15/30 .......... 543
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Fixed Income Portfolio 121 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- FIXED INCOME PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES (CONT.) YANKEE BONDS (CONT.) $ 675 Deutsche Telekom International Finance B.V., 8.00%, 6/15/10 ............................. $ 689 405 ING Capital Funding Trust III 8.439%, 12/29/49 412 630 Inter-American Development Bank 5.75%, 2/26/08 620 630 Inter-American Development Bank, 7.375%, 1/15/10 689 (e)1,624 Oil Enterprises Ltd., 6.239%, 6/30/08 ......... 1,596 270 UBS Preferred Funding Trust, 8.62%, 10/01/49 .. 283 (e)200 Unicredito Italiano Capital Trust II 9.20%, 10/29/49 .................................... 205 635 Unilever Capital Corp., 7.125%, 11/01/10 ...... 665 (e)930 Vodafone Airtouch plc, 7.75%, 2/15/10 ......... 965 --------- 11,491 --------- TOTAL CORPORATE BONDS AND NOTES................................. 56,723 --------- MORTGAGE PASS-THRU (52.9%) AGENCY (10.5%) 7,300 Federal National Mortgage Association 5.75%, 4/15/03 ..................................... 7,315 6,000 Federal National Mortgage Association 5.75%, 6/15/05 ..................................... 6,005 4,000 Federal National Mortgage Association 7.125%, 6/15/10 ..................................... 4,324 1,600 Federal National Mortgage Association 6.625%, 11/15/10 .................................... 1,679 --------- 19,323 --------- AGENCY FIXED RATE MORTGAGES (33.6%) 4 Federal Home Loan Mortgage Corporation 13.00%, 9/01/10 ..................................... 4 7,151 Federal Home Loan Mortgage Corporation 6.00%, 12/01/28 .................................... 6,929 6,109 Federal Home Loan Mortgage Corporation 6.00%, 12/01/28 .................................... 5,919 2,597 Federal Home Loan Mortgage Corporation 6.00%, 12/01/28 .................................... 2,517 1,437 Federal National Mortgage Association 8.00%, 2/01/12 ..................................... 1,480 7,035 Federal National Mortgage Association 6.00%, 4/01/28 ..................................... 6,811 9,002 Federal National Mortgage Association 6.00%, 2/01/29 ..................................... 8,710 6,900 Federal National Mortgage Association January TBA 8.50%, 1/01/31 ......................... 7,105 17,000 Government National Mortgage Association January TBA 7.00%, 1/15/31 ......................... 17,065 5,000 Government National Mortgage Association January TBA 6.50%, 1/15/31 ......................... 4,941 --------- 61,481 --------- CMO'S - AGENCY COLLATERAL SERIES (0.6%) 1,832 Federal Home Loan Mortgage Corporation, Series 1707, Class S, 2.00%, 3/15/24 .............. 193 2,507 Federal Home Loan Mortgage Corporation, Series 2141, Class SD, 1.92%, 4/15/29 ............. 199 9,750 Federal National Mortgage Association, Series 2000-34, Class S, 1.93%, 10/25/30 ........... 416 6,433 Federal National Mortgage Association, Series 97-68, Class SC, 1.88%, 5/18/27 ............. 349 --------- 1,157 --------- CMO'S-NON-AGENCY COLLATERAL (1.7%) 1,837 Mid-State Trust, Series 4, Class A 8.33%, 4/01/30 ..................................... 1,918 1,250 Peco Energy Transition Trust, Series 99-A Class A6, 6.05%, 3/01/09 ......................... 1,233 --------- 3,151 --------- COMMERCIAL MORTGAGES (5.3%) 1,523 Chase Commercial Mortgage Securities Corp., 7.03%, 10/15/08 ............................ 1,566 1,887 First Union-Lehman Brothers Commercial Mortgage, Series 97-C2, Class A1 6.479%, 3/18/04 ..... 1,894 3,829 Lehman Brothers Large Loan, Series 97-LLIA1, 6.79%, 6/12/04 ............................. 3,881 2,296 Merrill Lynch Mortgage Investors, Inc. Series 98-C2, Class A1, 6.22%, 2/15/30 ............ 2,302 --------- 9,643 --------- FOREIGN BONDS (1.2%) 2,245 Federal Home Loan Mortgage Corporation (Euro) 5.75%, 9/15/10 ............................. 2,164 --------- TOTAL MORTGAGE PASS-THROUGH..................................... 96,919 --------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS (1.4%) U.S. TREASURY BONDS (1.4%) 2,500 U.S. Treasury Note 6.00%, 8/15/09 ............. 2,639 --------- TOTAL FIXED INCOME SECURITIES (Cost $172,537)................... 171,912 --------- SHORT-TERM INVESTMENTS (21.6%) REPURCHASE AGREEMENT (5.3%) (f)9,739 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $9,739).................... 9,739 --------- DISCOUNT NOTES (16.3%) 10,000 Federal Home Loan Bank Discount Corporation expiring 1/31/01 ............................ 9,946 10,000 Federal Home Loan Mortgage Corporation expiring 1/29/01 ..................................... 9,952 10,000 Federal National Mortgage Association expiring 1/18/01 ..................................... 9,970 --------- 29,868 --------- TOTAL SHORT-TERM INVESTMENTS(Cost $39,607) 39,607 ---------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Fixed Income Portfolio 122 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- FIXED INCOME PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
VALUE (000) - ------------------------------------------------------------------------------- TOTAL INVESTMENTS (115.4%) (Cost $212,144) ....... $ 211,519 --------- OTHER ASSETS (2.2%) Cash .......................................... $ 2,195 Interest Receivable ........................... 1,582 Receivable for Investments Sold ............... 161 Receivable for Portfolio Shares Sold .......... 35 Other ......................................... 14 3,987 ---------- LIABILITIES (-17.6%) Payable for Investments Purchased ............. (32,063) Investment Advisory Fees Payable .............. (107) Administrative Fees Payable ................... (28) Directors' Fees and Expenses Payable .......... (18) Custodian Fees Payable ........................ (4) Distribution Fees Payable ..................... (1) Other Liabilities ............................. (31) (32,252) ---------- --------- NET ASSETS (100%)................................................... $183,254 ========= NET ASSETS CONSIST OF: Paid in Capital ..................................................... $187,546 Distributions In Excess of Net Investment Income .................... (35) Accumulated Net Realized Loss ....................................... (3,632) Unrealized Appreciation on Investments and Foreign Currency Translations......................................................... (625) --------- NET ASSETS........................................................... $183,254 ========= CLASS A: - -------- NET ASSETS .......................................................... $180,830 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 16,960,869 outstanding $0.001 par value shares (authorized 500,000,000 shares)..................................... $10.66 ========= CLASS B: - -------- NET ASSETS .......................................................... $2,424 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 227,364 outstanding $0.001 par value shares (authorized 500,000,000 shares)..................................... $ 10.66 =========
- ------------------------------------------------------------------------------- (e) -- 144A Security -- certain conditions for public sale may exist. (f) -- The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. MTN -- Medium Term Note TBA -- Security is subject to delayed delivery See Note A-7 to financial statements. The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Fixed Income Portfolio 123 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- GLOBAL FIXED INCOME PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------ [CHART] Euro (38.5%) U.S. Dollar (20.8%) Japanese Yen (19.3%) British Pound (6.2%) Danish Krone (5.2%) Canadian Dollar (3.5%) Australian Dollar (2.4%) Swedish Krona (1.9%) Other (2.2%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------- [GRAPH]
Global Fixed Income J.P. Morgan Portfolio- Traded Global Class A Bond Index(1) ------------ ------------- 1991 $500,000 $500,000 1992 -------- -------- 1993 -------- -------- 1994 -------- -------- 1995 -------- -------- 1996 -------- -------- 1997 -------- -------- 1998 -------- -------- 1999 -------- -------- 2000 $865,229 $967,347
* Commenced operations on May 1, 1991 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE J.P. MORGAN TRADED GLOBAL BOND INDEX(1) - ---------------------------------------
TOTAL RETURNS(2) --------------------------- AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION ---- ------- --------- PORTFOLIO -- CLASS A ............ 1.18% 3.00% 5.83% PORTFOLIO -- CLASS B ............ 1.07 N/A 2.79 INDEX -- CLASS A ................ 2.34 3.47 7.07 INDEX -- CLASS B ................ 2.34 N/A 3.47
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. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The Global Fixed Income Portfolio seeks to produce an attractive real rate of return while preserving capital by investing primarily in high quality fixed income securities issued by U.S. and foreign governments and their agencies, and instrumentalities with varying maturities in various currencies. Foreign investing involves certain risks, including currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. For the year ended December 31, 2000, the Portfolio had a total return of 1.18% for the Class A shares and 1.07% for the Class B shares compared to 2.34% for the J.P. Morgan Traded Global Bond Index (the "Index"). For the five-year period ended December 31, 2000, the average annual total return for the Class A shares was 3.00% compared to 3.47% for the Index. For the period from inception on May 1, 1991 through December 31, 2000, the average annual total return for the Class A shares was 5.83% compared to 7.07% for the Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return for the Class B shares was 2.79% compared to 3.47% for the Index. As of December 31, 2000, the Portfolio had a SEC 30-day yield of 4.43% for the Class A shares and 4.28% for the Class B shares. While the early months of 2000 were characterized by strong global economic growth, in particular, a booming U.S. economy, by mid-year evidence of a slowdown centered in the U.S. emerged. This downturn was due to a combination of factors, high real short-term interest rates, higher energy prices, dollar strength and a softer stock market. As a result, the momentum of the slowdown accelerated towards year-end, prompting speculation of a `hard landing' for the U.S. and global economies and a significant round of monetary easing. Global bond markets rallied strongly in this environment with dollar bloc bonds outperforming European bonds which in turn outperformed Japanese bonds. Within the major blocs, the U.S. dollar was the strongest currency, ahead of the euro, with the yen lagging as the weakest currency. Currency management was the most important positive contributor to returns, due largely to the overweight euro/underweight yen position. Country management also made a positive contribution. The Portfolio benefited significantly in the first half of 2000 from being overweight - ------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. 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. - ------------------------------------------------------------------------------- Global Fixed Income Portfolio 124 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- GLOBAL FIXED INCOME PORTFOLIO (CONT.) long-maturity German bonds/underweight long-maturity U.K. bonds and from its favoring of U.S. over Japanese securities. The long Germany/short U.K. position, however, gave back some of its profits in the second half of 2000 and our decision mid year to favor German over U.S. bonds also reduced net profits. Duration management had only a small effect on relative performance. Overall duration exposures were kept small and the principal position was to be underweight Japan - a market that experienced little net change in interest rates during 2000. The Portfolio's exposure to corporate bonds (mainly U.S.- denominated) was the principal cause of underperformance in an environment of widening credit spreads. The key strategy change in 2000 was the gradual reduction in exposure in U.S. interest rates in favor of European bonds. The Portfolio at year-end is positioned approximately half a year short duration overall, with three-quarters of this shortfall coming from our Japan position, and the balance from a small underweight to the dollar bloc and European markets combined. We remained significantly overweight to the credit sector, adding to our position on market weakness. Currency positioning was broadly unchanged, at year-end; the Portfolio was 6% overweight euro/yen and 2% overweight the Australian dollar. Recent U.S. data have been increasingly worrisome and further interest rate cuts by the Fed can be expected and, with oil prices softening and the euro strengthening, an eventual shift by the European Central Bank towards easier monetary policy is also likely. Bond markets are, however, already pricing in substantial future cuts in interest rates. Although we agree that the Fed is likely to ease, the risk is that they will not ease as fast as the market expects. Also, value signals for U.S. bonds are not positive. Long-term nominal interest rate differentials between Europe and the U.S. are at their narrowest in several years. This combined with the fact that real interest rates are higher and yield curves are steeper in Europe implies that Europe has greater value. We therefore expect to continue to favor European bonds. The still low value for the euro also supports European bonds. Despite the significant rally of the euro in November/ December 2000, the real ten-year forward exchange rate is still well below its long-term average. Restoring this relationship to something closer to its longer-term average will require significant outperformance by euro- denominated bonds relative to U.S. bonds, or a further appreciation of the euro. The year 2000 has been an unusually difficult one for the corporate bond market. As a result, the yield spread offered by investment grade corporates in the U.S. ended the year at a decade wide, surpassing the past peak during the recession of 1990-91. However, the credit quality of the majority of corporate bonds remains strong and in our view, corporate yield spreads already anticipate a "hard landing" scenario. If the ultimate outcome is anything less than a severe recession, the likely stabilization and/or decline in yield spreads should enable corporate investors to benefit relative to Treasuries. J. David Germany PORTFOLIO MANAGER Michael B. Kushma PORTFOLIO MANAGER Paul F. O'Brien PORTFOLIO MANAGER Christian G. Roth PORTFOLIO MANAGER January 2001 - -------------------------------------------------------------------------------- Global Fixed Income Portfolio 125 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- GLOBAL FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------
FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------- FIXED INCOME SECURITIES (97.8%) AUSTRALIAN DOLLAR (2.4%) U.S. GOV'T & AGENCY OBLIGATIONS (2.4%) AUD 1,200 Federal National Mortgage Association 6.50%, 7/10/02 ................................ $ 674 ----------- BRITISH POUND (6.2%) FOREIGN BONDS (6.2%) GBP 450 United Kingdom Treasury Gilt 7.00%, 11/06/01 ............................... 681 600 United Kingdom Treasury Gilt 8.50%, 7/16/07 ............................... 1,062 ----------- 1,743 ----------- CANADIAN DOLLAR (3.5%) FOREIGN BONDS (3.5%) CAD 1,500 Government of Canada 5.25%, 12/01/01 ............ 998 ----------- DANISH KRONE (5.2%) FOREIGN BONDS (5.2%) DKK 4,600 Kingdom of Denmark 7.00%, 12/15/04 .............. 622 5,900 Kingdom of Denmark 8.00%, 3/15/06 ............... 842 ----------- 1,464 ----------- EURO (38.5%) CORPORATE BONDS (6.8%) EUR 150 ABN AMRO Bank NV, MTN 4.625%, 5/12/09 ............................... 129 200 BAT International Finance, MTN 4.875%, 2/25/09 ............................... 163 460 Depfa Pfandbriefbank 5.50%, 1/15/10 ............. 433 200 Mannesmann Finance BV 4.75%, 5/27/09 ............ 170 150 Marconi Corp. plc 6.375%, 3/30/10 ............... 134 100 Philip Morris Financial 5.625%, 6/24/08 ......... 88 125 Procter & Gamble Co. 5.75%, 9/26/05 ............. 120 455 Rheinische Hypobk AG 5.75%, 7/05/10 ............. 436 150 SNS Bank of Nederland, MTN 6.125%, 4/07/10 ............................... 144 100 Unicredito Italia 8.048%, 10/29/49 .............. 95 ----------- 1,912 ----------- FOREIGN BONDS (31.7%) 500 Buoni Poliennali Del Tesoro 3.75%, 9/01/02....... 463 1,000 Buoni Poliennali Del Tesoro 9.50%, 2/01/06....... 1,137 1,300 Deutschland Republic 6.50%, 7/04/27 ............. 1,411 300 France O.A.T. 5.50%, 4/25/29 .................... 284 900 Government of France 5.50%, 10/25/07 ............ 883 1,800 Government of France 5.25%, 4/25/08 ............. 1,742 1,000 Government of France 6.00%, 10/25/25 ............ 1,012 1,350 Government of The Netherlands, Series 1, 8.25%, 2/15/02 ..................... 1,314 700 Republic of Austria, MTN 5.50%, 10/20/07 ........ 675 ----------- 8,921 ----------- 10,833 ----------- JAPANESE YEN (19.3%) CORPORATE BONDS (4.0%) JPY 130,000 KFW International Finance 1.00%, 12/20/04........ 1,144 ----------- FOREIGN BONDS (14.0%) JPY 100,000 Government of Italy 3.75%, 6/08/05 .............. $ 986 50,000 Government of Japan 1.00%, 3/21/05 .............. 442 300,000 Government of Japan, Series 207 0.90%, 12/22/08 .............................. 2,506 ----------- 3,934 ----------- US GOV'T & AGENCY OBLIGATIONS (1.3%) 40,000 Federal National Mortgage Association 1.75%, 3/26/08 359 ----------- 5,437 ----------- SWEDISH KRONA (1.9%) FOREIGN BONDS (1.9%) SEK 4,900 Swedish Government 6.00%, 2/09/05 ............... 549 ----------- U.S. DOLLAR (20.8%) CORPORATE BONDS (11.9%) USD 100 Abbey National Capital Trust, 8.96%, 12/29/49 .............................. 103 50 American Express, 6.875%, 11/01/05 .............. 51 150 Associates Corp. of North America, 5.80%, 4/20/04 ............................... 148 150 AT&T Corp. 6.50%, 3/15/29 ....................... 120 85 British Telecom plc, 8.625%, 12/15/30 ........... 85 200 Conoco, Inc. 6.95%, 4/15/29 ..................... 196 50 DaimlerChrysler Corp. 8.00%, 6/15/10 ............ 51 200 Equitable Cos. 7.00%, 4/01/28 ................... 188 (e)150 Farmers Exchange Capital 7.05%, 7/15/28 ......... 128 (e)150 First Chicago Corp. 7.75%, 12/01/26 ............. 131 (e)200 Florida Windstorm 7.125%, 2/25/19 ............... 194 200 Ford Motor Co., 6.375%, 2/01/29 ................. 164 150 General Electric Capital Corp. 6.80%, 11/01/05 ............................... 155 50 General Motors Acceptance Corp. 7.75%, 1/19/10 ................................ 52 150 Household Finance Corp. 8.00%, 7/15/10 ............ 158 75 ING Capital Funding Trust 8.439%, 12/29/49 ........ 76 75 Lehman Brothers Holdings, Inc. 7.875%, 8/15/10 ............................... 78 150 Lucent Technologies 6.45%, 3/15/29 ............... 102 200 Merrill Lynch & Co., Inc. 6.875%, 11/15/18 ....... 189 (e)125 Monsanto Co., 6.60%, 12/01/28 .................... 119 (e)150 Nationwide Mutual Insurance 7.50%, 2/15/24 ....... 125 50 Procter & Gamble Co. 6.60%, 12/15/04 ............. 51 (e)200 Prudential Insurance Co. 8.30%, 7/01/25 .......... 209 100 Unilever Capital Corp. 7.125%, 11/01/10 .......... 105 (e)115 Vodafone Airtouch plc 7.75%, 2/15/10 ............. 119 100 Wells Fargo Co. 6.625%, 7/15/04 .................. 101 175 Worldcom, Inc. 6.95%, 8/15/28 149 ----------- 3,347 ----------- U.S. GOV'T & AGENCY OBLIGATIONS (8.9%) 2,500 U.S Treasury Bill 5.00%, 1/04/01 .............. 2,499 ----------- 5,846 ----------- TOTAL FIXED INCOME SECURITIES (Cost $29,162) ................... 27,544 -----------
The accompany notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Global Fixed Income Portforlio 126 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- GLOBAL FIXED INCOME PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
FACE AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- FOREIGN CURRENCY (0.0%) JPY 1,867 Japanese Yen (Cost $17) ........................ $ 16 ------------ TOTAL INVESTMENTS (97.8%) (Cost $29,179) 27,560 ------------ OTHER ASSETS (2.6%) Cash .................................................. $ 4 Interest Receivable ................................... 584 Receivable for Investments Sold ....................... 107 Receivable Due from Investment Advisor ................ 6 Other ................................................. 17 718 ------ LIABILITIES (-0.4%) Net Unrealized Loss on Foreign Currency Exchange Contracts .................................. (60) Directors' Fees and Expenses Payable .................. (8) Administrative Fees Payable ........................... (8) Custodian Fees Payable ................................ (3) Other Liabilities ..................................... (27) (106) ------ ------------ NET ASSETS (100%) .............................................. $ 28,172 ============ NET ASSETS CONSIST OF: Paid in Capital ................................................ $ 31,896 Distributions In Excess of Net Investment Income ............... (123) Accumulated Net Realized Loss .................................. (1,936) Unrealized Depreciation on Investments and Foreign Currency Translations ................................................. (1,665) ------------ NET ASSETS ..................................................... $ 28,172 ============ CLASS A: - -------- NET ASSETS ..................................................... $ 27,852 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 2,509,034 outstanding $0.001 par value shares (authorized 500,000,000 shares) ...................... $ 11.10 ============ CLASS B: - -------- NET ASSETS ..................................................... $ 320 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 28,947 outstanding $0.001 par value shares (authorized 500,000,000 shares) ........................ $ 11.06 ============
- -------------------------------------------------------------------------------- (e) -- 144A Security -- certain conditions for public sale may exist. MTN -- Medium Term Note - -------------------------------------------------------------------------------- FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at December 31, 2000, the Portfolio is obligated to deliver foreign currency in exchange for U.S. dollars as indicated below:
CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE (LOSS) (000) (000) DATE (000) (000) (000) - --------- ------- ---------- ----------- ------- ----------- EUR 1,400 $1,317 2/12/01 U.S.$ 1,257 $1,257 $(60) ======= ====== =====
- ------------------------------------------------------------------------------- SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
PERCENT VALUE OF NET Sector (000) ASSETS - -------------------------------------------------------------------------------- Finance $ 6,403 22.7% Foreign Government & Agency Obligations 17,609 62.5 U.S. Government & Agency Obligations 3,532 12.6 -------- ----- $ 27,544 97.8% ======== =====
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- Global Fixed Income Portfolio 127 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - ------------------------------------------------------------------------------- HIGH YIELD PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - -------------------------------------------------------------------------------- [CHART] Corporate Bonds and Notes (84.4%) Preferred Stocks (5.9%) Sovereign & Emerging Markets (1.2%) Asset Backed Securities (0.2%) Common Stocks (0.1%) Other (8.2%)
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT - ------------------------------------------------- [GRAPH]
High Yield CS First Boston Portfolio- High Yield Class A Index(1) ---------- --------------- 1992 $500,000 $500,000 1993 -------- -------- 1994 -------- -------- 1995 -------- -------- 1996 -------- -------- 1997 -------- -------- 1998 -------- -------- 1999 -------- -------- 2000 $954,690 $875,244
* Commenced operations on September 28, 1992 ** Minimum investment In accordance with SEC regulations, Portfolio performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class B shares will vary based upon the different inception dates and fees assessed to that class. PERFORMANCE COMPARED TO THE CS FIRST BOSTON HIGH YIELD INDEX(1) - ------------------------------------
TOTAL RETURNS(2) ----------------------------- AVERAGE AVERAGE ANNUAL ANNUAL ONE FIVE SINCE YEAR YEARS INCEPTION ------- -------- ---------- PORTFOLIO -- CLASS A ....... -11.51% 5.54% 8.14% PORTFOLIO -- CLASS B ....... -11.77 N/A 5.17 INDEX -- CLASS A ........... -5.21 4.51 7.01 INDEX -- CLASS B ........... -5.21 N/A 4.49
1. The CS First Boston High Yield Index is an unmanaged index of high yield corporate bonds. 2. Total returns for the Portfolio reflect expenses waived and reimbursed, if applicable, by the Adviser. Without such waiver and reimbursement, total returns would be lower. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The High Yield Portfolio seeks to maximize total return by investing primarily in a diversified portfolio of high yield fixed income securities that offer a yield above that generally available on debt securities in the four highest rating categories of the recognized rating services. Investing in high yield fixed income securities, otherwise known as "junk bonds" is speculative and includes greater risk of loss of principal and interest. For the year ended December 31, 2000, the Portfolio had a total return of - -11.51% for the Class A shares and -11.77% for the Class B shares compared to - -5.21% for the CS First Boston High Yield Index (the "Index"). For the five-year period ended December 31, 2000, the average annual total return of Class A shares was 5.54% compared to 4.51% for the Index. For the period from inception on September 28, 1992 through December 31, 2000, the average annual total return of Class A shares was 8.14% compared to 7.01% for the Index. For the period from inception on January 2, 1996 through December 31, 2000, the average annual total return of Class B shares was 5.17% compared to 4.49% for the Index. As of December 31, 2000, the Portfolio had a SEC 30-day yield of 14.54% for the Class A shares and 14.30% for the Class B shares. The past year was one of the worst in the history of the high yield market, with high yield indices posting sharply negative total returns. There were many reasons for the poor performance. The NASDAQ's decline, disappointing earnings announcements, concerns regarding the telecom industry's large funding requirements, declining credit quality among high yield issuers, and fears of a "hard landing" for the U.S. economy all served to create an unfavorable environment for investors. Consequently, demand for high yield securities declined and mutual fund flows turned negative. As a result, yield spreads widened by nearly 400 basis points and closed the year at 959 basis points over U.S. Treasuries - the widest level seen in the high yield market since the "credit crunch" and recession period of 1990-91. - -------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE. - -------------------------------------------------------------------------------- High Yield Portfolio 128 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- HIGH YIELD PORTFOLIO (CONT.) Our sector and security selection decisions in the telecom sector, where we had an overweight compared to the Index, were a key factor behind this underperformance. Our underweight in the energy sector also detracted from performance, as this sector turned out to be the best performer in the market due to high oil prices and the perceived safety it offered in an uncertain economic environment. On the positive side, our higher credit quality had a favorable effect on performance during a period in which BB rated securities performed much better than lower-rated bonds. Our overweight in the gaming sector and favorable security selection decisions within both the healthcare and real estate sectors also contributed to results. As we enter 2001, we see great value in the telecommunication sector and maintain an overweight in this area. To a lesser extent, we remain overweight in the gaming, healthcare, and cable sectors. We also maintain our underweight in the energy sector due to valuation concerns, as well as most other cyclical sectors. The Portfolio also continues to have an above-Index credit quality and a focus on larger capitalized companies. With yield spreads in excess of 900 basis points over Treasuries and yields in the 15% area, the high yield market offers very compelling value relative to underlying fundamental risks. We are optimistic regarding the prospects for attaining much better relative and absolute performance in the high yield market in the coming year. Robert Angevine PORTFOLIO MANAGER Stephen F. Esser PORTFOLIO MANAGER Gordon W. Loery PORTFOLIO MANAGER January 2001 - -------------------------------------------------------------------------------- High Yield Portfolio 129 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- HIGH YIELD PORTFOLIO - --------------------------------------------------------------------------------
FACE AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- ASSET BACKED SECURITIES (0.2%) COMMERCIAL MORTGAGE (0.2%) $ (e)875 FMAC Loan Receivables Trust, Series 96-B, Class C (Floating Rate), 7.929%, 11/15/18 $ 227 ------------ CORPORATE BONDS AND NOTES (84.4%) AUTOMOTIVE (2.5%) 535 Ford Motors Credit Co., 7.375%, 10/28/09 ...... 534 2,750 Hayes Lemmerz International, Inc. 8.25%, 12/15/08 .............................. 1,774 230 Lear Corp., 8.11%, 5/15/09 .................... 209 320 Lear Corp., Series B, 7.96%, 5/15/05 .......... 302 150 Tenneco Automotive, Inc. 11.625%, 10/15/09 ............................ 73 ------------ 2,892 ------------ CABLE (11.0%) 700 Adelphia Communications, Series B 7.75%, 1/15/09 ............................... 569 1,000 Adelphia Communications, Series B 7.875%, 5/01/09 .............................. 815 1,400 Adelphia Communications, Series B 8.375%, 2/01/08 .............................. 1,204 700 Adelphia Communications, Series B 9.875%, 3/01/07 .............................. 653 1,170 British Sky Broadcasting, 8.20%, 7/15/09 ...... 1,110 465 Cablevision S.A., 13.75%, 5/01/09 ............. 339 (e)1,500 Callahan Nordrhein-Westfalen GmbH, 14.00%, 7/15/10 .............................. 1,343 1,200 Charter Commuincations Holdings 10.25%, 1/15/10 .............................. 1,170 1,170 Echostar DBS Corp., 9.375%, 2/01/09 ........... 1,135 585 Multicanal S.A., 10.50%, 2/01/07 .............. 412 2,175 NTL, Inc., 9.75%, 4/01/08 ..................... 1,196 550 RCN Corp., 11.125%, 10/15/07 .................. 193 2,265 RCN Corp., 9.80%, 2/15/08 ..................... 725 (n)2,300 Telewest Communications plc 9.25%, 4/15/09 ............................... 1,081 970 United Pan-Europe Communications N.V., 10.875%, 8/01/09 ............................. 621 ------------ 12,566 ------------ CHEMICALS (3.0%) 1,270 Huntsman ICI Chemicals, Inc. 10.125%, 7/01/09 ............................. 1,235 1,400 ISP Holdings, Inc., 9.00%, 10/15/03 ............ 1,064 1,230 Lyondell Chemical Co., 9.625%, 5/01/07 ........ 1,193 ------------ 3,492 ------------ COMMUNICATIONS-FIXED (15.3%) (e)980 Bayan Telecommunications, Inc. 13.50%, 7/15/06 .............................. 323 (e)1,200 Exodus Communications, Inc. 11.625%, 7/15/10 ............................. 1,068 (n) 250 Focal Communications Corp. 12.125%, 2/15/08 ............................. 105 1,700 Focal Communications Corp 11.875%, 1/15/10 ............................. 1,156 2,100 Global Crossing Holdings, 9.625%, 5/15/08 ..... 1,974 (c)965 Global Tele-Systems Ltd., 10.875%, 6/15/08 .... 10 (c)600 Global Tele-Systems Ltd., 11.50%, 12/15/07 .... 6 1,280 Globix Corp., 12.50%, 2/01/10 ................. 474 (n)1,850 GT Group Telecommunications 13.25%, 2/01/10 .............................. 610 900 Hermes Europe Railtel B.V., 11.50%, 8/15/07 ...................................... 369 (n)1,510 Hyperion Telecommunications 13.00%, 4/15/03 .............................. 1,057 (n)1,485 Intermedia Communications, Inc. 11.25%, 7/15/07 .............................. 891 760 Intermedia Communications, Inc. 8.50%, 1/15/08 ............................... 532 (n)1,275 Level 3 Communications, Inc. 12.875%, 3/15/10 ............................. 593 925 Maxcom Telecommunication S.A. de C.V., 13.75%, 4/01/07 .............................. 444 1,375 Netia Holdings II B.V.,, 13.125%, 6/15/09 ..... 1,100 1,315 Primus Telecommunications Group, Inc., 9.875%, 5/15/08 .............................. 355 715 Primus Telecommunications Group, Inc., 11.25%, 1/05/09 .............................. 193 415 Primus Telecommunications Group, Inc., 12.75%, 10/15/09 ............................. 112 2,000 Psinet, Inc., 10.00%, 2/15/05 ................. 520 210 Psinet, Inc., 11.00%, 8/01/09 ................. 55 (n)3,610 Rhythms Netconnections, 13.50%, 5/15/08 ....... 433 415 Rhythms Netconnections, Series B 14.00%, 2/15/10 .............................. 95 (n)1,440 RSL Communications, plc 10.125%, 3/01/08 ............................. 54 2,000 RSL Communications, plc, 9.125%, 3/01/08 ...... 80 200 RSL Communications, plc, 12.00%, 11/01/08 ............................. 13 241 RSL Communications, plc, 12.25%, 11/15/06 ..... 18 1,025 Tele1 Europe B.V., 13.00%, 5/15/09 ............ 912 (n)1,930 Viatel, Inc., 12.50%, 4/15/08 .................. 289 (n)1,290 Wam!Net, Inc., 13.25%, 3/01/05 ................. 297 6,895 Winstar Communications, 14.75%, 4/15/10 ....... 1,931 2,300 XO Communications, Inc., 9.45%, 4/15/08 ....... 1,196 450 XO Communications, Inc., 12.125%, 12/01/09 ..................................... 203 ------------ 17,468 ------------ COMMUNICATIONS: MOBILE (8.5%) 1,195 AMSC Acquisition Co., Inc., 12.25%, 4/01/08 .............................. 442 525 Cellco Finance N.V. Turkcell, 12.75%, 8/01/05 .............................. 494 1,475 Centennial Cellular, 10.75%, 12/15/08 ......... 1,386 1,500 CTI Holdings, 11.50%, 4/15/08 ................. 578 2,425 Dolphin Telecom plc, 11.50%, 6/01/08 .......... 340
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- High Yield Porfolio 130 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- HIGH YIELD PORTFOLIO (CONT.) - -------------------------------------------------------------------------------
FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------------------------------------- COMMUNICATIONS: MOBILE (CONT.) $ 300 Dolphin Telecom plc, 14.00%, 5/15/09 .......... $ 33 1,175 Globalstar Capital Corp., 11.375%, 2/15/04 .... 123 310 Globalstar LP, 11.50%, 6/01/05 ................ 39 750 Grupo Iusacell S.A. de C.V. 14.25%, 12/01/06 ... 741 (n)2,850 Nextel Communications, Inc. 10.65%, 9/15/07 .... 2,251 (n)500 Nextel Communications, Inc. 9.95%, 2/15/08 ..... 365 2,275 Occidente y Caribe Cellular, 14.00%, 3/15/04 .. 1,683 1,690 International Finance B.V. 10.75%, 7/01/07 ..... 1,234 --------- 9,709 --------- ENERGY (2.4%) (n)1,360 Husky Oil Ltd., 8.90%, 8/15/28 ................ 1,362 (e)700 Nuevo Energy Co., 9.375%, 10/01/10 ............ 702 425 Vintage Petroleum, 8.625%, 2/01/09 ............ 431 280 Vintage Petroleum, 9.75%, 6/30/09 ............. 297 --------- 2,792 --------- FINANCIAL (1.7%) (e)1,095 Anthem Insurance Co., Inc., 9.125%, 4/01/10 ... 1,065 1,000 Golden State Holdings, 7.125%, 8/01/05 ........ 937 --------- 2,002 --------- FOOD & BEVERAGES (1.0%) 1,180 Smithfield Foods, Inc., 7.625%, 2/15/08 ....... 1,102 --------- GAMING (5.2%) 1,385 Harrahs Operating Co., Inc. 7.875%, 12/15/05 ... 1,378 1,075 Horseshoe Gaming Holdings Corp. 8.625%, 5/15/09 1,052 1,075 International Game Technology 8.375%, 5/15/09 .. 1,072 775 Park Place Entertainment, 8.50%, 11/15/06 ..... 800 950 Station Casinos, Inc., 9.75%, 4/15/07 ......... 962 613 Station Casinos, Inc., 10.125%, 3/15/06 ....... 635 --------- 5,899 --------- GENERAL INDUSTRIAL (1.6%) 700 Actuant Corp., 13.00%, 5/01/09 ................ 637 (e)1,155 Flowserve Corp., 12.25%, 8/15/10 .............. 1,149 --------- 1,786 --------- HEALTHCARE (6.1%) 1,730 Fresenius Medical Capital Trust II 7.875%, 2/01/08 1,591 600 HCA - The Healthcare Corp., 7.58%, 9/15/25 .... 521 1,800 HCA - The Healthcare Corp., 7.69%, 6/15/25 .... 1,583 895 HCA - The Healthcare Corp., 8.13%, 8/04/03 .... 907 75 HCA - The Healthcare Corp. 8.75%, 9/01/10 ...... 79 680 Tenet Healthcare Corp., 8.125%, 12/01/08 ...... 687 1,525 Tenet Healthcare Corp., 8.625%, 1/15/07 ....... 1,561 --------- 6,929 --------- HOTELS & LODGING (1.5%) 1,085 Hilton Hotels Corp., 7.95%, 4/15/07 ........... 1,090 700 Host Marriott LP, 8.375%, 2/15/06 ............. 679 --------- 1,769 --------- MEDIA (1.7%) 1,040 Satelites Mexicanos, 10.125%, 11/01/04 ........ 676 875 TV Azteca, Series B, 10.50%, 2/15/07 .......... 827 900 XM Satellite Radio Holdings, Inc. 14.00%, 3/15/10 495 --------- 1,998 --------- METALS (2.0%) 435 Glencore Nickel Property Ltd. 9.00%, 12/01/14 .. 326 1,780 Murrin Murrin Holdings, PTY, (Yankee Bond), 9.375%, 8/31/07 ............................... 1,335 1,300 National Steel Corp., 9.875%, 3/01/09 ......... 520 1,010 Republic Technologies International LLC/RTI Capital Corp., 13.75%, 7/15/09 ................ 101 --------- 2,282 --------- PAPER & PACKAGING (4.4%) 750 Crown Cork & Seal Finance plc 7.00%, 12/15/06 .. 383 2,350 Indah Kiat Financial Mauritius 10.00%, 7/01/07 . 869 1,250 Norampac, Inc., 9.50%, 2/01/08 ................ 1,250 475 Owens-Illinois, Inc., 7.35%, 5/15/08 .......... 252 1,545 Owens-Illinois, Inc., 7.50%, 5/15/10 .......... 803 130 Owens-Illinois, Inc., 7.80%, 5/15/18 .......... 60 1,145 Pacifica Papers Corp., 10.00%, 3/15/09 ........ 1,139 900 Pindo Deli Finance Mauritius 10.75%, 10/01/07 .. 324 --------- 5,080 --------- REAL ESTATE (3.1%) 1,000 Centex Corp., 9.75%, 6/15/05 .................. 1,025 840 D R Horton, Inc., 8.00%, 2/01/09 .............. 756 750 Lennar Corp., Series B, 9.95%, 5/01/10 ........ 765 1,170 Nortek, Inc., 8.875%, 8/01/08 ................. 1,035 --------- 3,581 --------- RETAIL (5.1%) 549 DR Securitized Lease Trust, Series 93-K1 Class A1, 6.66%, 8/15/10 ..................... 434 1,881 DR Securitized Lease Trust, Series 94-K1 Class A1, 7.60%, 8/15/07 ..................... 1,655 700 DR Securitized Lease Trust, Series 94-K1 Class A2, 8.375%, 8/15/15 .................... 515 2,275 HMV Media Group plc, Series A 10.25%, 5/15/08 .. 944
The accompanying notes are an integral part of the financial statements - ------------------------------------------------------------------------------- 131
FACE AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- RETAIL (CONT.) $500 Musicland Group, Inc., 9.00%, 6/15/03 ......... $ 495 1,810 Musicland Group, Inc., 9.875%, 3/15/08 ........ 1,810 --------- 5,853 --------- SERVICES (2.2%) 1,100 Waste Management, Inc., 6.875%, 5/15/09 ....... 1,034 700 Waste Management, Inc., 7.00%, 10/15/06 ....... 675 400 Waste Management, Inc., 7.125%, 12/15/17 ...... 344 450 Waste Management, Inc., 7.65%, 3/15/11 ........ 435 --------- 2,488 --------- SUPERMARKET/DRUG (1.3%) (e)856 CA FM Lease Trust, 8.50%, 7/15/17 ............. 843 840 Stater Brothers Holdings, Inc. 10.75%, 8/15/06 . 689 --------- 1,532 --------- TECHNOLOGY (0.5%) 860 Lucent Technologies, Inc., 6.45%, 3/15/29 ..... 585 --------- TEXTILES & APPAREL (0.7%) 1,015 West Point Stevens, Inc., 7.875%, 6/15/05 ..... 756 --------- TRANSPORTATION (2.4%) 1,677 Aircraft Lease Portfolio Securitization Ltd., Series 96-1 P1, Class D, 12.75%, 6/15/06 1,576 (e)1,050 Jet Equipment Trust, Series A3, 8.16%, 12/15/13 1,134 --------- 2,710 --------- UTILITIES (1.2%) 1,100 AES Corp., 8.50%, 11/01/07 1,063 (e)1,055 Paiton Energy Funding B.V., 9.34%, 2/15/14 .... 316 --------- 1,379 --------- TOTAL CORPORATE BONDS AND NOTES (Cost $129,192)................. 96,650 --------- SOVEREIGN & EMERGING MARKETS (1.2%) SOVEREIGN & EMERGING MARKETS (1.2%) 685 Federative Republic of Brazil 11.00%, 8/17/40 .. 558 950 Republic of Colombia, 9.75%, 4/23/09 .......... 793 --------- SOVEREIGN & EMERGING MARKETS (Cost $1,366) ..................... 1,351 --------- SHARES - -------------- COMMON STOCK (0.1%) COMMUNICATIONS-FIXED (0.1%) (a)18,052 Tele1 Europe Holding AB ADR (Cost $85) 84 --------- PREFERRED STOCKS (5.9%) COMMUNICATIONS-FIXED (1.8%) 1,521 Broadwing, Inc., 12.50% ........................ 1,498 (a)9,373 XO Communications, Inc., 14.00% ................ 457 (a)3,810 XO Communications, Inc., 13.50% ................ 111 --------- 2,066 --------- COMMUNICATIONS: MOBILE (1.3%) (a)15,219 Dobson Communications Corp., PIK, 13.00% ...... 1,347 (a)197 Nextel Communications, Inc., PIK, 13.00% ....... 199 --------- 1,546 --------- MEDIA (1.4%) (a)12,985 Paxson Communications Corp., PIK, 13.25%, 11/15/06 ............................... $1,181 (a)(e)3,977 Paxson Communications Corp., PIK 9.75%, 12/31/06 ............................ 376 --------- 1,557 --------- RETAIL (0.5%) 20,300 Kmart Financing, 7.50% ......................... 542 --------- UTILITIES (0.9%) (a)(e)1,130 TNP Enterprises, Inc. 14.50% ................... 1,090 --------- TOTAL PREFERRED STOCK (Cost $6,641) ......................... 6,801 --------- NO. OF WARRANTS - --------------- WARRANTS (0.2%) COMMUNICATIONS-FIXED (0.1%) (a)(e)18,500 GT Group Telecommunications expiring 2/01/10 ... 65 (a)925 Maxcom Telecommunication S.A. de C.V., expiring 4/01/07................................ -- (a)(e)38,700 Wam!Net, Inc., expiring 3/01/05 ................ 45 --------- 110 --------- COMMUNICATIONS: MOBILE (0.1%) (a)(e)600 Globalstar Telecommunications Ltd., expiring 2/15/04................................ -- (a)(e)18,450 Motient Corp., expiring 4/01/08 ................ 14 (a)(e)111,000 Occidente y Caribe Cellular expiring 3/15/04 ... 69 --------- 83 --------- MEDIA (0.0%) (a)(e)1,024 Paxson Communications Corp. expiring 6/30/03.... -- (a)(e)900 XM Satellite Radio Holdings, Inc. expiring 3/15/10 17 --------- 17 --------- METALS (0.0%) (a)(e)1,010 Republic Technologies International, expiring 7/15/09......................................... -- UTILITIES (0.0%) (e)1,075 SW Acquisitions LP, expiring 4/01/11 ........... 32 --------- TOTAL WARRANTS (Cost $242) ..................................... 242 --------- FACE AMOUNT (000) - ------------ SHORT-TERM INVESTMENT (5.7%) REPURCHASE AGREEMENT (5.7%) $ (f)6,565 Chase Securities, Inc., 5.60%, dated 12/29/00, due 1/02/01 (Cost $6,565) ...................... 6,565 ---------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- High Yield Portfolio 132
VALUE (000) - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (97.7%) (COST $144,840)..................... $ 111,920 --------- OTHER ASSETS (3.6%) Cash............................................... $112 Interest Receivable................................ 2,882 Receivable for Investments Sold.................... 683 Receivable for Portfolio Shares Sold............... 474 Other.............................................. 8 4,159 ---------- LIABILITIES (-1.3%) Payable for Investments Purchased.................. (1,137) Payable for Portfolio Shares Redeemed.............. (184) Investment Advisory Fees Payable................... (115) Administrative Fees Payable........................ (16) Directors' Fees and Expenses Payable............... (15) Distribution Fees Payable.......................... (12) Custodian Fees Payable............................. (4) Other Liabilities.................................. (38) (1,521) ---------- ---------- NET ASSETS (100%)............................................. $114,558 ========== NET ASSETS CONSIST OF: Paid in Capital............................................... $159,967 Accumulated Net Investment Loss............................... (20) Accumulated Net Realized Loss................................. (12,469) Unrealized Depreciation on Investments and Foreign Currency Translations............................ (32,920) ----------- NET ASSETS $114,558 =========== CLASS A: - -------- NET ASSETS.................................................... $95,174 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 11,291,147 outstanding $0.001 par value shares (authorized 500,000,000 shares)............................... $8.43 =========== CLASS B: - -------- NET ASSETS.................................................... $19,384 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 2,306,644 outstanding $0.001 par value shares (authorized 500,000,000 shares)............................... $ 8.40 ===========
- -------------------------------------------------------------------------------- (a) -- Non-income producing security (c) -- Security is in default. (e) -- 144A Security -- certain conditions for public sale may exist. (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. (n) -- Step Bond -- coupon rate increases in increments to maturity. Rate disclosed is as of December 31, 2000. Maturity date disclosed is the ultimate maturity date. ADR -- American Depositary Receipt PIK -- Payment-In-Kind. Income may be received in additional securities or cash at the discretion of the issuer. Floating Rate -- The interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect at December 31, 2000. The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- High Yield Portfolio 133 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ MONEY MARKET PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) - ------------------------------------------------------------------------------ [CHART] Commercial Paper (59.8%) U.S. Government & Agency Securities (15.4%) Certificates of Deposit (13.9%) Bank Notes (3.0%) Other (7.9%)
COMPARATIVE MONTHLY AVERAGE YIELDS - ------------------------------------------------- [GRAPH]
Money Market IBC Money Fund Portfolio Comparable 30 Day Yields Yields ------------- -------------- Jan 5.30% 5.05% Feb ----- ----- Mar ----- ----- Apr ----- ----- May ----- ----- Jun ----- ----- Jul ----- ----- Aug ----- ----- Sep ----- ----- Oct ----- ----- Nov ----- ----- Dec 6.16% 6.00%
The Money Market Portfolio seeks to maximize current income and preserve capital while maintaining high levels of liquidity through investing in high quality money market instruments which have effective maturities of 397 days or less. Investments in shares of the Portfolio are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Portfolio seeks to preserve the value of $1.00 per share, it is possible to lose money by investing in the Portfolio. The seven day yield and seven day effective yield (which assumes an annualization of the current yield with all dividends reinvested) for the Portfolio as of December 31, 2000, were 6.10% and 6.29%, respectively. As with all money market portfolios, the seven day yields are not necessarily indicative of future performance. The U.S. economy grew rapidly during the first and second quarters of 2000 as real gross domestic product increased at a 4.8% and 5.6% annual pace, respectively. For April, the nation's unemployment rate reached 3.9%, the lowest level in 30 years. Despite strong growth and tight labor markets, rapid gains in productivity continued to help contain costs and to hold down underlying price pressures. Nonetheless, the inflation rate did gradually creep higher. Through November, the Consumer Price Index (CPI), on a year-over- year basis, rose by 3.4% as compared to a 2.7% increase for all of 1999. Excluding food and energy, CPI increased by 2.6% during the same time span as compared to 1.9% for all of 1999. By June, the impact of higher interest rates, rising energy costs and lower equity valuations began to cool off the U.S. economy. Third quarter real gross domestic product slowed to a 2.2% growth rate, the slowest pace in almost four years. Factory activity softened significantly as the National Association of Purchasing Managers Composite Index fell to 43.7 in December, its fifth consecutive monthly decline. Growth in nonfarm payrolls slowed dramatically with payrolls advancing in October and November by an anemic 77,000 and 94,000, respectively. During the first half of 2000, the Federal Reserve attempted to slow economic growth to a more sustainable, noninflationary pace by raising its target federal funds rate on three separate occasions. At mid-year, the funds rate stood at 6.50%, an increase of 100 basis points as compared to the year-end 1999 target. Although yields on money market securities were in a generally rising pattern for most of the year, weaker economic statistics during the fourth quarter caused the money market yield curve to decline and to become sharply inverted. For both Federal agency discount notes and the very top commercial paper issuers, yields for three month obligations reached levels 30 to 40 - ------------------------------------------------------------------------------ CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE AND ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE - ------------------------------------------------------------------------------ Money Market Portfolio 134 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ INVESTMENT OVERVIEW - ------------------------------------------------------------------------------ MONEY MARKET PORTFOLIO (CONT.) basis points below one month levels and six month rates were even lower. At the last Federal Open Market Committee (FOMC) meeting of the year (December 19, 2000), the Fed changed its economic assessment to one that states risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future. Our primary strategy during the first half of the year consisted of purchasing money market securities that matured near upcoming FOMC meeting dates in order to quickly reinvest at higher short-term interest rate levels. In response to signs of slowing economic growth during the second half of the year, we slightly lengthened the weighted average maturity of the Portfolio in an attempt to lock in current market rates. As always, we try to operate the Portfolio in a conservative manner without the use of derivatives or funding agreements. On December 31, 2000, approximately 60% of the Portfolio was invested in high quality commercial paper, 15% in Federal agency obligations, 8% in overnight repurchase agreements, and 17% in short-term bank notes and negotiable certificates of deposit issued by financially strong commercial banks. At December 31, the Portfolio's weighted average maturity was 60 days, representing an increase from June 30, 2000 and December 31, 1999 of 10 and 28 days, respectively. Seventy three percent of holdings were due to mature in less than three months. Therefore, we believe the Portfolio is well positioned for stability of principal with a very high degree of liquidity. As always, the Portfolio continues to serve as a useful investment for liquidity, preservation of capital and a yield that reflects prevailing money market conditions. For the first half of 2001, we anticipate that the FOMC will react to the slowing pace of economic activity by reducing the federal funds rate target by a total of 50 to 150 basis points, or more. We believe the Portfolio is well positioned to take advantage of the money market yield levels which become available during the months ahead. January 2001 - ------------------------------------------------------------------------------ Money Market Portfolio 135 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ MONEY MARKET PORTFOLIO - ------------------------------------------------------------------------------
FACE AMORTIZED AMOUNT COST (000) (000) - ---------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS (92.1%) BANK NOTES (3.0%) MAJOR BANKS (3.0%) $35,000 Bank of America N.A., 6.61%, 3/26/01 .......... $35,000 25,000 Bank of America N.A., 6.64%, 3/09/01 .......... 25,000 30,000 LaSalle Bank N.A., 6.38%, 4/12/01 ............. 30,000 ------------ TOTAL BANK NOTES (Cost $90,000) 90,000 ------------ CERTIFICATES OF DEPOSIT (13.9%) MAJOR BANKS (13.9%) 30,000 Chase Manhattan Bank, 6.68%, 1/22/01 .......... 30,000 30,000 First Star Savings Bank, 6.62%, 1/25/01 ....... 30,000 80,000 First Star Savings Bank, 6.66%, 1/09/01 ....... 80,000 60,000 Fleet National Bank, 6.63%, 1/26/01 ........... 60,000 70,000 Harris Trust & Savings Bank, 6.42%, 3/19/01 ... 70,000 40,000 Harris Trust & Savings Bank, 6.63%, 1/03/01 ... 40,000 70,000 Sun Trust Bank, 6.59%, 4/05/01 ................ 70,000 40,000 Sun Trust Bank, 6.62%, 2/08/01 ................ 40,000 ------------ TOTAL CERTIFICATES OF DEPOSIT (Cost $420,000) ................. 420,000 ------------ COMMERCIAL PAPER (59.8%) BANKING (4.3%) 50,000 J.P. Morgan & Co., 6.50%, 2/08/01 ............. 49,657 30,000 J.P. Morgan & Co., 6.50%, 2/20/01 ............. 29,729 20,000 Mellon Bank N.A., 6.40%, 3/12/01 .............. 19,751 30,000 State Street Corp., 6.35%, 3/20/01 ............ 29,588 ------------ 128,725 ------------ COMPUTER HARDWARE (1.3%) 40,000 IBM Credit Corp., 6.46%, 2/27/01 .............. 39,591 ------------ DIVERSIFIED FINANCIAL SERVICES (7.0%) 45,000 Associates Corp. of North America 6.53%, 1/11/01 44,918 60,000 Associates Corp. of North America 6.53%, 1/18/01 59,815 25,000 General Electric Capital Corp. 6.48%, 3/06/01 .. 24,722 25,000 General Electric Capital Corp. 6.40%, 4/18/01 .. 24,525 60,000 General Electric Capital Corp. 6.39%, 5/01/01 .. 58,722 ------------ 212,702 ------------ FINANCE - AUTOMOTIVE (3.6%) 45,000 Ford Motor Credit Co. 6.53%, 1/05/01 .......... 44,967 30,000 Ford Motor Credit Co. 6.40%, 2/15/01 .......... 29,760 35,000 General Motors Acceptance Corp. 6.57%, 1/11/01 34,936 ------------ 109,663 ------------ FINANCE - CONSUMER (5.2%) 35,000 America Express Credit Corp. 6.42%, 3/30/01 ... 34,451 30,000 New Center Asset Trust, 6.52%, 1/30/01 ........ 29,842 35,000 New Center Asset Trust, 6.49%, 2/05/01 ........ 34,779 45,000 New Center Asset Trust, 6.27%, 3/29/01 ........ 44,318 15,000 Wells Fargo & Co., 6.51%, 2/08/01 ............. 14,897 ------------ 158,287 ------------ FINANCE - CORPORATE (7.2%) 30,000 Ciesco, LP 6.52%, 1/16/01 ..................... 29,918 50,000 Ciesco, LP 6.52%, 1/17/01 ..................... 49,855 30,000 Ciesco, LP 6.52%, 2/09/01 ..................... 29,789 35,000 CIT Group, Inc. 6.57%, 1/23/01 ................ 34,859 50,000 CIT Group, Inc. 6.57%, 1/29/01 ................ 49,745 25,000 CIT Group, Inc. 6.50%, 2/07/01 ................ 24,833 ------------ 218,999 ------------ INSURANCE (2.7%) 60,000 American General Corp., 6.56%, 1/24/01 ........ 59,749 22,000 American General Corp., 6.49%, 2/28/01 ........ 21,770 ------------ 81,519 ------------ INTEGRATED OIL COMPANIES (1.0%) 30,000 Texaco Inc., 6.49%, 2/13/01 ................... 29,767 ------------ INTERNATIONAL BANKS (18.0%) 60,000 Abbey National N.A., 6.51%, 1/08/01 ........... 59,924 60,000 ABN Amro North America, Inc. 6.54%, 1/04/01 ... 59,967 30,000 Cregem North America Inc., 6.53%, 1/16/01 ..... 29,918 45,000 Cregem North America Inc.,6.54%, 1/19/01 ...... 44,853 55,000 Deutsche Bank Financial, Inc. 6.47%, 3/09/01 .. 54,338 20,000 Deutsche Bank Financial, Inc. 6.47%, 3/30/01 .. 19,684 35,000 Deutsche Bank Financial, Inc. 6.22%, 6/21/01 .. 35,000 10,000 Halifax International, Inc., 6.45%, 2/23/01 ... 9,905 50,000 Halifax International, Inc., 6.25%, 4/12/01 ... 49,123 35,000 KFW International Finance, 6.53%, 1/12/01 ..... 34,930 25,000 Societe Generale, 6.50%, 2/22/01 .............. 24,765 35,000 Societe Generale, 6.30%, 3/07/01 .............. 34,597 40,000 UBS Finance, (Del.) LLC, 6.43%, 4/02/01 ....... 39,350 50,000 UBS Finance, (Del.) LLC, 6.40%, 4/27/01 ....... 48,969 ------------ 545,323 ------------ INVESTMENT BANKERS/BROKERS/SERVICES (5.8%) 25,000 Goldman Sachs Group, Inc., 6.50%, 2/15/01 ..... 24,797 85,000 Goldman Sachs Group, Inc., 6.50%, 2/16/01 ..... 84,297 25,000 Merril Lynch & Co., 6.48%, 2/06/01 ............ 24,838 40,000 Merrill Lynch & Co., 6.54%, 1/10/01 ........... 39,935 ------------ 173,867 ------------ MAJOR PHARMACEUTICALS (1.0%) 30,000 Schering Corp., 6.25%, 4/10/01 ................ 29,484 ------------ MAJOR U.S. TELECOMMUNICATIONS (1.6%) 49,200 Verizon Global Funding , 6.30%, 2/28/01 ....... 48,701 ------------ UTILITIES (1.1%) 35,000 National Rural Utilities Cooperative Finance Corp., 6.30%, 3/07/01 ...................... 34,602 ------------ TOTAL COMMERCIAL PAPER (Cost $1,811,230) ...................... 1,811,230 ------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Money Market Portfolio 136 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ------------------------------------------------------------------------------ MONEY MARKET PORTFOLIO (CONT.) - ------------------------------------------------------------------------------
FACE AMORTIZED AMOUNT COST (000) (000) - ------------------------------------------------------------------------------- US GOVERNMENT & AGENCY SECURITIES (15.4%) US AGENCY DISCOUNT NOTES (15.4%) $35,000 Federal Home Loan Bank, 6.29%, 4/11/01 ......... $ 34,389 15,000 Federal Home Loan Bank, 6.64%, 5/22/01 ......... 14,610 30,000 Federal Home Loan Bank, 5.83%, 6/22/01 ......... 29,164 20,000 Federal Home Loan Mortgage Corp. 6.30%, 2/01/01 19,895 20,000 Federal Home Loan Mortgage Corp. 6.22%, 3/01/01 19,800 25,000 Federal Home Loan Mortgage Corp. 6.26%, 3/29/01 24,622 45,000 Federal Home Loan Mortgage Corp. 6.70%, 4/26/01 44,103 40,000 Federal Home Loan Mortgage Corp. 5.84%, 6/21/01 38,895 30,000 Federal National Morgage Association 5.75%, 1/02/01 ...................................... 29,995 40,000 Federal National Morgage Association 6.66%, 5/10/01 ...................................... 39,103 40,000 Federal National Morgage Association 6.34%, 5/21/01 ...................................... 39,014 40,000 Federal National Morgage Association 6.27%, 5/24/01 ...................................... 39,004 36,000 Federal National Morgage Association 5.97%, 6/07/01 ...................................... 35,063 40,000 Federal National Morgage Association 6.23%, 6/22/01 ...................................... 38,809 20,000 Federal National Morgage Association 6.22%, 6/27/01 ...................................... 19,388 ------------ TOTAL U.S. GOVERNMENT & AGENCY SECURITIES (Cost $465,854) 465,854 ------------ MONEY MARKET INSTRUMENTS (COST $2,787,084) ................... 2,787,084 ------------ SHORT-TERM INVESTMENTS (7.9%) (f)237,000 Chase Securities, Inc., 6.40%, dated 12/29/00, due 1/02/01 (Cost $237,000) 237,000 ------------ TOTAL INVESTMENTS (100.0%) (COST $3,024,084) ................... $3,024,084 ------------ OTHER ASSETS (0.2%) Cash ....................................... $81 Interest Receivable ........................ 5,419 Other ...................................... 120 5,620 -------- LIABILITIES (-0.2%) Investment Advisory Fees Payable ........... (2,401) Administrative Fees Payable ................ (401) Directors' Fees and Expenses Payable ....... (136) Dividends Payable .......................... (119) Custodian Fees Payable ..................... (61) Other Liabilities .......................... (174) (3,292) -------- ------------- NET ASSETS (100%) ............................ $3,026,412 ============= NET ASSETS CONSIST OF: Paid in Capital .............................. $3,026,703 Accumulated Net Realized Loss ................ (291) ------------ NET ASSETS ................................... $3,026,412 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 3,026,878,711 outstanding $0.001 par value shares (authorized 4,000,000,000 shares) $1.00 ============
- ------------------------------------------------------------------------------ (f) -- The repurchase agreement is fully collateralized by U.S. government and/ or agency obligations based on market prices at the date of this Statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated parties. Variable/Floating Rate Instruments. -- The interest rate changes on these instruments are based on changes in a designated base rate. These instruments are payable on demand. Maturity dates disclosed for Variable/Floating Rate Instruments are the ultimate maturity dates. The effective maturity dates for such securities are the next interest reset dates which are seven days or less. The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ Money Market Portfolio 137 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- MUNICIPAL MONEY MARKET PORTFOLIO COMPOSITION OF NET ASSETS (AT DECEMBER 31, 2000) [CHART] Other (-0.3%) Weekly Variable Rate Bonds (48.6%) Commercial Paper (21.0%) Daily Variable Rate Bonds (17.9%) Municipal Bonds & Notes (9.7%) Put Option Bonds (3.1%)
COMPARATIVE MONTHLY AVERAGE YIELDS - ------------------------------------------------- [GRAPH]
Municipal IBC Municipal Money Market Money Fund Portfolio Comparable 30 Day Yields Yields ------------- ------------- Jan 2.90% 3.10% Feb ----- ----- Mar ----- ----- Apr ----- ----- May ----- ----- Jun ----- ----- Jul ----- ----- Aug ----- ----- Sep ----- ----- Oct ----- ----- Nov ----- ----- Dec 3.64% 3.59%
The Municipal Money Market Portfolio seeks to maximize current tax-exempt income and preserve capital. The Investment Advisor and Sub-Advisor seek these objectives by investing in high quality municipal money market instruments which earn interest exempt from Federal income tax and by maintaining high levels of liquidity. The Portfolio will purchase only securities having remaining maturities of 397 days or less. Typically, the Portfolio will invest at least 80% of its assets in tax-exempt municipal securities. The Portfolio will not invest in municipal obligations that pay interest subject to the alternative minimum tax. Investments in shares of the Portfolio are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Portfolio seeks to preserve the value of $1.00 per share, it is possible to lose money by investing in the Portfolio. The seven day yield and seven day effective yield (which assumes an annualization of the current yield with all dividends reinvested) for the Portfolio at December 31, 2000, were 4.10% and 4.13%, respectively. The seven day taxable equivalent yield and seven day taxable equivalent effective yield for the Portfolio at December 31, 2000, assuming Federal income tax rate of 39.6% (maximum rate) were 6.79% and 6.84%, respectively. As with all money market portfolios, the seven day yields are not necessarily indicative of future performance. Tax-free money market yields moved higher during the first half of 2000, continuing the trend of 1999. The Federal Reserve Board's three increases in the federal funds rate target between February and May of 2000 served as the impetus for the rise in rates. From mid-April through early May heavy cash outflows to meet tax payments placed added pressure on the market. Yields leveled out as we entered the third quarter and then held relatively steady for most of the remainder of 2000. During the final weeks of 2000 a downward bias in interest rates became evident. Signs of a more rapidly slowing economy prompted expectations for an easing in monetary policy. Indeed, on January 3, 2001, in an unusual inter-meeting step, the Fed lowered both the federal funds rate target and the discount rate. Yields for longer-term fixed rate instruments provided the clearest measure of interest rate movements in the municipal money market. One-year yields, as measured by The Bond Buyer One Year Note Index, rose from 3.91% at the start of January 2000 to 4.10% in mid-April. The Index spiked upward to 4.64% in mid-May, reflecting a combination of tax-season selling and the Fed's 50 basis point increase in the fed funds target at its May meeting. - -------------------------------------------------------------------------------- CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED. ACCORDINGLY, THE REPORT OF INDEPENDENT AUDITORS APPEARING ELSEWHERE IN THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE AND ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE - -------------------------------------------------------------------------------- Municipal Money Market Portfolio 138 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- INVESTMENT OVERVIEW - -------------------------------------------------------------------------------- MUNICIPAL MONEY MARKET PORTFOLIO (CONT.) One-year note yields settled to moderately lower levels during June and then moved within a narrow range of 4.15% to 4.25% for most of the third and fourth quarters. As the year drew to a close, the rising sentiment for a decline in interest rates brought the One Year Note Index down to 3.97%. At the short end of the tax-free money market maturity spectrum, yields for daily and weekly variable rate demand obligations (VRDOs) followed a pattern similar to that for longer fixed rate instruments. As is typical, however, VRDO yields exhibited brief but sharp swings during times of pronounced seasonal cash flows. In January and July strong money fund inflows, fed in part by bond coupon and maturity payments, brought steep declines in VRDO yields. Money fund redemptions for tax payments in April and for quarter-end needs in September and December resulted in quick upward adjustments in yields. Weekly VRDOs had an average yield of 4.05% over the first half of 2000 and a moderately higher average of 4.25% over the second half. However, the range of yields was nearly 300 basis points, from a low of 2.95% set in January to a high of 5.85% in May. Assets of the Portfolio increased 5% during 2000. At the end of the year net assets totaled $1,476 million. With the market seemingly poised for a period of lower interest rates, we sought opportunities to extend maturity during the fourth quarter. At the end of December the weighted average maturity of the Portfolio stood at 38 days, up from 26 days six months earlier. Tight supply conditions may limit our ability to manipulate portfolio maturity in the period immediately ahead. Nonetheless, given prospects for a steeper money market yield curve, we will seek to maintain an average maturity in the moderate range through investments in longer fixed-rate paper. January 2001 - -------------------------------------------------------------------------------- Municipal Money Market Portfolio 139 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- MUNICIPAL MONEY MARKET PORTFOLIO - --------------------------------------------------------------------------------
FACE AMORITIZED AMOUNT COST (000) (000) - ------------------------------------------------------------------------------- TAX-EXEMPT INSTRUMENTS (100.3%) FIXED RATE INSTRUMENTS (33.8%) COMMERCIAL PAPER (21.0%) $ 7,100 Baltimore County, Maryland, Metropolitan Water District, Series 1995 BANs, 4.30%, 2/08/01 .............................. $ 7,100 23,000 Bexar Metropolitan Water District, Texas, Series 1997, 4.35%, 2/07/01 .................. 23,000 10,231 Florida Municipal Power Agency, Series A, 4.35%, 2/28/01 .............................. 10,231 8,000 Houston, Texas, Series 1993 A, 4.15%, 2/21/01 . 8,000 12,600 Houston, Texas, Series 1996 B, 4.40%, 1/11/01 . 12,600 9,000 Illinois Educational Facilities Authority, Northwestern University, Series 1998, 4.35%, 1/31/01 ............................... 9,000 10,100 Intermountain Power Agency, Utah, Series 1997 B-2, 4.35%, 2/21/01 ................... 10,100 11,500 Kentucky Asset/Liability Commission, 1999 1st Series A, 4.30%, 2/01/01 ............... 11,500 25,000 Kentucky Asset/Liability Commission, 1999 2nd Series A, 4.15%, 2/07/01 ............... 25,000 10,700 Las Vegas Valley Water District, Nevada, Water, Series 1999 A, 4.25%, 2/14/01 ....... 10,700 9,835 Louisiana Public Facilities Authority, Christus Health, Series 1999 B, 4.45%, 2/06/01 ....... 9,835 15,000 Louisiana Public Facility Authority, Christus Health, Series 1999 B, 4.30%, 2/13/01 ....... 15,000 12,000 Massachusetts Water Resources Authority, Series 1999, 4.10%, 1/23/01 ................. 12,000 10,000 Nebraska Public Power District, Series A Notes, 4.10%, 2/16/01 ...................... 10,000 10,300 New York City, New York, Series 1994 H (MBIA), 4.15%, 2/12/01 ...................... 10,300 14,995 Oklahoma City Industrial & Cultural Facilities Trust, SSM Health Care, Series 1998 B (MBIA), 4.40%, 2/14/01 ..................... 14,995 6,000 Petersburg, Indiana, Indianapolis Power & Light Co., Series 1991, 4.50%, 1/11/01 ...... 6,000 10,000 Rochester, Minnesota, Mayo Foundation/Mayo Medical Center, Series 2000 A, 4.35%, 2/27/01 10,000 9,000 Shelby County, Tennessee, Baptist Memorial Hospital, Series 2000, 4.10%, 2/22/01 ........ 9,000 30,000 South Carolina Public Service Authority, Santee Cooper, Series 1998, 4.35%, 1/30/01 ... 30,000 20,000 Texas Municipal Power, Series 1991, 4.30%, 1/16/01 ...................................... 20,000 20,000 University of Michigan Regents, Series B, 4.30%, 2/21/01 .............................. 20,000 15,000 Wyoming Education Fund, Series 2000 B, 5.25%, 6/27/01 .............................. 15,072 ------------ 309,433 ------------ MUNICIPAL BONDS & NOTES (9.7%) 15,700 Chicago, Illinois, Board of Education, Series 2000 Class B TRANs, 0.00%, 3/01/32 .......... 15,700 6,440 Georgia State, Series A, 6.25%, 2/01/05 ...... 6,579 4,065 Georgia State, Series D, 7.00%, 11/01/01 ..... 4,153 12,000 Indiana Bond Bank, Advanced Funding Program, Series 2001, 3.85%, 2/01/01 ......... 12,001 12,075 Indianapolis Local Public Improvement Bond Bank, Indiana, Series 2000 A, 5.00%, 1/08/01 12,083 5,075 Kentucky State, Property & Building, Project 68, 5.00%, 10/01/01 .................. 5,099 7,894 llinois Educational Facilities Authority, Series 1998, 4.15%, 3/12/01 .................. 7,894 22,015 Massachusetts Health & Educational Facilities Authorities, Series R, 0.00%, 11/01/49 ...... 22,015 16,675 Minnesota State, Series 2000, 4.75%, 11/01/01 . 16,742 12,000 Oregon Housing & Community Services, Series M, 4.40%, 11/28/01 .................. 12,000 10,865 South Carolina Transportation Infrastructure, Series A, 6.00%, 10/01/01 .................... 11,000 18,600 Texas State Tax and Revenue, Series 2000, TRANS, 5.25%, 8/31/01 ........................ 18,714 ------------ 143,980 ------------ PUT OPTION BONDS (3.1%) 26,500 Intermountain Power Agency, Utah, Series E 3.75%, 7/01/14 .............................. 26,500 11,075 Oklahoma State Water Reserve Board Program, 7.00%, 9/01/24 ..................... 11,075 8,725 Putnam County Development Authority, Florida, Seminole Electric Co-op Inc., Series 1984 H1 (NRU-CFC-GTD), 4.30%, 3/15/14 .............................. 8,725 ------------ 46,300 ------------ TOTAL FIXED RATE INSTRUMENTS (Cost $499,713) ................... 499,713 ------------ VARIABLE/FLOATING RATE INSTRUMENTS (66.5%) DAILY VARIABLE RATE BONDS (17.9%) 12,000 Burke County Development Authority, Georgia, 4.35%, 2/08/01 .................... 12,000 8,900 Burke County Development Authority, Georgia, Power Co., Series 1985, 0.00%, 7/01/24 ............................... 8,900 6,100 Clark County, Nevada, Airport Improvement, Series B-2, 0.00%, 7/01/29 ................... 6,100 26,735 Farmington, New Mexico, 3.75%, 9/01/24 ......... 26,735 7,000 Forsyth, Montana, Pacificorp, Revenue Bonds, SEries 1988, 0.00%, 1/01/18 .................. 7,000 17,675 Harris County, Texas, Health Facilities Development Corp., 0.00%, 2/15/27 .......... 17,675 20,400 Harris County, Texas, Health Facilities Development Corp., 0.00%, 2/15/27 .......... 20,400
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- Municipal Money Market Portfolio 140 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- MUNICIPAL MONEY MARKET PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
FACE AMORITIZED AMOUNT COST (000) (000) - ------------------------------------------------------------------------------- VARIABLE/FLOATING RATE INSTRUMENTS (CONT.) DAILY VARIABLE RATE BONDS (CONT.) $ 28,000 Harris County, Texas, Health Facilities Development Corp., Methodist Hospital, 0.00% 12/01/25 .............................. $ 28,000 10,000 Idaho Health Facilities, Authority Revenue Bonds, 0.00%, 7/01/30 ........................ 10,000 2,485 Idaho Health Facilities, Authority Revenue Bonds, Authority Revenue Bonds, St. Lukes Regional Medica 0.00%, 5/01/22 ............................... 2,485 10,200 Jackson County, Mississippi Pollution Control, 3.40%, 6/01/23 ...................... 10,200 24,790 Jacksonville, Florida, Pollution Control Financing Authority, Power & Light Co., Series 1995, 2.00%, 5/01/29 .................. 24,790 4,300 Long Island Power Authority, New York, Electric System Revenue, 0.00%, 5/01/33 ...... 4,300 7,725 Massachusetts Health & Educational Facilities Authorities, Capital Assets Program, Series D, 0.00%, 1/01/35 ..................... 7,725 10,700 Missouri State Health & Educational Facilities Authority, Series C, 0.00%, 3/01/40 ......... 10,700 20,000 Pinellas County Florida Health Facilities Authorty Revenue, 3.50%, 12/01/15 ............ 20,000 25,000 Tempe, Arizona, Excise Tax Series 1998, 0.00%, 7/01/23 ............................... 25,000 12,500 Uinta County, Wyoming, Pollution Control Revenue, 0.00%, 8/15/20 ...................... 12,500 10,000 Utah County, Utah, USX Corp., Series 1995, 0.00%, 11/01/17 ............... 10,000 ------------ 264,510 ------------ WEEKLY VARIABLE RATE BONDS (48.6%) 14,300 Albuquerque, New Mexico, Airport Sub Lien, Series 1995, 0.00%, 7/01/14 .................. 14,300 13,385 Burke County Development Authority, Georgia, Series 1998 A, 0.00%, 1/01/19 ...... 13,385 6,000 Chicago, Illinois, People's Gas Light and Coke Co., Series 2000, 0.00%, 3/01/30 ............. 6,000 16,800 Clark County, Nevada, Airport Improvement, Series 1993 A, 4.20%, 7/01/12 ............... 16,800 12,750 Clarksville Public Building Authority, Tennessee, Series 1995, 0.00%, 10/01/25 ...... 12,750 12,330 Cleveland, Ohio, Income Tax Sub Lien, Series 1994, 0.00%, 5/15/24 .................. 12,330 25,200 Connecticut Health & Educational Facilities Authority, Yale University, Series T-1, 0.00%, 7/01/29 .............................. 25,200 7,875 Connecticut Second Lien Special Tax, Series 1990, 0.00%, 12/01/10 ........................ 7,875 7,315 Connecticut, Series 1997 B, 0.00%, 5/15/14 ..... 7,315 100 Cuyahoga County, Ohio, Hospital Revenue, 0.00%, 1/01/24 .............................. 100 17,300 Cuyahoga County, Ohio, University Hospital, Series 1999 E, 0.00%, 1/15/29 ............... 17,300 20,475 Dade County, Florida, Water & Sewer System, Series 1994, 4.20%, 10/05/22 ................. 20,475 12,000 Dallas Texas Area Rapid Transit, 0.00%, 1/05/05 ............................... 12,000 16,000 District of Columbia, George Washington University, Series 1999 C, 0.00%, 9/15/29 .... 16,000 3,800 Fulton County Development Authority, Georgia, Morehouse College, 0.00%, 8/01/17 .............................. 3,800 23,400 Harris County, Texas, Baytank Houston Inc., Series 1998, 0.00%, 2/01/20 .................. 23,400 5,000 Illinois Development Finance Authority, Con Edison Co. Series C, 93A, 0.00%, 3/01/09 ..... 5,000 8,000 Illinois Development Finance Authority, Palos Community Hospital, Series 1995, 0.00%, 9/01/15 .............................. 8,000 19,900 Illinois State Toll Highway Authority, Series 1993 B,0.00%,1/01/10 .................. 19,900 10,000 Intermountain Power Agency, Utah, 0.00%, 7/01/15 .............................. 10,000 4,000 Jacksonville Electric Authority, Florida, Water and Sewer, Series B, 0.00%, 10/01/34 ......... 4,000 5,510 Louisiana Public Facilities Authority, College & University Equipment, Series A, 0.00%, 9/01/10 .............................. 5,510 20,000 Louisiana State Offshore Term Authority, 0.00%, 9/01/17 .............................. 20,000 8,100 Maryland Health & Educational Facilities, John Hopkins Hospital, Series 1997 A, Series A, 0.00%, 7/01/27 0.00%, 7/01/27 ..... 8,100 13,600 Massachusetts Water Resources Authority, Series B, 0.00%, 8/01/28 .................... 13,600 25,000 Massachusetts, GO, 0.00%, 9/01/16 ............ 25,000 30,300 Massachusetts, Series 1997 B, 0.00%, 8/01/15 ............................... 30,300 20,000 Metropolitan Atlanta Rapid Transportation Authority, Series A, 0.00%, 7/01/25 ......... 20,000 21,680 Minneapolis, Minnesota, 0.00%, 12/01/18 ...... 21,680 10,000 Missouri Health & Educational Facilities Authority, 0.00%, 7/01/35 .................... 10,000 10,215 Missouri Health & Educational Facilities Authority, Sisters of Mercy Health System, Series 1995 B, 0.00%, 12/01/16 ............... 10,215 4,000 Municipal Electric Authority, Georgia, Series E, 0.00%, 1/01/26 ..................... 4,000 19,100 New Jersey State Authority, Series 1991 D, 5.65%, 1/01/18 .............................. 19,100 17,650 New York City Housing Development, Series A, 0.00%, 11/15/19 .................... 17,650 9,135 New York City Transportation Finance Authority, New York, Fiscal 1999, 2nd Series A-1, 0.00%, 11/15/22 ................ 9,135
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- Municipal Money Market Portfolio 141 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- MUNICIPAL MONEY MARKET PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
FACE AMORITIZED AMOUNT COST (000) (000) - ------------------------------------------------------------------------------- VARIABLE/FLOATING RATE INSTRUMENTS (CONT.) WEEKLY VARIABLE RATE BONDS (CONT.) $ 14,400 New York City, New York, Fiscal 1996 J-2, 0.00%, 2/15/16 .............................. $ 14,400 5,000 New York State Housing Finance Agency, Series 1998 A, 0.00%, 3/15/28 .............. 5,000 24,300 New York State Local Government Assistance Corporation, Series 1995 G, 0.00%, 4/01/25 ............................... 24,300 20,000 North Carolina Medical Care Community Hospital, 0.00%, 6/01/30 ..................... 20,000 22,550 North Carolina Medical Care Community Hospital, 3.70%, 12/01/25 .................... 22,550 3,900 Nueces County Health Facilities Developmental Corporation, Texas, Driscoll Childrens' Foundation Series 1985, 4.55%, 7/01/15 .............................. 3,900 6,000 Ohio State University, Series B, 0.00%, 12/01/19 ............................. 6,000 20,500 Oregon, Series 73F, 0.00%, 12/01/17 ............ 20,500 9,350 Puerto Rico, Government Development Bank, Series 1996, 4.00%, 12/01/15 ................. 9,350 19,700 Pulaski County, Arkansas, Health Facility, Series B, 0.00%, 12/01/28 .................... 19,700 25,000 Salt Lake City, Utah, IHC Health Services Inc., Series 1990 B, 0.00%, 1/01/20 .......... 25,000 4,200 Suffolk County Water Authority, New York, Series 1997 BANS, 0.00%, 11/01/02 ............ 4,200 7,505 Texas State, Veterans Housing Assistance Fund, Series 1995, 0.00%, 12/01/16 ........... 7,505 14,800 University of Alabama Hospital, Series 2000 B, 0.00%, 9/01/31 ................ 14,800 6,600 University of Maryland, Series 1996 B, 0.00%, 7/01/15 ............................... 6,600 4,000 University of Minnesota Regents, Series 1999 A, 0.00%, 1/01/34 .............. 4,000 8,000 Volusia County Florida Health Facility 0.00%, 11/01/15 ............................. 8,000 11,300 Washington, Series 1996 B, 0.00%, 6/01/20 ...... 11,300 20,000 Weber County, Utah, IHC Health Services, Inc., Series 2000 C, 0.00%, 2/15/35 .......... 20,000 ------------ 717,325 ------------ TOTAL VARIABLE/FLOATING RATE INSTRUMENTS (Cost $981,835) 981,835 ------------ TOTAL TAX-EXEMPT INSTRUMENTS (100.3%) (Cost $1,481,548) 1,481,548 ------------ AMOUNT (000) - ------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.3%) (Cost $1,481,548) .................. $ 1,481,548 ------------ OTHER ASSETS (0.6%) Cash .................................... $ 68 Interest Receivable ..................... 8,519 Other ................................... 83 $ 8,670 --------- LIABILITIES (-0.9%) Payable for Investments Purchased ....... (12,001) Investment Advisory Fees Payable ........ (1,279) Administrative Fees Payable ............. (215) Directors' Fees and Expenses Payabl ..... (88) Custodian Fees Payable .................. (43) Dividends Declared ...................... (4) Other Liabilities ....................... (152) (13,782) --------- ------------ NET ASSETS (100%) ......................... $ 1,476,436 ============ NET ASSETS CONSIST OF: Paid in Capital ........................... $ 1,476,530 Accumulated Net Realized Loss ............. (94) ------------ NET ASSETS ................................ $ 1,476,436 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE Applicable to 1,476,517,016 outstanding $0.001 par value shares (authorized 4,000,000,000 shares) $ 1.00 ============
- -------------------------------------------------------------------------------- BANS -- Bond Anticipation Notes NRU-CFC-GTD-- National Rural Utilities Cooperative Finance Corporation Guaranteed Variable/Floating Rate Instruments. The Interest rate changes on these instruments are based on changes in a designated base rate. These instruments are payable on demand. Maturity dates disclosed for Variable/Floating Rate Instruments are the ultimate maturity dates. The effective maturity dates for such securities are the next interest reset dates which are seven days or less. The accompanying notes are an integral part of the financial statements - -------------------------------------------------------------------------------- Municipal Money Market Portfolio 142 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS DECEMBER 31, 2000 - -------------------------------------------------------------------------------- MUNICIPAL MONEY MARKET PORTFOLIO (CONT.) - --------------------------------------------------------------------------------
SUMMARY OF TAX-EXEMPT INSTRUMENTS BY STATE - ----------------------------------------------------------- AMORTIZED COST PERCENT OF STATE (000) NET ASSETS - ----------------------------------------------------------- Alabama ....................... $14,800 1.0% Arizona ....................... 25,000 1.7 Arkansas ...................... 19,700 1.3 Connecticut ................... 40,390 2.7 District of Columbia .......... 16,000 1.1 Florida ....................... 96,222 6.5 Georgia ....................... 72,817 4.9 Idaho ......................... 12,485 0.8 Illinois ...................... 71,494 4.8 Indiana ....................... 30,083 2.0 Kentucky ...................... 41,599 2.8 Louisiana ..................... 50,345 3.4 Maryland ...................... 21,800 1.5 Massachusetts ................. 110,640 7.5 Michigan ...................... 20,000 1.4 Minnesota ..................... 52,422 3.5 Mississippi ................... 10,200 0.7 Missouri ...................... 30,915 2.1 Montana ....................... 7,000 0.5 Nebraska ...................... 10,000 0.7 Nevada ........................ 33,600 2.3 New Jersey .................... 19,100 1.3 New Mexico .................... 41,035 2.8 New York ...................... 89,285 6.0 North Carolina ................ 42,550 2.9 Ohio .......................... 35,730 2.4 Oklahoma ...................... 26,070 1.8 Oregon ........................ 32,500 2.2 Puerto Rico ................... 9,350 0.6 South Carolina ................ 41,000 2.8 Tennessee ..................... 21,750 1.5 Texas ......................... 195,194 13.2 Utah .......................... 101,600 6.9 Washington .................... 11,300 0.8 Wyoming ....................... 27,572 1.9 ---------- ------ $1,481,548 100.3% ========== ======
The accompanying notes are an integral part of the financial statements - ------------------------------------------------------------------------------ Municipal Money Market Portfolio 143 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - --------------------------------------------------------------------------------
ACTIVE ASIAN EUROPEAN INTERNATIONAL ASIAN REAL EMERGING EUROPEAN REAL GLOBAL ALLOCATION EQUITY ESTATE MARKETS EQUITY ESTATE EQUITY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (000) (000) (000) (000) (000) (000) (000) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 8,502 $ 1,094 $ 97 $ 11,674 $ 2,259 $ 222 $ 1,727 Interest 5,971 159 5 2,429 123 13 209 Less: Foreign Taxes Withheld (825) (65) (4) (612) (250) (42) (124) --------- --------- ------- -------- ------- ----- ------- Total Income 13,648 1,188 98 13,491 2,132 193 1,812 --------- --------- ------- -------- ------- ----- ------- EXPENSES: Investment Advisory Fee 3,719 745 26 16,777 764 76 646 Less: Fees Waived (612) (241) (26) -- (121) (76) (132) --------- --------- ------- -------- ------- ----- ------- Net Investment Advisory Fee 3,107 504 -- 16,777 643 -- 514 Administrative Fees 950 157 17 2,076 168 27 140 Custodian Fees 362 176 35 1,628 72 20 61 Directors' Fees and Expenses 21 3 1 41 3 1 5 Filing and Registration Fees 41 23 19 117 21 18 31 Foreign Tax Expense 7 38 -- 650 -- -- -- Insurance 12 3 -- 26 2 -- 4 Interest Expense 84 14 1 276 12 3 3 Professional Fees 67 59 30 187 40 31 45 Shareholder Reporting 16 5 -- 54 3 1 3 Distribution Fees on Class B Shares 66 5 2 50 5 4 68 Other Expenses 32 7 1 76 7 3 7 Expenses Reimbursed by Advisor -- -- (71) -- -- (7) -- --------- --------- ------- -------- ------- ----- ------- Total Expenses 4,765 994 35 21,958 976 101 881 --------- --------- ------- -------- ------- ----- ------- NET INVESTMENT INCOME (LOSS) 8,883 194 63 (8,467) 1,156 92 931 --------- --------- ------- -------- ------- ----- ------- NET REALIZED GAIN (LOSS): Investments Sold 42,834 4,643 106 232,260* 7,698 (308) 1,012 Foreign Currency Transactions (12,798) (135) (2) (3,110) 65 (11) 1,650 Futures Contracts (3,291) -- -- -- -- -- -- --------- --------- ------- -------- ------- ----- ------- Total Net Realized Gain (Loss) 26,745 4,508 104 229,150 7,763 (319) 2,662 --------- --------- ------- -------- ------- ----- ------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments (117,384) (44,069) (121) (805,124) (4,921) 1,259 990 Foreign Currency Translations 1,137 8 -- 9,226 513 (11) (1,024) Futures Contracts (8,187) -- -- -- -- -- -- --------- --------- ------- -------- ------- ----- ------- Total Net Change in Unrealized Appreciation (Depreciation) (124,434) (44,061) (121) (795,898) (4,408) 1,248 (34) --------- --------- ------- -------- ------- ----- ------- TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (97,689) (39,553) (17) (566,748) 3,355 929 2,628 --------- --------- ------- -------- ------- ----- ------- Net Increase (Decrease) in Net Assets Resulting from Operations $(88,806) $ (39,359) $ 46 $(575,215) $4,511 $1,021 $3,559 ========= ========= ======= ========= ======= ====== ====== =======
- -------------------- * Net of foreign tax expense of $5,444,000. The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 144 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - --------------------------------------------------------------------------------
INTERNATIONAL INTERNATIONAL INTERNATIONAL JAPANESE LATIN EQUITY MAGNUM SMALL CAP EQUITY AMERICAN PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (000) (000) (000) (000) (000) - ----------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $112,961 $3,332 $9,913 $510 $313 Interest 11,545 1,065 538 124 53 Less: Foreign Taxes Withheld (10,795) (369) (1,133) (76) (2) -------- --------- -------- -------- ------- Total Income 113,711 4,028 9,318 558 364 -------- --------- -------- -------- ------- EXPENSES: Investment Advisory Fee 36,891 1,739 3,556 600 220 Less: Fees Waived -- (192) (204) (66) (44) -------- --------- -------- -------- ------- Net Investment Advisory Fee 36,891 1,547 3,352 534 176 Administrative Fees 7,077 360 589 128 41 Custodian Fees 1,374 172 226 19 55 Directors' Fees and Expenses 156 9 13 3 1 Filing and Registration Fees 158 33 38 19 24 Foreign Tax Expense -- -- -- -- 22 Insurance 94 5 7 1 -- Interest Expense 37 7 38 22 7 Professional Fees 219 42 64 39 37 Shareholder Reporting 177 5 14 5 1 Distribution Fees on Class B Shares 118 68 -- 10 3 Other Expenses 258 13 19 6 2 -------- --------- -------- -------- ------- Total Expenses 46,559 2,261 4,360 786 369 -------- --------- -------- -------- ------- NET INVESTMENT INCOME (LOSS) 67,152 1,767 4,958 (228) (5) -------- --------- -------- -------- ------- NET REALIZED GAIN (LOSS): Investments Sold 715,751 2,715 44,189 4,034 (5) Foreign Currency Transactions (45,071) (931) (660) (23) (16) Futures Contracts -- (267) -- -- -- -------- --------- -------- -------- ------- Total Net Realized Gain (Loss) 670,680 1,517 43,529 4,011 (21) -------- --------- -------- -------- ------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments (438,922) (25,084) (61,159) (22,385) (5,162) Foreign Currency Translations 107,798 (40) 850 (2) 18 Futures -- (296) -- -- -- Total Net Change in Unrealized Appreciation -------- --------- -------- -------- ------- (Depreciation) (331,124) (25,420) (60,309) (22,387) (5,144) -------- --------- -------- -------- ------- TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 339,556 (23,903) (16,780) (18,376) (5,165) -------- --------- -------- -------- ------- Net Increase (Decrease) in Net Assets Resulting from Operations $406,708 $ (22,136) $(11,822) $(18,604) $(5,170) ======== ========= ======== ======== =======
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 145 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - --------------------------------------------------------------------------------
SMALL EQUITY FOCUS COMPANY U.S. EQUITY U.S. REAL VALUE GROWTH EQUITY GROWTH TECHNOLOGY PLUS ESTATE EQUITY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (000) (000) (000) (000) (000) (000) (000) - ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $8,265 $1,009 $409 $37 $220 $23,974 $1,283 Interest 1,908 221 498 237 3 896 135 Less: Foreign Taxes Withheld -- -- -- -- -- (63) -- --------- -------- -------- -------- ------- -------- ------- Total Income 10,173 1,230 907 274 223 24,807 1,418 --------- -------- -------- -------- ------- -------- ------- EXPENSES: Investment Advisory Fee 8,235 1,325 1,647 1,358 90 3,841 301 Less: Fees Waived -- (33) (77) (41) (59) (93) (60) --------- -------- -------- -------- ------- -------- ------- Net Investment Advisory Fee 8,235 1,292 1,570 1,317 31 3,748 241 Administrative Fees 2,100 257 260 218 44 743 100 Custodian Fees 138 35 72 41 19 48 16 Directors' Fees and Expenses 48 6 5 4 2 15 3 Filing and Registration Fees 162 25 107 73 20 80 25 Insurance 38 4 2 2 -- 8 1 Interest Expense 4 1 -- 13 1 1 4 Professional Fees 81 38 35 31 27 46 30 Shareholder Reporting 113 13 12 9 5 48 5 Distribution Fees on Class B Shares 868 57 183 22 2 41 2 Other Expenses 49 10 8 6 11 64 4 --------- -------- -------- -------- ------- -------- ------- Total Expenses 11,836 1,738 2,254 1,736 162 4,842 431 --------- -------- -------- -------- ------- -------- ------- NET INVESTMENT INCOME (LOSS) (1,663) (508) (1,347) (1,462) 61 19,965 987 --------- -------- -------- -------- ------- -------- ------- NET REALIZED GAIN (LOSS): Investments Sold 63,322 11,563 10,699 14,915 737 14,495 4,244 Foreign Currency Translations -- -- -- -- -- (16) -- --------- -------- -------- -------- ------- -------- ------- Total Net Realized Gain (Loss) 63,322 11,563 10,699 14,915 737 14,479 4,244 --------- -------- -------- -------- ------- -------- ------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments (232,143) (31,284) (43,213) (57,782) (2,933) 93,030 4,834 --------- -------- -------- -------- ------- -------- ------- TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (168,821) (19,721) (32,514) (42,867) (2,196) 107,509 9,078 --------- -------- -------- -------- ------- -------- ------- Net Increase (Decrease) in Net Assets Resulting from Operations $(170,484) $(20,229) $(33,861) $(44,329) $(2,135) $127,474 $10,065 ========= ======== ======== ======== ======= ======== =======
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 146 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - --------------------------------------------------------------------------------
GLOBAL MUNICIPAL EMERGING FIXED FIXED HIGH MONEY MONEY MARKETS DEBT INCOME INCOME YIELD MARKET MARKET PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (000) (000) (000) (000) (000) (000) - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $25 $-- $-- $269 $-- $-- Interest 9,077 12,126 1,541 14,974 198,218 69,881 Less: Foreign Taxes Withheld (140) -- (2) -- -- -- ------- ------- ------ ------- ------- ------- Total Income 8,962 12,126 1,539 15,243 198,218 69,881 ------- ------- ------ ------- ------- ------- EXPENSES: Investment Advisory Fee 463 608 119 540 9,300 5,246 Less: Fees Waived -- (195) (105) -- -- -- ------- ------- ------ ------- ------- ------- Net Investment Advisory Fee 463 413 14 540 9,300 5,246 Administrative Fees 103 277 57 226 4,723 2,689 Custodian Fees 35 18 15 17 258 144 Directors' Fees and Expenses 2 7 2 7 68 17 Filing and Registration Fees 21 20 21 23 225 144 Insurance 1 3 1 3 25 1 Interest Expense 19 1 6 -- 20 7 Professional Fees 50 36 35 42 127 112 Shareholder Reporting 2 4 4 20 68 45 Distribution Fees on Class B Shares 2 3 -- 70 -- -- Other Expenses 12 12 3 12 24 18 ------- ------- ------ ------- ------- ------- Total Expenses 710 794 158 960 14,838 8,423 ------- ------- ------ ------- ------- ------- NET INVESTMENT INCOME 8,252 11,332 1,381 14,283 183,380 61,458 ------- ------- ------ ------- ------- ------- NET REALIZED GAIN (LOSS): Investments Sold 4,439 (1,438) (311) (7,283) 4 (2) Foreign Currency Transactions (871) -- (778) -- -- -- Securities Sold Short 75 -- -- -- -- -- ------- ------- ------ ------- ------- ------- Total Net Realized Gain (Loss) 3,643 (1,438) (1,089) (7,283) 4 (2) ------- ------- ------ ------- ------- ------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION): Investments (4,941) 8,722 (63) (23,719) -- -- Foreign Currency Translations 77 -- (24) -- -- -- ------- ------- ------ ------- ------- ------- Total Net Change in Unrealized Appreciation (Depreciation) (4,864) 8,722 (87) (23,719) -- -- ------- ------- ------ ------- ------- ------- TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (1,221) 7,284 (1,176) (31,002) 4 (2) ------- ------- ------ ------- ------- ------- Net Increase (Decrease) in Net Assets Resulting from Operations $7,031 $18,616 $205 $(16,719) $183,384 $61,456 ======= ======= ====== ======= ======= =======
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 147 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO ASIAN EQUITY PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 (000) (000) (000) (000) - ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $8,883 $7,290 $194 $428 Net Realized Gain 26,745 36,392 4,508 22,415 Net Change in Unrealized Appreciation (Depreciation) (124,434) 78,883 (44,061) 24,459 - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations (88,806) 122,565 (39,359) 47,302 - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: CLASS A: Net Investment Income -- (2,165) (115) (718) In Excess of Net Investment Income (528) (2,247) -- -- Net Realized Gain (44,191) (28,918) -- -- In Excess of Net Realized Gain (13,227) -- -- -- CLASS B: Net Investment Income -- (30) (3) (15) In Excess of Net Investment Income (31) (31) -- -- Net Realized Gain (2,031) (415) -- -- In Excess of Net Realized Gain (608) -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Total Distributions (60,616) (33,806) (118) (733) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 223,132 306,079 216,082 133,913 Distributions Reinvested 51,725 29,221 (1,812) 666 Redeemed (199,096) (106,381) (222,871) (127,781) CLASS B: Subscribed 1,077,735 9,859 250 450 Distributions Reinvested 2,623 459 3 15 Redeemed (1,071,140) (1,358) (1,003) (312) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 84,979 237,879 (9,351) 6,951 - ---------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets (64,443) 326,638 (48,828) 53,520 NET ASSETS: Beginning of Period 593,566 266,928 106,341 52,821 - ---------------------------------------------------------------------------------------------------------------------------- End of Period $529,123 $593,566 $57,513 $106,341 - ---------------------------------------------------------------------------------------------------------------------------- Undistributed (accumulated) net investment income (loss) included in end of period net assets $(2,199) $(2,119) $32 $91 - ---------------------------------------------------------------------------------------------------------------------------- (1)CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 18,214 24,816 18,453 13,946 Shares Issued on Distributions Reinvested 4,707 2,218 8 49 Shares Redeemed (16,165) (8,511) (19,051) (13,211) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 6,756 18,523 (590) 784 - ---------------------------------------------------------------------------------------------------------------------------- CLASS B: Shares Subscribed 85,034 757 20 40 Shares Issued on Distributions Reinvested 232 34 -- 1 Shares Redeemed (84,123) (108) (78) (30) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding 1,143 683 (58) 11 - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ 148 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO EMERGING MARKETS PORTFOLIO - ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 (000) (000) (000) (000) - ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $63 $63 $(8,467) $(2,713) Net Realized Gain (Loss) 104 359 229,150 135,938 Net Change in Unrealized Appreciation (Depreciation) (121) 370 (795,898) 649,154 - ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 46 792 (575,215) 782,379 - ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: CLASS A: Net Investment Income (44) (122) -- -- In Excess of Net Investment Income (10) (10) -- -- In Excess of Net Realized Gain -- -- (45,359) -- CLASS B: Net Investment Income (7) (42) -- -- In Excess of Net Investment Income (1) (3) -- -- In Excess of Net Realized Gain -- -- (705) -- - ------------------------------------------------------------------------------------------------------------------------------- Total Distributions (62) (177) (46,064) -- - ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 50 615 936,704 452,119 Distributions Reinvested 8 31 44,719 -- Redeemed (211) (649) (997,140) (453,915) CLASS B: Subscribed -- 533 80,541 14,167 Distributions Reinvested 9 43 694 -- Redeemed (854) (112) (75,091) (12,172) - ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions (998) 461 (9,573) 199 - ------------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets (1,014) 1,076 (630,852) 782,578 NET ASSETS: Beginning of Period 4,284 3,208 1,561,892 779,314 - ------------------------------------------------------------------------------------------------------------------------------- End of Period $3,270 $4,284 $931,040 $1,561,892 - ------------------------------------------------------------------------------------------------------------------------------- Undistributed (accumulated) net investment income (loss) included in end of period net assets $(11) $(13) $(4,154) $(4,854) - ------------------------------------------------------------------------------------------------------------------------------- (1)CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 7 82 55,489 35,173 Shares Issued on Distributions Reinvested 1 4 3,774 -- Shares Redeemed (29) (86) (58,364) (35,808) - ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding (21) -- 899 (635) - ------------------------------------------------------------------------------------------------------------------------------- CLASS B: Shares Subscribed -- 70 4,792 979 Shares Issued on Distributions Reinvested 1 6 59 -- Shares Redeemed (114) (17) (4,496) (848) - ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding (113) 59 355 131 - -------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ 149 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO EUROPEAN REAL ESTATE PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 (000) (000) (000) (000) - ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $1,156 $1,894 $92 $445 Net Realized Gain (Loss) 7,763 10,452 (319) (316) Net Change in Unrealized Appreciation (Depreciation) (4,408) (4,162) 1,248 (499) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 4,511 8,184 1,021 (370) - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: CLASS A: Net Investment Income (891) (2,064) (57) (258) In Excess of Net Investment Income -- (167) (54) (37) Net Realized Gain (8,347) (11,303) -- -- CLASS B: Net Investment Income (19) (35) (9) (32) In Excess of Net Investment Income -- (3) (8) (4) Net Realized Gain (205) (264) -- -- - ---------------------------------------------------------------------------------------------------------------------------- Total Distributions (9,462) (13,836) (128) (331) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 30,825 47,476 1,052 1,987 Distributions Reinvested 8,484 12,471 88 286 Redeemed (73,720) (118,144) (4,020) (25,147) CLASS B: Subscribed 623 701 160 433 Distributions Reinvested 224 298 10 26 Redeemed (677) (3,817) (685) (1,120) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions (34,241) (61,015) (3,395) (23,535) - ---------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets (39,192) (66,667) (2,502) (24,236) NET ASSETS: Beginning of Period 107,226 173,893 11,717 35,953 - ---------------------------------------------------------------------------------------------------------------------------- End of Period $68,034 $107,226 $9,215 $11,717 - ---------------------------------------------------------------------------------------------------------------------------- Undistributed (accumulated) net investment income (loss) included in end of period net assets $137 $(174) $(57) $(41) - ---------------------------------------------------------------------------------------------------------------------------- (1)CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 2,089 3,069 115 210 Shares Issued on Distributions Reinvested 609 849 9 30 Shares Redeemed (5,018) (7,670) (460) (2,644) - ---------------------------------------------------------------------------------------------------------------------------- Net Decrease in Class A Shares Outstanding (2,320) (3,752) (336) (2,404) - ---------------------------------------------------------------------------------------------------------------------------- CLASS B: Shares Subscribed 47 46 17 44 Shares Issued on Distributions Reinvested 16 20 1 3 Shares Redeemed (47) (250) (73) (116) - ---------------------------------------------------------------------------------------------------------------------------- Net Decrease in Class B Shares Outstanding 16 (184) (55) (69) - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ 150 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 (000) (000) (000) (000) - ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $931 $2,728 $67,152 $51,726 Net Realized Gain 2,662 28,239 670,680 354,703 Net Change in Unrealized Appreciation (Depreciation) (34) (25,843) (331,124) 243,836 - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 3,559 5,124 406,708 650,265 - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: CLASS A: Net Investment Income (1,450) (2,179) (8,527) (39,249) In Excess of Net Investment Income (16) (315) -- -- Net Realized Gain (6,094) (18,311) (756,896) (322,951) In Excess of Net Realized Gain (267) -- -- -- CLASS B: Net Investment Income (891) (475) -- (262) In Excess of Net Investment Income (10) (69) -- -- Net Realized Gain (4,025) (3,780) (9,251) (2,795) In Excess of Net Realized Gain (176) -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Total Distributions (12,929) (25,129) (774,674) (365,257) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 35,328 15,201 1,709,509 1,675,013 Distributions Reinvested 7,232 19,363 734,961 344,185 Redeemed (110,575) (131,408) (1,900,180) (1,073,291) CLASS B: Subscribed 11,839 22,424 22,581 25,017 Distributions Reinvested 5,127 4,325 9,176 2,913 Redeemed (12,702) (8,036) (8,693) (5,010) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions (63,751) (78,131) 567,354 968,827 - ---------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets (73,121) (98,136) 199,388 1,253,835 NET ASSETS: Beginning of Period 143,735 241,871 4,671,409 3,417,574 - ---------------------------------------------------------------------------------------------------------------------------- End of Period $70,614 $143,735 $4,870,797 $4,671,409 - ---------------------------------------------------------------------------------------------------------------------------- Undistributed (accumulated) net investment income (loss) included in end of period net assets $(134) $(365) $6,322 $(1,460) - ---------------------------------------------------------------------------------------------------------------------------- (1)CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 1,966 742 86,711 86,582 Shares Issued on Distributions Reinvested 425 1,029 42,704 17,923 Shares Redeemed (6,334) (6,489) (96,263) (54,905) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding (3,943) (4,718) 33,152 49,600 - ---------------------------------------------------------------------------------------------------------------------------- CLASS B: Shares Subscribed 660 1,066 1,161 1,279 Shares Issued on Distributions Reinvested 304 236 535 152 Shares Redeemed (722) (395) (445) (255) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase in Class B Shares Outstanding 242 907 1,251 1,176 - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ 151 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO INTERNATIONAL SMALL CAP PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 (000) (000) (000) (000) - ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $1,767 $2,544 $4,958 $3,727 Net Realized Gain (Loss) 1,517 13,026 43,529 28,999 Net Change in Unrealized Appreciation (Depreciation) (25,420) 32,007 (60,309) 63,878 - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations (22,136) 47,577 (11,822) 96,604 - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: CLASS A: Net Investment Income (1,382) (2,072) (3,459) (4,582) In Excess of Net Investment Income (1,079) -- -- (418) Net Realized Gain (3,602) (8,198) (15,048) (20,419) In Excess of Net Realized Gain (3,698) -- (90) -- CLASS B: Net Investment Income (132) (257) -- -- In Excess of Net Investment Income (103) -- -- -- Net Realized Gain (472) (1,323) (37,134) -- In Excess of Net Realized Gain (485) -- (225) -- - ---------------------------------------------------------------------------------------------------------------------------- Total Distributions (10,953) (11,850) (55,956) (25,419) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 309,767 128,879 82,685 45,497 Distributions Reinvested 9,098 9,764 55,201 24,307 Redeemed (294,968) (251,176) (53,573) (36,506) Transaction Fees -- -- 681 583 CLASS B: Subscribed 29,944 31,085 -- -- Distributions Reinvested 1,191 1,571 -- -- Redeemed (34,259) (32,459) -- -- - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 20,773 (112,336) 84,994 33,881 - ---------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets (12,316) (76,609) 17,216 105,066 NET ASSETS: Beginning of Period 219,356 295,965 357,708 252,642 - ---------------------------------------------------------------------------------------------------------------------------- End of Period $207,040 $219,356 $374,924 $357,708 - ---------------------------------------------------------------------------------------------------------------------------- Undistributed (accumulated) net investment income (loss) included in end of period net assets $(1,182) $ 60 $ 453 $ (419) - ---------------------------------------------------------------------------------------------------------------------------- (1)CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 24,596 10,445 4,265 2,428 Shares Issued on Distributions Reinvested 762 759 3,340 1,308 Shares Redeemed (23,322) (20,684) (2,786) (2,111) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 2,036 (9,480) 4,819 1,625 - ---------------------------------------------------------------------------------------------------------------------------- CLASS B: Shares Subscribed 2,370 2,469 -- -- Shares Issued on Distributions Reinvested 99 122 -- -- Shares Redeemed (2,699) (2,591) -- -- - ---------------------------------------------------------------------------------------------------------------------------- Net Decrease in Class B Shares Outstanding (230) -- -- -- - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ 152 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO LATIN AMERICAN PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 (000) (000) (000) (000) - ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income (Loss) $(228) $(180) $(5) $259 Net Realized Gain (Loss) 4,011 10 (21) 1,516 Net Change in Unrealized Appreciation (Depreciation) (22,387) 30,838 (5,144) 6,903 - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations (18,604) 30,668 (5,170) 8,678 - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: CLASS A: Net Investment Income (182) -- (181) (436) In Excess of Net Investment Income (585) -- (8) -- CLASS B: Net Investment Income (13) -- (19) (30) In Excess of Net Investment Income (29) -- (1) -- - ---------------------------------------------------------------------------------------------------------------------------- Total Distributions (809) -- (209) (466) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 59,243 61,773 27,528 7,989 Distributions Reinvested 598 -- 177 420 Redeemed (58,944) (75,399) (10,986) (17,160) CLASS B: Subscribed 3,108 2,388 75 212 Distributions Reinvested 40 -- 18 27 Redeemed (1,679) (1,064) (86) (664) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 2,366 (12,302) 16,726 (9,176) - ---------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets (17,047) 18,366 11,347 (964) NET ASSETS: Beginning of Period 77,204 58,838 15,196 16,160 - ---------------------------------------------------------------------------------------------------------------------------- End of Period $60,157 $77,204 $26,543 $15,196 - ---------------------------------------------------------------------------------------------------------------------------- Undistributed (accumulated) net investment income (loss) included in end of period net assets $(617) $(376) $(9) $193 - ---------------------------------------------------------------------------------------------------------------------------- (1)CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 6,480 8,179 2,507 973 Shares Issued on Distributions Reinvested 75 -- 15 45 Shares Redeemed (6,448) (10,247) (1,027) (2,025) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 107 (2,068) 1,495 (1,007) - ---------------------------------------------------------------------------------------------------------------------------- CLASS B: Shares Subscribed 335 304 7 24 Shares Issued on Distributions Reinvested 5 -- 2 3 Shares Redeemed (183) (128) (9) (74) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding 157 176 -- (47) - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ 153 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO FOCUS EQUITY PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 (000) (000) (000) (000) - ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Loss $(1,663) $(1,402) $(508) $(504) Net Realized Gain (Loss) 63,322 125,662 11,563 47,285 Net Change in Unrealized Appreciation (Depreciation) (232,143) 227,053 (31,284) 7,047 - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations (170,484) 351,313 (20,229) 53,828 - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: CLASS A: Net Investment Income -- (23) -- -- In Excess of Net Investment Income -- (35) -- -- Net Realized Gain (71,692) (55,337) (16,258) (28,868) CLASS B: Net Investment Income -- (6) -- -- In Excess of Net Investment Income -- (10) -- -- Net Realized Gain (26,921) (13,532) (2,612) (4,789) - ---------------------------------------------------------------------------------------------------------------------------- Total Distributions (98,613) (68,943) (18,870) (33,657) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 221,091 248,578 45,463 50,123 Distributions Reinvested 69,154 53,147 15,652 26,848 Redeemed (189,227) (345,875) (36,801) (89,436) CLASS B: Subscribed 212,481 147,967 4,031 3,277 Distributions Reinvested 25,681 12,393 2,568 4,773 Redeemed (56,597) (42,581) (4,703) (4,876) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 282,583 73,629 26,210 (9,291) - ---------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 13,486 355,999 (12,889) 10,880 NET ASSETS: Beginning of Period 1,223,894 867,895 158,296 147,416 - ---------------------------------------------------------------------------------------------------------------------------- End of Period $1,237,380 $1,223,894 $145,407 $158,296 - ---------------------------------------------------------------------------------------------------------------------------- Undistributed (accumulated) net investment income (loss) included in end of period net assets $(67) $(45) $(14) $(12) - ---------------------------------------------------------------------------------------------------------------------------- (1)CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 8,771 11,778 2,361 2,443 Shares Issued on Distributions Reinvested 3,050 2,239 908 1,435 Shares Redeemed (7,583) (16,202) (1,913) (4,440) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 4,238 (2,185) 1,356 (562) - ---------------------------------------------------------------------------------------------------------------------------- CLASS B: Shares Subscribed 8,463 6,969 210 160 Shares Issued on Distributions Reinvested 1,150 525 150 258 Shares Redeemed (2,280) (1,971) (246) (239) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding 7,333 5,523 114 179 - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ 154 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
SMALL COMPANY GROWTH TECHNOLOGY PORTFOLIO PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 (000) (000) (000) (000) - ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Loss $(1,347) $(293) $(1,462) $(408) Net Realized Gain 10,699 21,320 14,915 18,608 Net Change in Unrealized Appreciation (Depreciation) (43,213) 17,240 (57,782) 28,687 - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations (33,861) 38,267 (44,329) 46,887 - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: CLASS A: Net Realized Gain (8,190) (10,210) (16,918) (11,601) In Excess of Net Realized Gain (2,198) -- -- -- CLASS B: Net Realized Gain (8,184) (1,563) (1,166) (629) In Excess of Net Realized Gain (2,197) -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Total Distributions (20,769) (11,773) (18,084) (12,230) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 56,813 18,995 123,095 32,611 Distributions Reinvested 9,931 9,257 15,016 9,146 Redeemed (34,949) (47,961) (60,507) (19,510) CLASS B: Subscribed 112,706 10,665 8,664 3,053 Distributions Reinvested 10,361 1,550 1,115 626 Redeemed (11,764) (1,590) (3,513) (2,557) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 143,098 (9,084) 83,870 23,369 - ---------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 88,468 17,410 21,457 58,026 NET ASSETS: Beginning of Period 91,968 74,558 86,382 28,356 - ---------------------------------------------------------------------------------------------------------------------------- End of Period $180,436 $91,968 $107,839 $86,382 - ---------------------------------------------------------------------------------------------------------------------------- Undistributed (accumulated) net investment income (loss) included in end of period net assets $(8) $(7) $1 $(5) - ---------------------------------------------------------------------------------------------------------------------------- (1)CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 4,010 1,721 2,827 1,119 Shares Issued on Distributions Reinvested 827 799 483 265 Shares Redeemed (2,499) (5,806) (1,488) (801) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 2,338 (3,286) 1,822 583 - ---------------------------------------------------------------------------------------------------------------------------- CLASS B: Shares Subscribed 7,344 996 198 122 Shares Issued on Distributions Reinvested 899 133 36 19 Shares Redeemed (848) (155) (98) (80) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase in Class B Shares Outstanding 7,395 974 136 61 - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ 155 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO U.S. REAL ESTATE PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 (000) (000) (000) (000) - ---------------------------------------------------------------------------------------------------------------------------- 0 INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $61 $95 $19,965 $18,661 Net Realized Gain (Loss) 737 9,759 14,479 1,079 Net Change in Unrealized Appreciation (Depreciation) (2,933) (5,569) 93,030 (31,043) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations (2,135) 4,285 127,474 (11,303) - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: CLASS A: Net Investment Income (68) (157) (20,557) (15,483) IN EXCESS OF NET INVESTMENT INCOME (2) -- -- -- Net Realized Gain (514) (3,474) (9,106) (1,019) IN EXCESS OF NET REALIZED GAIN (343) (134) -- -- PAID-IN CAPITAL (20) -- -- -- CLASS B: Net Investment Income -- (8) (671) (695) Net Realized Gain (5) (170) (314) (48) IN EXCESS OF NET REALIZED GAIN (3) (79) -- -- - ---------------------------------------------------------------------------------------------------------------------------- Total Distributions (955) (4,022) (30,648) (17,245) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 967 8,363 305,354 197,530 Distributions Reinvested 930 3,722 24,592 12,238 Redeemed (4,378) (56,559) (150,159) (131,000) CLASS B: Subscribed 12 4 9,902 8,798 Distributions Reinvested 8 250 931 688 Redeemed (1,500) (151) (7,430) (8,336) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions (3,961) (44,371) 183,190 79,918 - ---------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets (7,051) (44,108) 280,016 51,370 NET ASSETS: Beginning of Period 23,963 68,071 324,482 273,112 - ---------------------------------------------------------------------------------------------------------------------------- End of Period $16,912 $23,963 $604,498 $324,482 - ---------------------------------------------------------------------------------------------------------------------------- Undistributed net investment income included in end of period net assets $(1) $4 $(5) $1,437 - ---------------------------------------------------------------------------------------------------------------------------- (1)CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 81 624 23,603 15,344 Shares Issued on Distributions Reinvested 87 311 1,761 993 Shares Redeemed (373) (4,479) (11,348) (10,487) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding (205) (3,544) 14,016 5,850 - ---------------------------------------------------------------------------------------------------------------------------- CLASS B: Shares Subscribed 1 --# 785 697 Shares Issued on Distributions Reinvested 1 21 67 56 Shares Redeemed (126) (12) (589) (683) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding (124) 9 263 70 - ---------------------------------------------------------------------------------------------------------------------------- # Amount is less than $500 - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ 156 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
VALUE EQUITY EMERGING MARKETS DEBT PORTFOLIO PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 (000) (000) (000) (000) - ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $987 $726 $8,252 $6,929 Net Realized Gain (Loss) 4,244 9,177 3,643 452 Net Change in Unrealized Appreciation (Depreciation) 4,834 (5,310) (4,864) 6,174 - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 10,065 4,593 7,031 13,555 - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: CLASS A: Net Investment Income (961) (657) (7,243) (5,708) In Excess of Net Investment Income -- (66) (19) (15) Net Realized Gain (3,638) (8,764) -- -- In Excess of Net Realized Gain (1,625) (549) -- -- RETURN OF CAPITAL -- -- -- (184) CLASS B: Net Investment Income (10) (11) (55) (15) Net Realized Gain (47) (150) -- -- In Excess of Net Realized Gain (21) (10) -- -- Return of Capital -- -- -- (82) - ---------------------------------------------------------------------------------------------------------------------------- Total Distributions (6,302) (10,207) (7,317) (6,004) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 32,596 24,456 26,973 28,117 Distributions Reinvested 5,769 9,517 4,610 2,466 Redeemed (18,369) (39,222) (36,862) (31,594) CLASS B: Subscribed 250 771 -- 90 Distributions Reinvested 79 171 55 -- Redeemed (432) (978) (537) (537) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 19,893 (5,285) (5,761) (1,458) - ---------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 23,656 (10,899) (6,047) 6,093 NET ASSETS: Beginning of Period 47,689 58,588 53,514 47,421 - ---------------------------------------------------------------------------------------------------------------------------- End of Period $71,345 $47,689 $47,467 $53,514 - ---------------------------------------------------------------------------------------------------------------------------- Undistributed (accumulated) net investment income (loss) included in end of period net assets $25 $8 $49 $(15) - ---------------------------------------------------------------------------------------------------------------------------- (1)CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 3,188 2,024 8,482 10,256 Shares Issued on Distributions Reinvested 567 956 1,623 776 Shares Redeemed (1,790) (3,457) (11,297) (11,178) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 1,965 (477) (1,192) (146) - ---------------------------------------------------------------------------------------------------------------------------- CLASS B: Shares Subscribed 24 65 -- 31 Shares Issued on Distributions Reinvested 8 18 19 -- Shares Redeemed (41) (84) (170) (194) - ---------------------------------------------------------------------------------------------------------------------------- Net Decrease in Class B Shares Outstanding (9) (1) (151) (163) - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ 157 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
FIXED INCOME GLOBAL FIXED INCOME PORTFOLIO PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 (000) (000) (000) (000) - ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $11,332 $11,574 $1,381 $1,512 Net Realized Gain (Loss) (1,438) (2,037) (1,089) (530) Net Change in Unrealized Appreciation (Depreciation) 8,722 (13,018) (87) (3,890) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 18,616 (3,481) 205 (2,908) - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: CLASS A: Net Investment Income (11,291) (11,567) (517) (1,200) In Excess of Net Investment Income -- -- (121) (90) Net Realized Gain -- (526) -- -- Return of Capital -- -- -- (25) CLASS B: Net Investment Income (130) (156) (5) (11) In Excess of Net Investment Income -- -- (2) (1) In Excess of Net Realized Gain -- (7) -- -- - ---------------------------------------------------------------------------------------------------------------------------- Total Distributions (11,421) (12,256) (645) (1,327) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 29,671 20,302 5,548 1,780 Distributions Reinvested 9,913 10,601 543 1,153 Redeemed (37,333) (56,628) (12,028) (10,394) CLASS B: Subscribed 442 171 -- -- Distributions Reinvested 86 87 7 12 Redeemed (271) (1,612) (5) (15) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 2,508 (27,079) (5,935) (7,464) - ---------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 9,703 (42,816) (6,375) (11,699) NET ASSETS: Beginning of Period 173,551 216,367 34,547 46,246 - ---------------------------------------------------------------------------------------------------------------------------- End of Period $183,254 $173,551 $28,172 $34,547 - ---------------------------------------------------------------------------------------------------------------------------- Undistributed (accumulated) net investment income (loss) included in end of period net assets $(35) $54 $(123) $(91) - ---------------------------------------------------------------------------------------------------------------------------- (1)CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 2,878 1,827 501 154 Shares Issued on Distributions Reinvested 959 1,005 50 101 Shares Redeemed (3,629) (5,274) (1,093) (870) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding 208 (2,442) (542) (615) - ---------------------------------------------------------------------------------------------------------------------------- CLASS B: Shares Subscribed 42 16 -- -- Shares Issued on Distributions Reinvested 8 8 1 1 Shares Redeemed (26) (150) -- (1) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class B Shares Outstanding 24 (126) 1 -- - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ 158 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
HIGH YIELD MONEY MARKET MUNICIPAL MONEY MARKET PORTFOLIO PORTFOLIO PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 2000 1999 (000) (000) (000) (000) (000) (000) - ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net Investment Income $14,283 $16,131 $183,380 $97,110 $61,458 $30,893 Net Realized Gain (Loss) (7,283) (4,346) 4 112 (2) (66) Net Change in Unrealized Appreciation (Depreciation) (23,719) 2,048 -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations (16,719) 13,833 183,384 97,222 61,456 30,827 - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: CLASS A: Net Investment Income (11,707) (12,224) (183,384) (97,110) (61,454) (30,898) In Excess of Net Investment Income (16) (132) -- -- -- -- Return of Capital -- (156) -- -- -- -- CLASS B: Net Investment Income (2,625) (3,969) -- -- -- -- In Excess of Net Investment Income (4) (41) -- -- -- -- Return of Capital -- (47) -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Total Distributions (14,352) (16,569) (183,384) (97,110) (61,454) (30,898) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS:(1) CLASS A: Subscribed 43,583 93,841 52,243,556 22,565,514 13,065,730 7,856,789 Distributions Reinvested 10,398 10,968 179,337 94,269 61,337 30,732 Redeemed (69,926) (94,490) (52,327,797) (21,686,756) (13,056,279) (7,472,383) CLASS B: Subscribed 3,800 40,398 -- -- -- -- Distributions Reinvested 1,349 675 -- -- -- -- Redeemed (28,418) (48,854) -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions (39,214) 2,538 95,096 973,027 70,788 415,138 - ---------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net (70,285) (198) 95,096 973,139 70,790 415,067 Assets NET ASSETS: Beginning of Period 184,843 185,041 2,931,316 1,958,177 1,405,646 990,579 - ---------------------------------------------------------------------------------------------------------------------------- End of Period $114,558 $184,843 $3,026,412 $2,931,316 $1,476,436 $1,405,646 - ---------------------------------------------------------------------------------------------------------------------------- Undistributed (accumulated) net investment income (loss) included in end of period net assets $(20) $(173) $ -- $ 4 $ -- $ -- - ---------------------------------------------------------------------------------------------------------------------------- (1)CAPITAL SHARE TRANSACTIONS: CLASS A: Shares Subscribed 4,464 8,765 52,243,549 22,565,514 13,065,730 7,858,223 Shares Issued on Distributions Reinvested 1,087 1,030 179,337 94,269 61,337 30,735 Shares Redeemed (7,149) (8,837) (52,327,810) (21,686,756) (13,056,279) (7,473,832) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Class A Shares Outstanding (1,598) 958 95,076 973,027 70,788 415,126 - ---------------------------------------------------------------------------------------------------------------------------- CLASS B: Shares Subscribed 377 3,764 -- -- -- -- Shares Issued on Distributions Reinvested 138 63 -- -- -- -- Shares Redeemed (2,800) (4,532) -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Net Decrease in Class B Shares Outstanding (2,285) (705) -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------ 159 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - -------------------------------------------------------------------------------- ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- 2000 1999 1998++ 1997++ 1996 - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 14.26 $ 11.90 $ 10.39 $ 11.44 $ 11.63 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.19 0.22 0.22 0.18 0.24 Net Realized and Unrealized Gain (Loss) on Investments (2.59) 3.01 1.86 0.80 0.88 -------- -------- -------- -------- -------- Total from Investment Operations (2.40) 3.23 2.08 0.98 1.12 -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income -- (0.05) (0.30) (0.83) (0.81) In Excess of Net Investment Income (0.01) (0.06) (0.04) (0.02) (0.02) Net Realized Gain (0.90) (0.76) (0.23) (1.18) (0.48) In Excess of Net Realized Gain (0.27) -- -- -- -- -------- -------- -------- -------- -------- Total Distributions (1.18) (0.87) (0.57) (2.03) (1.31) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 10.68 $ 14.26 $ 11.90 $ 10.39 $ 11.44 ======== ======== ======== ======== ======== TOTAL RETURN (14.97)% 27.82% 20.12% 8.61% 9.71% ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $509,309 $583,607 $266,832 $138,667 $183,193 Ratio of Expenses to Average Net Assets (1) 0.82% 0.80% 0.80% 0.80% 0.80% Ratio of Expenses to Average Net Assets Excluding Interest Expense 0.80% N/A N/A N/A N/A Ratio of Net Investment Income to Average Net Assets (1) 1.55% 1.71% 1.91% 1.47% 1.22% Portfolio Turnover Rate 80% 53% 49% 49% 65% - --------------- (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.01 $0.02 $0.03 $0.03 Ratios before expense limitation: Expenses to Average Net Assets 0.93% 0.92% 1.03% 1.10% 1.09% Net Investment Income to Average Net Assets 1.45% 1.59% 1.70% 1.18% 0.94% - ----------------------------------------------------------------------------------------------------------------------------------
CLASS B ----------------------------------------------------------------------- PERIOD FROM JANUARY 2, YEAR ENDED DECEMBER 31, 1996*** ----------------------------------------------------- DECEMBER 31, 2000 1999 1998++ 1997++ 1996 - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 14.41 $ 12.12 $ 10.48 $ 11.44 $ 11.66 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.27 0.13 0.22 0.08 0.06 Net Realized and Unrealized Gain (Loss) on Investments (2.71) 3.02 1.94 0.87 1.00 -------- -------- -------- -------- -------- Total from Investment Operations (2.44) 3.15 2.16 0.95 1.06 -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income -- (0.05) (0.23) (0.71) (0.78) In Excess of Net Investment Income (0.01) (0.05) (0.06) (0.02) (0.02) Net Realized Gain (0.89) (0.76) (0.23) (1.18) (0.48) In Excess of Net Realized Gain (0.27) -- -- -- -- -------- -------- -------- -------- -------- Total Distributions (1.17) (0.86) (0.52) (1.91) (1.28) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 10.80 $ 14.41 $ 12.12 $ 10.48 $ 11.44 ======== ======== ======== ======== ======== TOTAL RETURN (15.02)% 26.63% 20.71% 8.35% 9.22% ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 19,814 $ 9,959 $ 96 $ 14 $ 633 Ratio of Expenses to Average Net Assets (2) 1.07% 1.05% 1.05% 1.05% 1.05%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.05% N/A N/A N/A N/A Ratio of Net Investment Income to Average Net Assets (2) 1.42% 1.16% 1.80% 0.71% 1.09%** Portfolio Turnover Rate 80% 53% 49% 49% 65% - --------------- (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.02 $0.01 $0.03 $0.03 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.18% 1.17% 1.27% 1.32% 1.33%** Net Investment Income to Average Net Assets 1.31% 0.95% 1.58% 0.45% 0.82%** - ----------------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. ++ Per share amounts for the years ended December 31, 1998 and 1997 are based on average shares outstanding. The accompanying notes are an integral part of the financial statements. 160 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - -------------------------------------------------------------------------------- ASIAN EQUITY PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------- CLASS A ---------------------------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $14.39 $8.01 $9.43 $18.73 $19.48 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.03 0.06 0.12 0.14 0.17 Net Realized and Unrealized Gain (Loss) on Investments (5.87) 6.42 (1.24) (8.93) 0.50 -------- -------- -------- -------- -------- Total from Investment Operations (5.84) 6.48 (1.12) (8.79) 0.67 -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.02) (0.10) (0.30) (0.00)+ (0.15) In Excess of Net Investment Income -- -- -- -- (0.00)+ Net Realized Gain -- -- -- -- (1.27) In Excess of Net Realized Gain -- -- -- (0.51) -- -------- -------- -------- -------- -------- Total Distributions (0.02) (0.10) (0.30) (0.51) (1.42) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $8.53 $14.39 $8.01 $9.43 $18.73 ======== ======== ======== ======== ======== TOTAL RETURN (40.65)% 81.00% (11.38)% (48.29)% 3.49% ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $56,330 $103,513 $51,334 $85,503 $363,498 Ratio of Expenses to Average Net Assets (1) 1.06% 1.07% 1.19% 1.12% 1.00% Ratio of Expenses to Average Net Assets Excluding Foreign Tax and Interest Expense 1.00% 1.00% 1.00% 1.00% N/A Ratio of Net Investment Income to Average Net Assets (1) 0.21% 0.58% 1.36% 0.47% 0.74% Portfolio Turnover Rate 101% 197% 151% 107% 69% - --------------- (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.04 $0.06 $0.05 $0.05 $0.05 Ratios before expense limitation: Expenses to Average Net Assets 1.32% 1.61% 1.79% 1.31% 1.25% Net Investment Income to Average Net Assets (0.05)% 0.04% 0.76% 0.29% 0.54%
- ---------------------------------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------------------------- PERIOD FROM JANUARY 2, YEAR ENDED DECEMBER 31, 1996*** TO ---------------------------------------------- DECEMBER 31, 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 14.28 $ 7.97 $ 9.40 $ 18.74 $ 19.55 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)(2) (0.06) 0.05 0.07 0.03 0.11 Net Realized and Unrealized Gain (Loss) on Investments (5.76) 6.34 (1.20) (8.86) 0.46 -------- -------- -------- -------- -------- Total from Investment Operations (5.82) 6.39 (1.13) (8.83) 0.57 -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.02) (0.08) (0.30) (0.00)+ (0.11) Net Realized Gain -- -- -- -- (1.27) In Excess of Net Realized Gain -- -- -- (0.51) -- -------- -------- -------- -------- -------- Total Distributions (0.02) (0.08) (0.30) (0.51) (1.38) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 8.44 $ 14.28 $ 7.97 $ 9.40 $ 18.74 ======== ======== ======== ======== ======== TOTAL RETURN (40.74)% 79.95% (11.53)% (48.48)% 2.92% ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 1,183 $ 2,828 $ 1,487 $ 1,468 $11,002 Ratio of Expenses to Average Net Assets (2) 1.31% 1.32% 1.47% 1.37% 1.25%** Ratio of Expenses to Average Net Assets Excluding Foreign Tax and Interest Expense 1.25% 1.25% 1.25% 1.25% N/A Ratio of Net Investment Income to Average Net Assets (2) 0.02% 0.33% 1.06% 0.18% 0.58%** Portfolio Turnover Rate 101% 197% 151% 107% 69% - ------------- (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.04 $0.08 $0.04 $0.04 $0.04 Ratios before expense limitation: Expenses to Average Net Assets 1.57% 1.87% 2.07% 1.56% 1.52%** Net Investment Income (Loss) to Average Net Assets (0.23)% (0.22)% 0.46% (0.01)% 0.37%** - ----------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. + Amount is less than $0.01 per share The accompanying notes are an integral part of the financial statements. 161 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - -------------------------------------------------------------------------------- ASIAN REAL ESTATE PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------- CLASS A ----------------------------------------------------- PERIOD FROM OCTOBER 1, 1997* TO YEAR ENDED DECEMBER 31, DECEMBER ------------------------------------- 31, 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.90 $ 6.63 $ 7.94 $ 10.00 -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.15 0.11 0.26 0.11 Net Realized and Unrealized Gain (Loss) on Investments 0.11 1.50 (1.24) (2.10) -------- -------- -------- -------- Total from Investment Operations 0.26 1.61 (0.98) (1.99) -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.13) (0.32) (0.33) (0.07) In Excess of Net Investment Income (0.02) (0.02) -- -- -------- -------- -------- -------- Total Distributions (0.15) (0.34) (0.33) (0.07) -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 8.01 $ 7.90 $ 6.63 $ 7.94 ======== ======== ======== ======== TOTAL RETURN 3.44% 24.27% (11.82)% (19.92)% ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 2,786 $ 2,912 $ 2,447 $ 2,385 Ratio of Expenses to Average Net Assets (1) 1.02% 1.01% 1.05% 1.08%** Ratio of Expenses to Average Net Assets Excluding Foreign Tax and Interest Expense 1.00% 1.00% 1.00% 1.00%** Ratio of Net Investment Income to Average Net Assets (1) 2.03% 1.64% 2.47% 5.21%** Portfolio Turnover Rate 87% 98% 261% 38% - ----------------- (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.22 $0.15 $0.36 $0.25 Ratios before expense limitation: Expenses to Average Net Assets 4.04% 3.19% 4.52% 12.95%** Net Investment Income (Loss) to Average Net Assets (0.98)% (0.54)% (1.00)% (6.66)%**
- ---------------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------------------------------- PERIOD FROM OCTOBER 1, 1997* TO YEAR ENDED DECEMBER 31, DECEMBER ------------------------------------- 31, 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.93 $ 6.66 $ 8.03 $ 10.00 -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.09 0.13 0.12 -- Net Realized and Unrealized Gain (Loss) on Investments 0.16 1.46 (1.16) (1.97) -------- -------- -------- -------- Total from Investment Operations 0.25 1.59 (1.04) (1.97) -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.10) (0.30) (0.33) -- In Excess of Net Investment Income (0.02) (0.02) -- -- -------- -------- -------- -------- Total Distributions (0.12) (0.32) (0.33) -- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 8.06 $ 7.93 $ 6.66 $ 8.03 ======== ======== ======== ======== TOTAL RETURN 3.29% 23.88% (12.53)% (19.70)% ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 484 $ 1,372 $ 761 $ 0+ Ratio of Expenses to Average Net Assets (2) 1.27% 1.25% 1.38% 1.18%** Ratio of Expenses to Average Net Assets Excluding Foreign Tax and Interest Expense 1.25% 1.25% 1.25% N/A Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.56% 1.39% 2.39% 4.24%** Portfolio Turnover Rate 87% 98% 261% 38% - ------------ (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.34 $0.17 $0.18 N/A Ratios before expense limitation: Expenses to Average Net Assets 4.20% 3.10% 5.03% N/A Net Investment Income (Loss) to Average Net Assets (1.36)% (0.45)% (1.27)% N/A - ----------------------------------------------------------------------------------------------------------------------------
* Commencement of Operations ** Annualized + Amount is less than $500. The accompanying notes are an integral part of the financial statements. 162 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - -------------------------------------------------------------------------------- EMERGING MARKETS PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------- CLASS A ------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 19.27 $ 9.55 $ 12.97 $ 14.66 $ 13.14 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.10) (0.03) 0.16 0.07 0.09 Net Realized and Unrealized Gain (Loss) on Investments (7.28) 9.75 (3.46) (0.29) 1.51 -------- -------- -------- -------- -------- Total from Investment Operations (7.38) 9.72 (3.30) (0.22) 1.60 -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income -- -- (0.12) (0.07) (0.08) In Excess of Net Investment Income -- -- -- (0.07) -- Net Realized Gain -- -- -- (0.69) -- In Excess of Net Realized Gain (0.58) -- -- (0.64) -- -------- -------- -------- -------- -------- Total Distributions (0.58) -- (0.12) (1.47) (0.08) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 11.31 $ 19.27 $ 9.55 $ 12.97 $ 14.66 ======== ======== ======== ======== ======== TOTAL RETURN (38.43)% 101.78% (25.42)% (1.03)% 12.19% ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $917,091 $1,544,893 $772,115 $1,501,386 $1,304,006 Ratio of Expenses to Average Net Assets 1.63% 1.64% 1.81% 1.75% 1.74% Ratio of Expenses to Average Net Assets Excluding Foreign Tax and Interest Expense N/A N/A 1.70% N/A N/A Ratio of Net Investment Income (Loss) to Average Net Assets (0.63)% (0.26)% 1.04% 0.40% 0.69% Portfolio Turnover Rate 92% 133% 98% 90% 55%
- --------------------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------------------------------------------- PERIOD FROM JANUARY 2, 1996*** TO YEAR ENDED DECEMBER 31, DECEMBER ------------------------------------------------- 31, 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 19.24 $ 9.56 $ 12.98 $ 14.66 $ 13.25 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (0.11) (0.04) 0.10 0.02 0.04 Net Realized and Unrealized Gain (Loss) on Investments (7.29) 9.72 (3.43) (0.28) 1.42 -------- -------- -------- -------- -------- Total from Investment Operations (7.40) 9.68 (3.33) (0.26) 1.46 -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (Loss) -- -- (0.09) (0.05) (0.05) In Excess of Net Investment Income -- -- -- (0.04) -- Net Realized Gain -- -- -- (0.69) -- In Excess of Net Realized Gain (0.58) -- -- (0.64) -- -------- -------- -------- -------- -------- Total Distributions (0.58) -- (0.09) (1.42) (0.05) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 11.26 $ 19.24 $ 9.56 $ 12.98 $ 14.66 ======== ======== ======== ======== ======== TOTAL RETURN (38.60)% 101.26% (25.65)% (1.31)% (11.04)% ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $13,949 $16,999 $ 7,199 $ 9,666 $14,213 Ratio of Expenses to Average Net Assets 1.88% 1.88% 2.06% 2.00% 1.99%** Ratio of Expenses to Average Net Assets Excluding Foreign Tax and Interest Expense N/A N/A 1.95% N/A N/A Ratio of Net Investment Income (Loss) to Average Net Assets (0.82)% (0.51)% 0.80% 0.11% 0.33%** Portfolio Turnover Rate 92% 133% 98% 90% 55% - ---------------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. The accompanying notes are an integral part of the financial statements. 163 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - -------------------------------------------------------------------------------- EUROPEAN EQUITY PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------- CLASS A ---------------------------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 15.09 $ 15.75 $ 17.96 $ 16.70 $ 13.92 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.25 0.29 0.43 0.39 0.24 Net Realized and Unrealized Gain on Investments 0.76 1.10 1.08 2.58 2.85 -------- -------- -------- -------- -------- Total from Investment Operations 1.01 1.39 1.51 2.97 3.09 -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.21) (0.32) (0.42) (0.37) (0.25) In Excess of Net Investment Income -- (0.03) -- -- (0.02) Net Realized Gain (1.72) (1.70) (3.30) (1.34) (0.04) -------- -------- -------- -------- -------- Total Distributions (1.93) (2.05) (3.72) (1.71) (0.31) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 14.17 $ 15.09 $ 15.75 $ 17.96 $ 16.70 ======== ======== ======== ======== ======== TOTAL RETURN 7.38% 9.60% 8.09% 17.88% 22.29% ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $65,747 $105,030 $168,712 $242,868 $178,356 Ratio of Expenses to Average Net Assets (1) 1.02% 1.09% 1.00% 1.00% 1.00% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% N/A N/A N/A Ratio of Net Investment Income to Average Net Assets (1) 1.22% 1.46% 1.47% 1.96% 1.83% Portfolio Turnover Rate 47% 74% 52% 43% 24% - ------------ (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.03 $0.03 $0.02 $0.02 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.14% 1.22% 1.08% 1.09% 1.16% Net Investment Income to Average Net Assets 1.09% 1.34% 1.40% 1.87% 1.67%
- ---------------------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------------------------------------- PERIOD FROM JANUARY 2, 1996*** TO YEAR ENDED DECEMBER 31, DECEMBER ------------------------------------------- 31, 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 15.11 $ 15.74 $ 17.94 $ 16.67 $ 14.05 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.19 0.12 0.33 0.28 0.18 Net Realized and Unrealized Gain on Investments 0.78 1.23 1.13 2.66 2.73 -------- -------- -------- -------- -------- Total from Investment Operations 0.97 1.35 1.46 2.94 2.91 -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.17) (0.26) (0.36) (0.33) (0.23) In Excess of Net Investment Income -- (0.02) -- -- (0.02) Net Realized Gain (1.72) (1.70) (3.30) (1.34) (0.04) -------- -------- -------- -------- -------- Total Distributions (1.89) (1.98) (3.66) (1.67) (0.29) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 14.19 $ 15.11 $ 15.74 $ 17.94 $ 16.67 ======== ======== ======== ======== ======== TOTAL RETURN 7.08% 9.36% 7.80% 17.73% 20.76% ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 2,287 $ 2,196 $ 5,181 $ 4,654 $ 2,654 Ratio of Expenses to Average Net Assets (2) 1.27% 1.34% 1.25% 1.25% 1.25%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% N/A N/A N/A Ratio of Net Investment Income to Average Net Assets (2) 0.96% 1.30% 1.15% 1.55% 1.67%** Portfolio Turnover Rate 47% 74% 52% 43% 24% - -------------- (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.03 $0.01 $0.02 $0 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.39% 1.48% 1.34% 1.34% 1.40%** Net Investment Income to Average Net Assets 0.83% 1.16% 1.08% 1.46% 1.52%** - ----------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. The accompanying notes are an integral part of the financial statements. 164 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - -------------------------------------------------------------------------------- EUROPEAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------- CLASS A -------------------------------------------------------- PERIOD FROM OCTOBER 1, 1997* TO YEAR ENDED DECEMBER 31, DECEMBER ---------------------------------------- 31, 2000 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.16 $ 9.58 $ 9.52 $ 10.00 -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)(1) 0.07 (0.05) 0.12 0.05 Net Realized and Unrealized Gain (Loss) on Investments 1.30 (0.17) 0.33 (0.52) -------- -------- -------- -------- Total from Investment Operations 1.37 (0.22) 0.45 (0.47) -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.08) (0.18) (0.25) (0.01) In Excess of Net Investment Income (0.07) (0.02) (0.14) -- -------- -------- -------- -------- Total Distributions (0.15) (0.20) (0.39) (0.01) -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 10.38 $ 9.16 $ 9.58 $ 9.52 ======== ======== ======== ======== TOTAL RETURN 14.91% (2.36)% 4.75% (4.72)% ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 7,766 $ 9,931 $33,422 $15,177 Ratio of Expenses to Average Net Assets (1) 1.03% 1.23% 1.03% 1.00%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% 1.00% N/A Ratio of Net Investment Income to Average Net Assets (1) 1.55% 2.33% 1.33% 2.08%** Portfolio Turnover Rate 74% 35% 119% 47% - ------------------ (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.09 $0.01 $0.03 $0.05 Ratios before expense limitation: Expenses to Average Net Assets 1.90% 1.71% 1.43% 3.05%** Net Investment Income to Average Net Assets 0.69% 1.85% 0.95% 0.03%** - ----------------------------------------------------------------------------------------------------------------------------
CLASS B ---------------------------------------------------- PERIOD FROM OCTOBER 1, 1997* TO YEAR ENDED DECEMBER 31, DECEMBER ------------------------------------ 31, 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.19 $ 9.61 $ 9.52 $ 10.00 -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.18 0.19 0.11 0.02 Net Realized and Unrealized Gain (Loss) on Investments 1.16 (0.43) 0.33 (0.50) -------- -------- -------- -------- Total from Investment Operations 1.34 (0.24) 0.44 (0.48) -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.06) (0.16) (0.22) -- In Excess of Net Investment Income (0.06) (0.02) (0.13) -- -------- -------- -------- -------- Total Distributions (0.12) (0.18) (0.35) -- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 10.41 $ 9.19 $ 9.61 $ 9.52 ======== ======== ======== ======== TOTAL RETURN 14.55% (2.61)% 4.60% (4.76)% ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 1,449 $ 1,786 $ 2,531 $ 789 Ratio of Expenses to Average Net Assets (2) 1.28% 1.47% 1.28% 1.25%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% 1.25% N/A Ratio of Net Investment Income to Average Net Assets (2) 1.50% 2.35% 1.15% 1.51%** Portfolio Turnover Rate 74% 35% 119% 47% - ----------------- (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.10 $0.04 $0.04 $0.03 Ratios before expense limitation: Expenses to Average Net Assets 2.15% 1.96% 1.68% 3.12%** Net Investment Income to Average Net Assets 0.61% 1.91% 0.77% (0.36)%** - ----------------------------------------------------------------------------------------------------------------------------
* Commencement of Operations ** Annualized The accompanying notes are an integral part of the financial statements. 165 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - -------------------------------------------------------------------------------- GLOBAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------- CLASS A --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 18.32 $ 20.74 $ 18.52 $ 16.24 $ 14.31 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.26 0.44 0.15 0.21 0.23 Net Realized and Unrealized Gain (Loss) on Investments 1.75 0.32 2.55 3.61 3.02 -------- -------- -------- -------- -------- Total from Investment Operations 2.01 0.76 2.70 3.82 3.25 -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.61) (0.38) (0.17) (0.40) (0.23) In Excess of Net Investment Income (0.01) (0.06) -- -- -- Net Realized Gain (2.55) (2.74) (0.31) (1.14) (1.09) In Excess of Net Realized Gain (0.11) -- -- -- -- -------- -------- -------- -------- -------- Total Distributions (3.28) (3.18) (0.48) (1.54) (1.32) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 17.05 $ 18.32 $ 20.74 $ 18.52 $ 16.24 ======== ======== ======== ======== ======== TOTAL RETURN 11.75% 4.01% 14.60% 23.75% 22.83% ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $ 40,418 $115,646 $228,748 $108,074 $ 80,297 Ratio of Expenses to Average Net Assets (1) 1.01% 1.01% 1.00% 1.00% 1.00% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% N/A N/A N/A Ratio of Net Investment Income to Average Net Assets (1) 1.16% 1.26% 0.96% 1.07% 1.38% Portfolio Turnover Rate 48% 41% 39% 30% 26% (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $ 0.04 $0.02 $0.01 $0.02 $0.03 Ratios before expense limitation: Expenses to Average Net Assets 1.17% 1.06% 1.07% 1.11% 1.15% Net Investment Income to Average Net Assets 1.00% 1.20% 0.90% 0.96% 1.23% - ---------------------------------------------------------------------------------------------------------------------------------
CLASS B -------------------------------------------------------------- PERIOD FROM JANUARY 2, 1996*** TO YEAR ENDED DECEMBER 31, DECEMBER ---------------------------------------------- 31, 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 18.20 $ 20.63 $ 18.46 $ 16.21 $ 14.36 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.27 0.21 0.15 0.16 0.13 Net Realized and Unrealized Gain (Loss) on Investments 1.68 0.50 2.46 3.60 3.02 -------- -------- -------- -------- -------- Total from Investment Operations 1.95 0.71 2.61 3.76 3.15 -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.56) (0.35) (0.13) (0.37) (0.21) In Excess of Net Investment Income (0.01) (0.05) -- -- -- Net Realized Gain (2.55) (2.74) (0.31) (1.14) (1.09) In Excess of Net Realized Gain (0.11) -- -- -- -- -------- -------- -------- -------- -------- Total Distributions (3.23) (3.14) (0.44) (1.51) (1.30) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $16.92 $18.20 $20.63 $18.46 $16.21 ======== ======== ======== ======== ======== TOTAL RETURN 11.52% 3.75% 14.15% 23.37% 22.04% ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $30,196 $28,089 $13,123 $5,910 $3,928 Ratio of Expenses to Average Net Assets (2) 1.26% 1.26% 1.25% 1.25% 1.25%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% N/A N/A N/A Ratio of Net Investment Income to Average Net Assets (2) 1.14% 0.89% 0.68% 0.80% 1.29%** Portfolio Turnover Rate 48% 41% 39% 30% 26% - ------------ (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.04 $0.01 $0.01 $0.02 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.42% 1.31% 1.32% 1.36% 1.39%** Net Investment Income to Average Net Assets 0.97% 0.83% 0.62% 0.69% 1.15%** - ----------------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. The accompanying notes are an integral part of the financial statements. 166 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------ INTERNATIONAL EQUITY PORTFOLIO - ------------------------------------------------------------------------------
CLASS A ------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $19.62 $18.25 $17.16 $16.95 $15.15 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.25 0.24 0.27 0.30 0.25 Net Realized and Unrealized Gain (Loss) on Investments 1.44 2.80 2.86 2.01 2.71 ---------- ---------- ---------- ---------- ---------- Total from Investment Operations 1.69 3.04 3.13 2.31 2.96 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS Net Investment Income (0.04) (0.18) (0.38) (0.48) (0.36) Net Realized Gain (3.39) (1.49) (1.66) (1.62) (0.80) ---------- ---------- ---------- ---------- ---------- Total Distributions (3.43) (1.67) (2.04) (2.10) (1.16) ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $17.88 $19.62 $18.25 $17.16 $16.95 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN 9.29% 16.91% 18.30% 13.91% 19.64% ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $4,810,852 $4,630,035 $3,400,498 $2,822,900 $2,264,424 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) 1.45% 1.28% 1.33% 1.49% 1.64% Portfolio Turnover Rate 53% 37% 33% 33% 18% Ratios before expense limitation: Expenses to Average Net Assets 1.00% 1.01% 1.02% 1.02% 1.02% Net Investment Income to Average Net Assets 1.45% 1.27% 1.32% 1.47% 1.61% - ---------------------------------------------------------------------------------------------------------------------------- CLASS B -------------------------------------------------------------- PERIOD FROM JANUARY 2, YEAR ENDED DECEMBER 31, 1996*** TO ---------------------------------------------- DECEMBER 31, 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $19.58 $18.22 $17.13 $16.93 $15.24 ------- ------- -------- ------- ------------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.23 0.19 0.24 0.23 0.23 Net Realized and Unrealized Gain (Loss) on Investments 1.39 2.81 2.85 2.02 2.59 ------- ------- -------- ------- ------------ Total from Investment Operations 1.62 3.00 3.09 2.25 2.82 ------- ------- -------- ------- ------------ DISTRIBUTIONS Net Investment Income -- (0.15) (0.34) (0.43) (0.33) Net Realized Gain (3.39) (1.49) (1.66) (1.62) (0.80) ------- ------- -------- ------- ------------ Total Distributions (3.39) (1.64) (2.00) (2.05) (1.13) ------- ------- -------- ------- ------------ NET ASSET VALUE, END OF PERIOD $17.81 $19.58 $18.22 $17.13 $16.93 ------- ------- -------- ------- ------------ ------- ------- -------- ------- ------------ TOTAL RETURN 8.94% 16.68% 18.13% 13.57% 18.58% ------- ------- -------- ------- ------------ ------- ------- -------- ------- ------------ RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $59,945 $41,374 $17,076 $3,074 $5,393 Ratio of Expenses to Average Net Assets (2) 1.25% 1.25% 1.25% 1.25% 1.25%** Ratio of Net Investment Income to Average Net Assets (2) 1.44% 0.93% 0.96% 1.21% 1.68%** Portfolio Turnover Rate 53% 37% 33% 33% 18% - ------------------- Ratios before expense limitation: Expenses to Average Net Assets 1.25% 1.26% 1.28% 1.27% 1.27%** Net Investment Income to Average Net Assets 1.44% 0.92% 0.95% 1.19% 1.66%** - ----------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. + Amount is less than $0.01 per share. The accompanying notes are an integral part of the financial statements. 167 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------ INTERNATIONAL MAGNUM PORTFOLIO - ------------------------------------------------------------------------------
CLASS A -------------------------------------------------------------------- PERIOD FROM MARCH 15, 1996* TO YEAR ENDED DECEMBER 31, DECEMBER -------------------------------------------------- 31, 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $13.62 $11.57 $10.87 $10.66 $10.00 -------- -------- --------- --------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.11 0.19 0.14 0.17 0.06 Net Realized and Unrealized Gain (Loss) on Investments (1.52) 2.64 0.66 0.54 0.76 -------- -------- --------- --------- -------- Total from Investment Operations (1.41) 2.83 0.80 0.71 0.82 -------- -------- --------- --------- -------- DISTRIBUTIONS Net Investment Income (0.09) (0.15) (0.10) (0.41) (0.13) In Excess of Net Investment Income (0.07) -- -- -- (0.02) Net Realized Gain (0.24) (0.63) -- (0.09) (0.01) In Excess of Net Realized Gain (0.25) -- -- -- -- -------- -------- --------- --------- -------- Total Distributions (0.65) (0.78) (0.10) (0.50) (0.16) -------- -------- --------- --------- -------- NET ASSET VALUE, END OF PERIOD $11.56 $13.62 $11.57 $10.87 $10.66 -------- -------- --------- --------- -------- -------- -------- --------- --------- -------- TOTAL RETURN (10.50)% 24.87% 7.33% 6.58% 8.25% -------- -------- --------- --------- -------- -------- -------- --------- --------- -------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $183,566 $188,586 $269,814 $159,096 $85,316 Ratio of Expenses to Average Net Assets (1) 1.01% 1.01% 1.00% 1.00% 1.00%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% N/A N/A N/A Ratio of Net Investment Income to Average Net Assets (1) 0.84% 0.89% 1.34% 1.44% 0.99%** Portfolio Turnover Rate 56% 59% 39% 41% 18% - --------------------------- (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.02 $0.01 $0.02 $0.03 Ratios before expense limitation: Expenses to Average Net Assets 1.10% 1.11% 1.13% 1.19% 1.54%** Net Investment Income to Average Net Assets 0.75% 0.80% 1.24% 1.25% 0.44%** - --------------------------------------------------------------------------------------------------------------------------------- CLASS B ---------------------------------------------------------------- PERIOD FROM MARCH 15, 1996* TO YEAR ENDED DECEMBER 31, DECEMBER --------------------------------------------- 31, 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $13.58 $11.54 $10.84 $10.63 $10.00 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.08 0.11 0.14 0.16 0.01 Net Realized and Unrealized Gain (Loss) on Investments (1.54) 2.68 0.64 0.52 0.78 -------- -------- -------- -------- -------- Total from Investment Operations (1.46) 2.79 0.78 0.68 0.79 -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.12) (0.12) (0.08) (0.38) (0.13) In Excess of Net Investment Income -- -- -- -- (0.02) Net Realized Gain (0.23) (0.63) -- (0.09) (0.01) In Excess of Net Realized Gain (0.25) -- -- -- -- -------- -------- -------- -------- -------- Total Distributions (0.60) (0.75) (0.08) (0.47) (0.16) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $11.52 $13.58 $11.54 $10.84 $10.63 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- TOTAL RETURN (10.81)% 24.58% 7.13% 6.33% 7.90% -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $23,474 $30,770 $26,151 $28,217 $23,173 Ratio of Expenses to Average Net Assets (2) 1.26% 1.25% 1.25% 1.25% 1.25%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% N/A N/A N/A Ratio of Net Investment Income to Average Net Assets (2) 0.58% 0.87% 1.24% 1.19% 0.60%** Portfolio Turnover Rate 56% 59% 39% 41% 18% - -------------------- (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.01 $0.01 $0.02 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.35% 1.35% 1.37% 1.44% 1.69%** Net Investment Income to Average Net Assets 0.49% 0.54% 1.14% 1.00% 0.15%** - ---------------------------------------------------------------------------------------------------------------------------------
* Commencement of Operations ** Annualized The accompanying notes are an integral part of the financial statements. 168 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------ INTERNATIONAL SMALL CAP PORTFOLIO - ------------------------------------------------------------------------------
CLASS A ------------------------------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $19.67 $15.25 $15.61 $16.83 $14.94 --------- --------- --------- --------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.24 0.22 0.22 0.25 0.21 Net Realized and Unrealized Gain (Loss) on Investments* (0.83) 5.66 0.39 (0.42) 2.29 --------- --------- --------- --------- -------- Total from Investment Operations (0.59) 5.88 0.61 (0.17) 2.50 --------- --------- --------- --------- -------- DISTRIBUTIONS Net Investment Income (0.17) (0.27) (0.24) (0.31) (0.22) In Excess of Net Investment Income -- (0.02) -- (0.05) -- Net Realized Gain (2.60) (1.20) (0.79) (0.77) (0.39) In Excess of Net Realized Gain (0.01) -- -- -- -- --------- --------- --------- --------- -------- Total Distributions (2.78) (1.49) (1.03) (1.13) (0.61) --------- --------- --------- --------- -------- TRANSACTION FEES -- (0.03) 0.06 0.08 -- --------- --------- --------- --------- -------- NET ASSET VALUE, END OF PERIOD $16.30 $19.67 $15.25 $15.61 $16.83 --------- --------- --------- --------- -------- --------- --------- --------- --------- -------- TOTAL RETURN (2.92)% 39.34% 4.25% (0.55)% 16.82% --------- --------- --------- --------- -------- --------- --------- --------- --------- -------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $374,924 $357,708 $252,642 $230,095 $234,743 Ratio of Expenses to Average Net Assets (1) 1.16% 1.15% 1.15% 1.15% 1.15% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.15% N/A N/A N/A N/A Ratio of Net Investment Income to Average Net Assets (1) 1.32% 1.30% 1.23% 1.37% 1.29% Portfolio Turnover Rate 54% 48% 39% 31% 35% - ------------------------ (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.01 $0.01 $0.01 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.22% 1.20% 1.21% 1.22% 1.23% Net Investment Income to Average Net Assets 1.38% 1.25% 1.18% 1.30% 1.20% - ---------------------------------------------------------------------------------------------------------------------------------
* Includes a 1% transaction fee on purchases and redemptions of capital shares through 1999 and 0.50% for the year ended December 31, 2000 The accompanying notes are an integral part of the financial statements. 169 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------ JAPANESE EQUITY PORTFOLIO - ------------------------------------------------------------------------------
CLASS A ---------------------------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 2000 1999++ 1998 1997 1996++ - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.12 $6.18 $5.89 $7.96 $9.27 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)(1) (0.02) (0.02) 0.04 0.17 -- Net Realized and Unrealized Gain (Loss) on Investments (2.37) 3.96 0.48 (0.94) (0.13) -------- -------- -------- -------- -------- Total from Investment Operations (2.39) 3.94 0.52 (0.77) (0.13) -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.03) -- (0.23) (1.30) (0.66) In Excess of Net Investment Income (0.08) -- -- -- (0.52) -------- -------- -------- -------- -------- Total Distributions (0.11) -- (0.23) (1.30) (1.18) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $7.62 $10.12 $6.18 $5.89 $7.96 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- TOTAL RETURN (23.69)% 63.75% 8.82% (9.23)% (1.40)% -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $56,306 $73,666 $57,755 $77,086 $152,229 Ratio of Expenses to Average Net Assets (1) 1.03% 1.01% 1.11% 1.06% 1.00% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.00% 1.00% 1.00% 1.00% N/A Ratio of Net Investment Income (Loss) to Average Net Assets (1) (0.29)% (0.28)% 0.03% (0.21)% (0.04)% Portfolio Turnover Rate 14% 26% 66% 40% 38% - -------------------------- (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.01 $0.01 $0.01 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.12% 1.14% 1.30% 1.14% 1.07% Net Investment Loss to Average Net Assets (0.38)% (0.41)% (0.14)% (0.28)% (0.11)% - -------------------------------------------------------------------------------------------------------------------------------- CLASS B ------------------------------------------------------------------- PERIOD FROM JANUARY 2, YEAR ENDED DECEMBER 31, 1996*** TO --------------------------------------------------- DECEMBER 31, 2000 1999++ 1998 1997 1996++ - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.02 $6.13 $5.87 $7.94 $9.25 --------- -------- -------- -------- --------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)(2) 0.02 0.08 (0.09) 0.09 (0.02) Net Realized and Unrealized Gain (Loss) on Investments (2.41) 3.81 0.58 (0.89) (0.14) --------- -------- -------- -------- --------- Total from Investment Operations (2.39) 3.89 0.49 (0.80) (0.16) --------- -------- -------- -------- --------- DISTRIBUTIONS Net Investment Income (0.09) -- (0.23) (1.27) (0.64) In Excess of Net Investment Income -- -- -- -- (0.51) --------- -------- -------- -------- --------- Total Distributions (0.09) -- (0.23) (1.27) (1.15) --------- -------- -------- -------- --------- NET ASSET VALUE, END OF PERIOD $7.54 $10.02 $6.13 $5.87 $7.94 --------- -------- -------- -------- --------- --------- -------- -------- -------- --------- TOTAL RETURN (23.93)% 63.46% 8.33% (9.64)% (1.67)% --------- -------- -------- -------- --------- --------- -------- -------- -------- --------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $3,851 $3,538 $1,083 $1,703 $3,431 Ratio of Expenses to Average Net Assets (2) 1.28% 1.26% 1.36% 1.31% 1.25%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% 1.25% 1.25% N/A Ratio of Net Investment Loss to Average Net Assets (2) (0.54)% (0.57)% (0.25)% (0.53)% (0.26)%** Portfolio Turnover Rate 14% 26% 66% 40% 38% - --------------------- (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ $0.01 $0.02 $0.01 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.37% 1.39% 1.55% 1.38% 1.31%** Net Investment Loss to Average Net Assets (0.62)% (0.67)% (0.42)% (0.60)% (0.32)%** - --------------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. + Amount is less than $0.01 per share. ++ Per share amounts for the years ended December 31, 1999 and 1996 are based on average shares outstanding. The accompanying notes are an integral part of the financial statements. 170 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------ LATIN AMERICAN PORTFOLIO - ------------------------------------------------------------------------------
CLASS A -------------------------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 2000 1999 1998++ 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $11.32 $6.74 $10.91 $11.32 $9.06 -------- -------- --------- -------- ------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)(1) 0.01 0.18 0.13 (0.01) 0.14 Net Realized and Unrealized Gain (Loss) on Investments (1.82) 4.59 (4.16) 4.32 4.27 -------- -------- --------- -------- ------- Total from Investment Operations (1.81) 4.77 (4.03) 4.31 4.41 -------- -------- --------- -------- ------- DISTRIBUTIONS Net Investment Income (0.14) (0.19) (0.09) -- (0.13) In Excess of Net Investment Income (0.01) -- -- -- -- Net Realized Gain -- -- (0.05) (4.04) (2.02) In Excess of Net Realized Gain -- -- -- (0.68) -- -------- -------- --------- -------- ------- Total Distributions (0.15) (0.19) (0.14) (4.72) (2.15) -------- -------- --------- -------- ------- NET ASSET VALUE, END OF PERIOD $9.36 $11.32 $6.74 $10.91 $11.32 -------- -------- --------- -------- ------- -------- -------- --------- -------- ------- TOTAL RETURN (16.21)% 71.28% (37.10)% 41.28% 48.77% -------- -------- --------- -------- ------- -------- -------- --------- -------- ------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $25,403 $13,809 $15,012 $73,196 $30,409 Ratio of Expenses to Average Net Assets (1) 1.84% 1.79% 1.81% 1.89% 1.70% Ratio of Expenses to Average Net Assets Excluding Foreign Tax and Interest Expense 1.70% 1.70% 1.64% 1.70% 1.70% Ratio of Net Investment Income (Loss) to Average Net Assets (1) (0.03)% 1.40% 1.40% (0.14)% 1.21% Portfolio Turnover Rate 133% 124% 196% 286% 192% - ------------------------------- (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.02 $0.04 N/A $0.01 $0.05 Ratios before expense limitation: Expenses to Average Net Assets 2.06% 2.12% N/A 1.96% 2.18% Net Investment Income (Loss) to Average Net Assets (0.25)% 1.07% N/A (0.21)% 0.75% - --------------------------------------------------------------------------------------------------------------------------------- CLASS B --------------------------------------------------------------- PERIOD FROM JANUARY 2, 1996*** TO YEAR ENDED DECEMBER 31, DECEMBER ------------------------------------------------- 31, 2000 1999 1998++ 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $11.36 $6.78 $10.80 $11.31 $9.44 -------- ------- -------- -------- ---------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)(2) (0.01) 0.19 0.12 -- 0.09 Net Realized and Unrealized Gain (Loss) on Investments (1.83) 4.58 (4.09) 4.21 3.90 -------- ------- -------- -------- ---------- Total from Investment Operations (1.84) 4.77 (3.97) 4.21 3.99 -------- ------- -------- -------- ---------- DISTRIBUTIONS Net Investment Income (0.14) (0.19) -- -- (0.10) In Excess of Net Investment Income (0.01) -- -- -- -- Net Realized Gain -- -- (0.05) (4.04) (2.02) In Excess of Net Realized Gain -- -- -- (0.68) -- -------- ------- -------- -------- ---------- Total Distributions (0.15) (0.19) (0.05) (4.72) (2.12) -------- ------- -------- -------- ---------- NET ASSET VALUE, END OF PERIOD $9.37 $11.36 $6.78 $10.80 $11.31 -------- ------- -------- -------- ---------- -------- ------- -------- -------- ---------- TOTAL RETURN (16.42)% 70.85% (36.86)% 40.37% 42.44% -------- ------- -------- -------- ---------- -------- ------- -------- -------- ---------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $1,140 $1,387 $1,148 $6,709 $1,333 Ratio of Expenses to Average Net Assets (2) 2.09% 2.05% 2.01% 2.14% 1.95%** Ratio of Expenses to Average Net Assets Excluding Foreign Tax and Interest Expense 1.95% 1.95% 1.85% 1.95% 1.95%** Ratio of Net Investment Income (Loss) to Average Net Assets (2) 0.33% 1.04% 1.24% (0.34)% 0.89%** Portfolio Turnover Rate 133% 124% 196% 286% 192% - ------------------------------- (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.03 $0.05 N/A $0.00+ $0.05 Ratios before expense limitation: Expenses to Average Net Assets 2.31% 2.35% N/A 2.21% 2.43%** Net Investment Income (Loss) to Average Net Assets (0.26)% 0.75% N/A (0.41)% 0.42%** - ---------------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. + Amount is less than $0.01 per share. ++ Per share amounts for the year ended December 31, 1998 are based on average shares outstanding. The accompanying notes are an integral part of the financial statements. 171 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------ EQUITY GROWTH PORTFOLIO - ------------------------------------------------------------------------------
CLASS A ------------------------------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $25.04 $19.04 $16.93 $14.94 $14.14 --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)(1) (0.01) (0.02) 0.04 0.06 0.17 Net Realized and Unrealized Gain (Loss) on Investments (2.76) 7.49 3.17 4.48 4.07 --------- --------- --------- --------- --------- Total from Investment Operations (2.77) 7.47 3.21 4.54 4.24 --------- --------- --------- --------- --------- DISTRIBUTIONS Net Investment Income -- -- (0.03) (0.06) (0.17) In Excess of Net Investment Income -- (0.00)+ -- (0.00)+ -- Net Realized Gain (1.76) (1.47) (0.64) (2.49) (3.27) In Excess of Net Realized Gain -- -- (0.43) -- -- --------- --------- --------- --------- --------- Total Distributions (1.76) (1.47) (1.10) (2.55) (3.44) --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $20.51 $25.04 $19.04 $16.93 $14.94 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- TOTAL RETURN (11.78)% 39.89% 19.04% 31.32% 30.97% --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $886,824 $977,005 $784,565 $591,789 $352,703 Ratio of Expenses to Average Net Assets (1) 0.80% 0.80% 0.80% 0.80% 0.80% Ratio of Net Investment Income (Loss) to Average Net Assets (1) 0.79% (0.10)% 0.22% 0.35% 1.12% Portfolio Turnover Rate 71% 91% 156% 177% 186% - ----------------------------- (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ $0.00+ $0.00+ $0.00+ $0.01 Ratios before expense limitation: Expenses to Average Net Assets 0.80% 0.80% 0.80% 0.82% 0.88% Net Investment Income (Loss) to Average Net Assets (0.06)% (0.10)% 0.22% 0.33% 1.04% - ---------------------------------------------------------------------------------------------------------------------------- CLASS B ------------------------------------------------------------------- PERIOD FROM JANUARY 2, 1996*** TO YEAR ENDED DECEMBER 31, DECEMBER --------------------------------------------------- 31, 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $24.90 $18.97 $16.91 $14.92 $14.22 --------- --------- --------- -------- ----------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)(2) (0.04) (0.04) 0.00 0.04 0.13 Net Realized and Unrealized Gain (Loss) on Investments (2.78) 7.44 3.15 4.46 3.99 --------- --------- --------- -------- ----------- Total from Investment Operations (2.82) 7.40 3.15 4.50 4.12 --------- --------- --------- -------- ----------- DISTRIBUTIONS Net Investment Income -- -- (0.02) (0.02) (0.15) In Excess of Net Investment Income -- (0.00)+ -- -- -- Net Realized Gain (1.76) (1.47) (0.64) (2.49) (3.27) In Excess of Net Realized Gain -- -- (0.43) -- -- --------- --------- --------- -------- ----------- Total Distributions (1.76) (1.47) (1.09) (2.51) (3.42) --------- --------- --------- -------- ----------- NET ASSET VALUE, END OF PERIOD $20.32 $24.90 $18.97 $16.91 $14.92 --------- --------- --------- -------- ----------- --------- --------- --------- -------- ----------- TOTAL RETURN (12.01)% 39.61% 18.71% 31.05% 29.92% --------- --------- --------- -------- ----------- --------- --------- --------- -------- ----------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $350,556 $246,889 $83,330 $27,879 $5,498 Ratio of Expenses to Average Net Assets (2) 1.05% 1.05% 1.05% 1.05% 1.05%** Ratio of Net Investment Income (Loss) to Average Net Assets (2) (1.04)% (0.34)% (0.02)% 0.10% 0.91%** Portfolio Turnover Rate 71% 91% 156% 177% 186% - ------------------------------- (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ $0.00+ $0.00+ $0.01 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.05% 1.05% 1.05% 1.07% 1.12%** Net Investment Income (Loss) to Average Net Assets (0.30)% (0.34)% (0.20)% 0.80% 0.84%** - ----------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. + Amount is less than $0.01 per share. The accompanying notes are an integral part of the financial statements. 172 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------ FOCUS EQUITY PORTFOLIO - ------------------------------------------------------------------------------
CLASS A ------------------------------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $19.70 $17.50 $15.78 $14.43 $12.17 --------- --------- --------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (1) (0.05) (0.06) 0.00+ 0.01 0.18 Net Realized and Unrealized Gain (Loss) on Investments (2.05) 7.89 2.42 4.58 4.73 --------- --------- --------- -------- -------- Total from Investment Operations (2.10) 7.83 2.42 4.59 4.91 --------- --------- --------- -------- -------- DISTRIBUTIONS Net Investment Income -- -- -- (0.01) (0.17) In Excess of Net Investment Income -- -- -- (0.00)+ -- Net Realized Gain (2.29) (5.63) (0.38) (3.23) (2.48) In Excess of Net Realized Gain -- -- (0.32) -- -- --------- --------- --------- -------- -------- Total Distributions (2.29) (5.63) (0.70) (3.24) (2.65) --------- --------- --------- -------- -------- NET ASSET VALUE, END OF PERIOD $15.31 $19.70 $17.50 $15.78 $14.43 --------- --------- --------- -------- -------- --------- --------- --------- -------- -------- TOTAL RETURN (11.66)% 46.44% 15.35% 33.31% 40.90% --------- --------- --------- -------- -------- --------- --------- --------- -------- -------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $126,531 $136,128 $130,734 $155,087 $68,480 Ratio of Expenses to Average Net Assets (1) 1.00% 1.01% 1.01% 1.02% 1.00% Ratio of Expenses to Average Net Assets Excluding Interest Expense N/A 1.00% 1.00% 1.00% N/A Ratio of Net Investment Income (Loss) to Average Net Assets (1) (0.27)% (0.33)% 0.01% 0.08% 1.26% Portfolio Turnover Rate 93% 155% 373% 302% 380% - ------------------------------ (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ $0.01 $0.01 $0.01 $0.03 Ratios before expense limitation: Expenses to Average Net Assets 1.04% 1.07% 1.03% 1.08% 1.24% Net Investment Income (Loss) to Average Net Assets (0.29)% (0.39)% (0.01)% 0.02% 1.02% - --------------------------------------------------------------------------------------------------------------------------------- CLASS B ------------------------------------------------------------------ PERIOD FROM JANUARY 2, 1996*** TO YEAR ENDED DECEMBER 31, DECEMBER --------------------------------------------------- 31, 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $19.50 $17.40 $15.72 $14.42 $12.25 -------- --------- --------- --------- ----------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)(2) (0.08) (0.08) (0.06) (0.01) 0.13 Net Realized and Unrealized Gain (Loss) on Investments (2.04) 7.81 2.44 4.55 4.67 -------- --------- --------- --------- ----------- Total from Investment Operations (2.12) 7.73 2.38 4.54 4.80 -------- --------- --------- --------- ----------- DISTRIBUTIONS Net Investment Income -- -- -- (0.01) (0.15) In Excess of Net Investment Income -- -- -- (0.00)+ -- Net Realized Gain (2.29) (5.63) (0.38) (3.23) (2.48) In Excess of Net Realized Gain -- -- (0.32) -- -- -------- --------- --------- --------- ----------- Total Distributions (2.29) (5.63) (0.70) (3.24) (2.63) -------- --------- --------- --------- ----------- NET ASSET VALUE, END OF PERIOD $15.09 $19.50 $17.40 $15.72 $14.42 -------- --------- --------- --------- ----------- -------- --------- --------- --------- ----------- TOTAL RETURN (11.89)% 46.13% 15.15% 32.90% 39.72% -------- --------- --------- --------- ----------- -------- --------- --------- --------- ----------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $18,876 $22,168 $16,682 $18,277 $8,805 Ratio of Expenses to Average Net Assets (2) 1.25% 1.26% 1.26% 1.27% 1.25%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% 1.25% 1.25% N/A Ratio of Net Investment Income (Loss) to Average Net Assets (2) (0.52)% (0.58)% (0.26)% (0.18)% 0.95%** Portfolio Turnover Rate 93% 155% 373% 302% 380% - ---------------------------------- (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ $0.01 $0.00+ $0.00+ $0.03 Ratios before expense limitation: Expenses to Average Net Assets 1.29% 1.32% 1.28% 1.33% 1.47%** Net Investment Income (Loss) to Average Net Assets (0.54)% (0.64)% (0.28)% (0.24)% 0.73%** - ---------------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. + Amount is less than $0.01 per share. The accompanying notes are an integral part of the financial statements. 173 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------ SMALL COMPANY GROWTH PORTFOLIO - ------------------------------------------------------------------------------
CLASS A --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $13.32 $8.07 $7.72 $13.50 $21.49 -------- -------- -------- --------- --------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (1) (0.08) (0.05) 0.09 (0.07) (0.19) Net Realized and Unrealized Gain (Loss) on Investments (0.69) 7.40 1.97 1.09 0.89 -------- -------- -------- --------- --------- Total from Investment Operations (0.77) 7.35 2.06 1.02 0.70 -------- -------- -------- --------- --------- DISTRIBUTIONS Net Investment Income -- -- (0.09) -- -- Net Realized Gain (1.23) (2.10) (1.62) (6.80) (8.69) In Excess of Net Realized Gain (0.33) -- -- -- -- -------- -------- -------- --------- --------- Total Distributions (1.56) (2.10) (1.71) (6.80) (8.69) -------- -------- -------- --------- --------- NET ASSET VALUE, END OF PERIOD $10.99 $13.32 $8.07 $7.72 $13.50 -------- -------- -------- --------- --------- -------- -------- -------- --------- --------- TOTAL RETURN (6.64)% 96.45% 27.54% 11.36% 3.72% -------- -------- -------- --------- --------- -------- -------- -------- --------- --------- RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $89,367 $77,193 $73,276 $57,777 $62,793 Ratio of Expenses to Average Net Assets (1) 1.25% 1.25% 1.25% 1.25% 1.25% Ratio of Net Investment Income (Loss) to Average Net Assets (1) (0.68)% (0.59)% 1.06% (0.87)% (0.88)% Portfolio Turnover Rate 129% 204% 331% 228% 33% - ------------------------------- (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.01 $0.01 $0.01 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.30% 1.43% 1.35% 1.34% 1.30% Net Investment Income (Loss) to Average Net Assets (0.73)% (0.78)% 0.96% (0.95)% (0.92)% - ---------------------------------------------------------------------------------------------------------------------------- CLASS B --------------------------------------------------------------- PERIOD FROM JANUARY 2, 1996*** TO YEAR ENDED DECEMBER 31, DECEMBER ------------------------------------------------- 31, 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $13.01 $7.93 $7.63 $13.45 $21.47 -------- -------- -------- -------- ------------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (2) (0.10) (0.08) 0.09 (0.06) (0.15) Net Realized and Unrealized Gain (Loss) on Investments (0.67) 7.26 1.90 1.04 0.82 -------- -------- -------- -------- ------------ Total from Investment Operations (0.77) 7.18 1.99 0.98 0.67 -------- -------- -------- -------- ------------ DISTRIBUTIONS Net Investment Income -- -- (0.07) -- -- Net Realized Gain (1.23) (2.10) (1.62) (6.80) (8.69) In Excess of Net Realized Gain (0.33) -- -- -- -- -------- -------- -------- -------- ------------ Total Distributions (1.56) (2.10) (1.69) (6.80) (8.69) -------- -------- -------- -------- ------------ NET ASSET VALUE, END OF PERIOD $10.68 $13.01 $7.93 $7.63 $13.45 -------- -------- -------- -------- ------------ -------- -------- -------- -------- ------------ TOTAL RETURN (6.81)% 95.97% 26.86% 11.13% 3.58% -------- -------- -------- -------- ------------ -------- -------- -------- -------- ------------ RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $91,069 $14,775 $1,282 $1,313 $3,997 Ratio of Expenses to Average Net Assets (2) 1.50% 1.50% 1.50% 1.50% 1.50%** Ratio of Net Investment Income (Loss) to Average Net Assets (2) (0.97)% (0.87)% 0.88% (1.12)% (1.09)%** Portfolio Turnover Rate 129% 204% 331% 228% 33% - -------------------------------- (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00 $0.02 $0.01 $0.00+ $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.55% 1.66% 1.60% 1.58% 1.54%** Net Investment Income (Loss) to Average Net Assets (1.02)% 1.03% 0.78% (1.21)% (1.14)%** - ---------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. + Amount is less than $0.01 per share. The accompanying notes are an integral part of the financial statements. 174 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------- TECHNOLOGY PORTFOLIO - -------------------------------------------------------------------------------
CLASS A ------------------------------------------------------------------------ PERIOD FROM SEPTEMBER 16, YEAR ENDED DECEMBER 31, 1996* TO --------------------------------------------------- DECEMBER 31, 2000 1999++ 1998++ 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $38.91 $17.98 $11.73 $10.71 $10.00 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (1) (0.34) (0.28) (0.13) 0.07 (0.02) Net Realized and Unrealized Gain (Loss) on Investments (7.69) 28.07 6.45 3.75 0.73 ------ ------ ------ ------ ------ Total from Investment Operations (8.03) 27.79 6.32 3.82 0.71 ------ ------ ------ ------ ------ DISTRIBUTIONS Net Investment Income -- -- -- (0.26) -- Net Realized Gain (5.06) (6.86) (0.07) (1.28) -- In Excess of Net Realized Gain -- -- -- (1.00) -- Return of Capital -- -- -- (0.26) -- ------ ------ ------ ------ ------ Total Distributions (5.06) (6.86) (0.07) (2.80) -- ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $25.82 $38.91 $17.98 $11.73 $10.71 ====== ====== ====== ====== ====== TOTAL RETURN (22.67)% 160.62% 53.90% 37.27% 7.10% ====== ====== ====== ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $101,588 $82,190 $27,506 $31,788 $3,595 Ratio of Expenses to Average Net Assets (1) 1.26% 1.26% 1.29% 1.25% 1.25%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.25% 1.25% 1.25% N/A N/A Ratio of Net Investment Loss to Average Net Assets (1) (1.05)% (1.06)% (0.95)% (1.07)% (0.70)%** Portfolio Turnover Rate 150% 250% 265% 622% 77% - ----------------- (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income (Loss) $0.01 $0.00+ $0.07 $0.08 $0.22 Ratios before expense limitation: Expenses to Average Net Assets 1.29% 1.28% 1.82% 2.47% 8.51%** Net Investment Loss to Average Net Assets (1.08)% (1.09)% (1.47)% (2.30)% (7.96)%** - ----------------------------------------------------------------------------------------------------------------------------
CLASS B ----------------------------------------------------------------- PERIOD FROM SEPTEMBER 16, YEAR ENDED DECEMBER 31, 1996* TO ------------------------------------------------ DECEMBER 31, 2000 1999++ 1998++ 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $38.69 $17.92 $11.72 $10.71 $10.00 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (2) (0.41) (0.35) (0.16) 0.04 (0.02) Net Realized and Unrealized Gain (Loss) on Investments (7.64) 27.98 6.43 3.74 0.73 ------ ------ ------ ------ ------ Total from Investment Operations (8.05) 27.63 6.27 3.78 0.71 ------ ------ ------ ------ ------ DISTRIBUTIONS Net Investment Income -- -- -- (0.25) -- Net Realized Gain (5.06) (6.86) (0.07) (1.28) -- In Excess of Net Realized Gain -- -- -- (1.00) -- Return of Capital -- -- -- (0.24) -- ------ ------ ------ ------ ------ Total Distributions (5.06) (6.86) (0.07) (2.77) -- ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $25.58 $38.69 $17.92 $11.72 $10.71 ------ ------ ------ ------ ------ TOTAL RETURN (22.86)% 160.26% 53.52% 36.90% 7.10% ======= ====== ====== ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $6,251 $4,192 $850 $2,394 $1,487 Ratio of Expenses to Average Net Assets (2) 1.51% 1.51% 1.55% 1.50% 1.50%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.50% 1.50% 1.50% N/A N/A Ratio of Net Investment Loss to Average Net Assets (2) (1.30)% (1.31)% (1.32)% (1.41)% (1.00)%** Portfolio Turnover Rate 150% 250% 265% 622% 77% - ------------------ (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income (Loss) $0.01 $0.00+ $0.07 $0.04 $0.19 Ratios before expense limitation: Expenses to Average Net Assets 1.54% 1.53% 2.08% 2.72% 9.14%** Net Investment Loss to Average Net Assets (1.34)% (1.32)% (1.84)% (2.63)% (8.65)%**
- ------------------------------------------------------------------------------- * Commencement of Operations ** Annualized + Amount is less than $0.01 per share. ++ Per share amounts for the year ended December 31, 1998, 1999 are based on average shares outstanding. The accompanying notes are an integral part of the financial statements. 175 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------- U.S. EQUITY PLUS PORTFOLIO - -------------------------------------------------------------------------------
CLASS A ---------------------------------------------------- PERIOD FROM JULY 31, YEAR ENDED DECEMBER 31, 1997* TO -------------------------------------- DECEMBER 31, 2000 1999++ 1998++ 1997++ - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $12.34 $12.43 $10.31 $10.00 ------- ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.04 0.11 0.09 0.06 Net Realized and Unrealized Gain (Loss) on Investments (1.28) 2.30 2.10 0.33 ------- ------ ------ ------ Total from Investment Operations (1.24) 2.41 2.19 0.39 DISTRIBUTIONS Net Investment Income (0.04) (0.11) (0.05) (0.05) In Excess of Net Investment Income -- -- -- (0.03) Net Realized Gain (0.34) (2.34) -- -- In Excess of Net Realized Gain (0.22) (0.05) (0.02) -- Paid in Capital (0.01) -- -- -- ------- ------ ------- ------ Total Distributions (0.61) (2.50) (0.07) (0.08) ------- ------ ------- ------ NET ASSET VALUE, END OF PERIOD $10.49 $12.34 $12.43 $10.31 ======= ====== ======= ====== TOTAL RETURN (10.10)% 20.25% 21.26% 3.94% ======= ====== ======= ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $16,912 $22,430 $66,640 $20,914 Ratio of Expenses to Average Net Assets (1) 0.81% 0.83% 0.80% 0.80%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 0.80% 0.80% N/A N/A Ratio of Net Investment Income to Average Net Assets (1) 0.31% 0.35% 0.87% 1.32%** Portfolio Turnover Rate 122% 182% 228% 15% - ------------------ (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income (Loss) $0.04 $0.10 $0.03 $0.07 Ratios before expense limitation: Expenses to Average Net Assets 1.10% 1.17% 1.05% 2.37%** Net Investment Income (Loss) to Average Net Assets 0.02% 0.00% 0.59% (0.25)%** - -------------------------------------------------------------------------------------------------------------------------------
CLASS B ------------------------------------------------------ PERIOD FROM PERIOD FROM JANUARY 1, JULY 31, 2000 TO YEAR ENDED DECEMBER 31, 1997* TO OCTOBER 31, ----------------------- DECEMBER 31, 2000# 1999++ 1998 1997++ - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $12.33 $12.42 $10.31 $10.00 ------- ------ ------- ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) (7.25) 0.03 0.06 0.02 Net Realized and Unrealized Gain (Loss) on Investments 7.34 2.36 2.10 0.37 ------- ------ ------- ------ Total from Investment Operations 0.09 2.39 2.16 0.39 ------- ------ ------- ------ DISTRIBUTIONS Net Investment Income -- (0.08) (0.03) (0.05) Net Realized Gain (0.35) (2.33) -- (0.03) In Excess of Net Realized Gain (0.22) (0.07) (0.02) -- ------- ------ ------- ------ Total Distributions (0.57) (2.48) (0.05) (0.08) ------- ------ ------- ------ NET ASSET VALUE, END OF PERIOD $11.85 $12.33 $12.42 $10.31 ======= ====== ======= ====== TOTAL RETURN (3.81)% 19.99% 20.95% 3.93% ======= ====== ======= ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $8 $1,533 $1,431 $102 Ratio of Expenses to Average Net Assets (2) 1.06%** 1.08% 1.05% 1.05%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.05% 1.05% N/A N/A Ratio of Net Investment Income to Average Net Assets (2) 0.04%** 0.15% 0.52% 0.48%** Portfolio Turnover Rate 122% 182% 228% 15% - ------------------ (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ $0.08 $0.03 $0.00+ Ratios before expense limitation: Expenses to Average Net Assets 1.44%** 1.42% 1.34% 2.63%** Net Investment Income (Loss) to Average Net Assets (0.42)%** (0.24)% 0.24% (0.32)%** - ---------------------------------------------------------------------------------------------------------------------------------
* Commencement of Operations ** Annualized # The B Class ceased operations as of October 31, 2000. + Amount is less than $0.01 per share. ++ Per share amounts for the years ended December 31, 1999, 1998, and 1997 are based on average shares outstanding. The accompanying notes are an integral part of the financial statements. 176 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------- U.S. REAL ESTATE PORTFOLIO - -------------------------------------------------------------------------------
CLASS A -------------------------------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $11.84 $12.71 $15.38 $14.41 $11.42 ------- ------ ------- ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.51 0.81 0.47 0.42 0.37 Net Realized and Unrealized Gain (Loss) on Investments 2.94 (0.98) (2.32) 3.40 4.02 ------- ------ ------- ------ ------ Total from Investment Operations 3.45 (0.17) (1.85) 3.82 4.39 ------- ------ ------- ------ ------ DISTRIBUTIONS Net Investment Income (0.56) (0.66) (0.49) (0.43) (0.39) Net Realized Gain (0.23) -- (0.10) (2.16) (1.01) In Excess of Net Realized Gain -- (0.04) (0.23) (0.26) -- ------- ------ ------- ------ ------ Total Distributions (0.79) (0.70) (0.82) (2.85) (1.40) ------- ------ ------- ------ ------ NET ASSET VALUE, END OF PERIOD $14.50 $11.84 $12.71 $15.38 $14.41 ======= ====== ======= ====== ====== TOTAL RETURN 29.65% (1.48)% (12.29)% 27.62% 39.56% ======= ====== ======= ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $584,263 $311,064 $259,589 $361,549 $210,368 Ratio of Expenses to Average Net Assets (1) 1.00% 1.00% 1.00% 1.00% 1.00% Ratio of Net Investment Income to Average Net Assets (1) 4.13% 6.52% 3.33% 2.72% 3.08% Portfolio Turnover Rate 31% 47% 117% 135% 171% - ------------------ (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ $0.00+ $0.00+ $0.01 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.01% 1.02% 1.04% 1.04% 1.14% Net Investment Income to Average Net Assets 4.11% 6.51% 3.30% 2.68% 2.93% - ----------------------------------------------------------------------------------------------------------------------------
CLASS B ----------------------------------------------------------------- PERIOD FROM JANUARY 2, YEAR ENDED DECEMBER 31, 1996*** TO ------------------------------------------------- DECEMBER 31, 2000 1999 1998++ 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $11.80 $12.67 $15.34 $14.39 $11.50 ------ ------ ------- ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.49 0.82 0.47 0.47 0.35 Net Realized and Unrealized Gain (Loss) on Investments 2.92 (1.02) (2.35) 3.29 3.92 ------ ------ ------- ------ ------ Total from Investment Operations 3.41 (0.20) (1.88) 3.76 4.27 ------ ------ ------- ------ ------ DISTRIBUTIONS Net Investment Income (0.53) (0.63) (0.46) (0.39) (0.37) Net Realized Gain (0.23) -- (0.10) (2.16) (1.01) In Excess of Net Realized Gain -- (0.04) (0.23) (0.26) -- ------ ------ ------- ------ ------ Total Distributions (0.76) (0.67) (0.79) (2.81) (1.38) ------ ------ ------- ------ ------ NET ASSET VALUE, END OF PERIOD $14.45 $11.80 $12.67 $15.34 $14.39 ====== ====== ======= ====== ====== TOTAL RETURN 29.36% (1.73)% (12.52)% 27.21% 38.23% ====== ====== ======= ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $20,235 $13,418 $13,523 $21,231 $8,734 Ratio of Expenses to Average Net Assets (2) 1.25% 1.25% 1.25% 1.25% 1.25%** Ratio of Net Investment Income to Average Net Assets (2) 3.83% 6.13% 3.23% 3.49% 2.91%** Portfolio Turnover Rate 31% 47% 117% 135% 171% - ------------------ (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.00+ $0.00+ $0.01 $0.00+ $0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.26% 1.27% 1.29% 1.28% 1.37%** Net Investment Income to Average Net Assets 3.81% 6.12% 3.20% 3.46% 2.79%** - ----------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering class B Shares on January 2, 1996. + Amount is less than $0.01 per share. ++ Per share amounts for the years ended December 31, 1998 are based on average shares outstanding. The accompanying notes are an integral part of the financial statements. 177 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------- VALUE EQUITY PORTFOLIO - -------------------------------------------------------------------------------
CLASS A --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $9.63 $10.78 $13.62 $13.89 $13.94 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.16 0.26 0.20 0.35 0.41 Net Realized and Unrealized Gain (Loss) on Investments 1.54 0.97 0.98 3.51 2.27 ------ ------ ------ ------ ------ Total from Investment Operations 1.70 1.23 1.18 3.86 2.68 ------ ------ ------ ------ ------ DISTRIBUTIONS Net Investment Income (0.16) (0.17) (0.21) (0.35) (0.41) Net Realized Gain (0.59) (2.09) (3.81) (3.78) (2.32) In Excess of Net Realized Gain (0.26) (0.12) -- -- -- ------ ------ ------ ------ ------ Total Distributions (1.01) (2.38) (4.02) (4.13) (2.73) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $10.32 $9.63 $10.78 $13.62 $13.89 ====== ====== ====== ====== ====== TOTAL RETURN 18.08% 11.63% 8.79% 29.20% 19.73% ====== ====== ====== ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $70,454 $46,768 $57,543 $86,054 $106,128 Ratio of Expenses to Average Net Assets (1) 0.70% 0.73% 0.70% 0.70% 0.70% Ratio of Expenses to Average Net Assets Excluding Interest Expense N/A 0.70% N/A N/A N/A Ratio of Net Investment Income to Average Net Assets (1) 1.64% 1.25% 1.36% 2.15% 2.62% Portfolio Turnover Rate 62% 80% 153% 36% 42% - ------------------ (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.03 $0.02 $0.02 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 0.81% 0.86% 0.82% 0.80% 0.78% Net Investment Income to Average Net Assets 1.54% 1.12% 1.25% 2.06% 2.55% - ----------------------------------------------------------------------------------------------------------------------------
CLASS B ----------------------------------------------------------- PERIOD FROM JANUARY 2, YEAR ENDED DECEMBER 31, 1996*** TO ------------------------------------------- DECEMBER 31, 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $9.60 $10.76 $13.59 $13.89 $14.06 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.12 0.20 0.07 0.28 0.29 Net Realized and Unrealized Gain (Loss) on Investments 1.56 0.99 1.08 3.51 2.25 ------ ------ ------ ------ ------ Total from Investment Operations 1.68 1.19 1.15 3.79 2.54 ------ ------ ------ ------ ------ DISTRIBUTIONS Net Investment Income (0.11) (0.13) (0.17) (0.31) (0.39) Net Realized Gain (0.59) (2.02) (3.81) (3.78) (2.32) In Excess of Net Realized Gain (0.26) (0.20) N/A N/A N/A ------ ------ ------ ------ ------ Total Distributions (0.96) (2.35) (3.98) (4.09) (2.71) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $10.32 $9.60 $10.76 $13.59 $13.89 ====== ====== ====== ====== ====== TOTAL RETURN 17.92% 11.22% 8.59% 28.70% 18.57% ====== ====== ====== ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $891 $921 $1,045 $2,246 $2,555 Ratio of Expenses to Average Net Assets (2) 0.95% 0.98% 0.95% 0.95% 0.95%** Ratio of Expenses to Average Net Assets Excluding Interest Expense N/A 0.95% N/A N/A N/A Ratio of Net Investment Income to Average Net Assets (2) 1.35% 1.01% 1.12% 1.86% 2.33%** Portfolio Turnover Rate 62% 80% 153% 36% 42% - ------------------ (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.03 $0.02 $0.01 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 1.11% 1.13% 1.07% 1.04% 1.03%** Net Investment Income to Average Net Assets 1.24% 0.87% 1.01% 1.77% 2.26%** - ----------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. The accompanying notes are an integral part of the financial statements. 178 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------- EMERGING MARKETS DEBT PORTFOLIO - -------------------------------------------------------------------------------
CLASS A --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2000 1999++ 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $3.00 $2.61 $5.77 $7.54 $8.59 ------- ------- ------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.55 0.43 1.13 0.74 1.54 Net Realized and Unrealized Gain (Loss) on Investments (0.17) 0.34 (3.19) 0.55 2.79 ------- ------- ------- -------- -------- Total from Investment Operations 0.38 0.77 (2.06) 1.29 4.33 ------- ------- ------- -------- -------- DISTRIBUTIONS Net Investment Income (0.50) (0.37) (1.08) (0.71) (1.17) In Excess of Net Investment Income -- (0.00)+ (0.02) -- (0.01) Net Realized Gain -- -- -- (2.17) (4.20) In Excess of Net Realized Gain -- -- -- (0.08) -- Return of Capital -- (0.01) -- (0.10) -- ------- ------- ------- -------- -------- Total Distributions (0.50) (0.38) (1.10) (3.06) (5.38) ------- ------- ------- -------- -------- NET ASSET VALUE, END OF PERIOD $2.88 $3.00 $2.61 $5.77 $7.54 ======= ======= ======= ======== ======== TOTAL RETURN 12.81% 29.22% (35.95)% 18.29% 50.52% ======= ======= ======= ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $47,080 $52,654 $46,234 $142,382 $152,142 Ratio of Expenses to Average Net Assets 1.15% 1.40% 2.38% 1.60% 2.70% Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.10% 1.29% 1.34% N/A N/A Ratio of Net Investment Income to Average Net Assets 13.33% 13.12% 11.61% 8.06% 11.66% Portfolio Turnover Rate 375% 249% 457% 417% 560% - ---------------------------------------------------------------------------------------------------------------------------------
CLASS B ------------------------------------------------------------ PERIOD FROM JANUARY 2, YEAR ENDED DECEMBER 31, 1996*** TO -------------------------------------------- DECEMBER 31, 2000 1999++ 1998++ 1997++ 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $3.03 $2.66 $5.77 $7.53 $8.68 ------ ------ ------- ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.20 0.28 1.13 0.69 1.01 Net Realized and Unrealized Gain (Loss) on Investments 0.17 0.46 (3.17) 0.59 3.20 ------ ------ ------- ------ ------ Total from Investment Operations 0.37 0.74 (2.04) 1.28 4.21 ------ ------ ------- ------ ------ DISTRIBUTIONS Net Investment Income (0.48) (0.05) (1.05) (0.69) (1.15) In Excess of Net Investment Income -- -- (0.02) -- (0.01) Net Realized Gain -- -- -- (2.17) (4.20) In Excess of Net Realized Gain -- -- -- (0.08) -- Return of Capital -- (0.32) -- (0.10) -- ------ ------ ------- ------ ------ Total Distributions (0.48) (0.37) (1.07) (3.04) (5.36) ------ ------ ------- ------ ------ NET ASSET VALUE, END OF PERIOD $2.92 $3.03 $2.66 $5.77 $7.53 ====== ====== ======= ====== ====== TOTAL RETURN 12.50% 28.01% (35.37)% 18.05% 48.52% ====== ====== ======= ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $387 $860 $1,187 $2,281 $4,253 Ratio of Expenses to Average Net Assets 1.40% 1.65% 2.62% 1.91% 2.81%** Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.35% 1.55% 1.60% N/A N/A Ratio of Net Investment Income to Average Net Assets 13.28% 12.85% 11.09% 7.87% 11.09%** Portfolio Turnover Rate 375% 249% 457% 417% 560% - ---------------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. + Amount is less than $0.01 per share. ++ Per share amounts for the years ended December 31, 1999, 1998, and 1997 are based on average shares outstanding. The accompanying notes are an integral part of the financial statements. 179 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------- FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------
CLASS A ------------------------------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.24 $11.08 $10.88 $10.58 $10.81 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.67 0.64 0.62 0.65 0.67 Net Realized and Unrealized Gain (Loss) on Investments 0.43 (0.81) 0.22 0.33 (0.20) -------- -------- -------- -------- -------- Total from Investment Operations 1.10 (0.17) 0.84 0.98 0.47 -------- -------- -------- -------- -------- DISTRIBUTIONS Net Investment Income (0.68) (0.64) (0.61) (0.68) (0.70) In Excess of Net Investment Income -- -- -- (0.00)+ (0.00)+ Net Realized Gain -- -- (0.03) -- -- In Excess of Net Realized Gain -- (0.03) -- -- -- -------- -------- -------- -------- -------- Total Distributions (0.68) (0.67) (0.64) (0.68) (0.70) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $10.66 $10.24 $11.08 $10.88 $10.58 ======== ======== ======== ======== ======== TOTAL RETURN 11.16% (1.56)% 7.93% 9.54% 4.61% ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $180,830 $171,467 $212,718 $183,192 $130,733 Ratio of Expenses to Average Net Assets (1) 0.45% 0.45% 0.45% 0.45% 0.45% Ratio of Net Investment Income to Average Net Assets (1) 6.52% 5.87% 5.63% 6.11% 6.30% Portfolio Turnover Rate 220% 97% 176% 163% 183% - ------------------ (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.01 $0.01 $0.02 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 0.57% 0.57% 0.58% 0.60% 0.60% Net Investment Income to Average Net Assets 6.41% 5.75% 5.51% 5.97% 6.15% - ---------------------------------------------------------------------------------------------------------------------------------
CLASS B ------------------------------------------------------------ PERIOD FROM JANUARY 2, YEAR ENDED DECEMBER 31, 1996*** TO -------------------------------------------- DECEMBER 31, 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.25 $11.10 $10.89 $10.58 $10.81 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.65 0.61 0.61 0.64 0.64 Net Realized and Unrealized Gain (Loss) on Investments 0.43 (0.80) 0.22 0.33 (0.19) ------ ------ ------ ------ ------ Total from Investment Operations 1.08 (0.19) 0.83 0.97 0.45 ------ ------ ------ ------ ------ DISTRIBUTIONS Net Investment Income (0.67) (0.63) (0.59) (0.66) (0.68) Net Realized Gain -- -- (0.03) -- -- In Excess of Net Realized Gains -- (0.03) -- -- -- ------ ------ ------ ------ ------ Total Distributions (0.67) (0.66) (0.62) (0.66) (0.68) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $10.66 $10.25 $11.10 $10.89 $10.58 ====== ====== ====== ====== ====== TOTAL RETURN 10.92% (1.76)% 7.85% 9.48% 4.35% ====== ====== ====== ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $2,424 $2,084 $3,649 $4,834 $1,462 Ratio of Expenses to Average Net Assets (2) 0.60% 0.60% 0.60% 0.60% 0.60%** Ratio of Net Investment Income to Average Net Assets (2) 5.51% 5.69% 5.50% 5.93% 6.15%** Portfolio Turnover Rate 220% 97% 176% 163% 183% - ------------------ (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.01 $0.01 $0.01 $0.02 $0.01 Ratios before expense limitation: Expenses to Average Net Assets 0.72% 0.72% 0.72% 0.74% 0.74%** Net Investment Income to Average Net Assets 5.42% 5.58% 5.38% 5.78% 6.01%** - ----------------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. The accompanying notes are an integral part of the financial statements. 180 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------- GLOBAL FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------
CLASS A ------------------------------------------------------------- YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 2000 1999++ 1998++ 1997++ 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $11.22 $12.51 $11.15 $11.30 $11.22 ------- ------- ------- ------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.54 0.51 0.55 0.56 0.61 Net Realized and Unrealized Gain (Loss) on Investments (0.42) (1.37) 0.98 (0.40) 0.08 ------- ------- ------- ------- -------- Total from Investment Operations 0.12 (0.86) 1.53 0.16 0.69 ------- ------- ------- ------- -------- DISTRIBUTIONS Net Investment Income (0.20) (0.39) (0.17) (0.31) (0.61) In Excess of Net Investment Income (0.04) (0.03) -- -- -- Return of Capital -- (0.01) -- -- -- ------- ------- ------- ------- -------- Total Distributions (0.24) (0.43) (0.17) (0.31) (0.61) ------- ------- ------- ------- -------- NET ASSET VALUE, END OF PERIOD $11.10 $11.22 $12.51 $11.15 $11.30 ======= ======= ======= ======= ======== TOTAL RETURN 1.18% (6.84)% 13.84% 1.50% 6.44% ======= ======= ======= ======= ======== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $27,852 $34,225 $45,884 $84,635 $112,888 Ratio of Expenses to Average Net Assets (1) 0.50% 0.50% 0.50% 0.50% 0.50% Ratio of Net Investment Income to Average Net Assets (1) 4.58% 4.01% 4.76% 5.05% 5.50% Portfolio Turnover Rate 73% 102% 110% 116% 258% - ------------------ (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.04 $0.03 $0.03 $0.02 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 0.87% 0.76% 0.81% 0.71% 0.72% Net Investment Income to Average Net Assets 4.23% 3.75% 4.48% 4.84% 5.29% - ---------------------------------------------------------------------------------------------------------------------------------
CLASS B ------------------------------------------------------------ PERIOD FROM JANUARY 2, YEAR ENDED DECEMBER 31, 1996*** TO -------------------------------------------- DECEMBER 31, 2000 1999++ 1998++ 1997++ 1996 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $11.19 $12.48 $11.13 $11.29 $11.23 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.47 0.45 0.53 0.54 0.48 Net Realized and Unrealized Gain (Loss) on Investments (0.37) (1.32) 0.98 (0.40) 0.18 ------ ------ ------ ------ ------ Total from Investment Operations 0.10 (0.87) 1.51 0.14 0.66 ------ ------ ------ ------ ------ DISTRIBUTIONS Net Investment Income (0.19) (0.39) (0.16) (0.30) (0.60) In Excess of Net Investment Income (0.04) (0.03) -- -- -- ------ ------ ------ ------ ------ Total Distributions (0.23) (0.42) (0.16) (0.30) (0.60) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $11.06 $11.19 $12.48 $11.13 $11.29 ====== ====== ====== ====== ====== TOTAL RETURN 1.07% (7.09)% 13.68% 1.29% 6.12% ====== ====== ====== ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $320 $322 $362 $366 $1,559 Ratio of Expenses to Average Net Assets (2) 0.65% 0.65% 0.65% 0.65% 0.65%** Ratio of Net Investment Income to Average Net Assets (2) 4.42% 3.86% 4.54% 4.88% 5.28%** Portfolio Turnover Rate 73% 102% 110% 116% 258% - ------------------ (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income $0.04 $0.03 $0.03 $0.02 $0.02 Ratios before expense limitation: Expenses to Average Net Assets 1.02% 0.91% 0.99% 0.86% 0.86%** Net Investment Income to Average Net Assets 4.06% 3.60% 4.26% 4.68% 5.08%** - ----------------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. ++ Per share amounts for the years ended December 31, 1999, 1998 and 1997 are based on average shares outstanding. The accompanying notes are an integral part of the financial statements. 181 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------- HIGH YIELD PORTFOLIO - -------------------------------------------------------------------------------
CLASS A --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.58 $10.75 $11.58 $10.91 $10.46 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (1) 0.99 0.94 1.00 1.00 1.03 Net Realized and Unrealized Gain (Loss) on Investments (2.14) (0.14) (0.66) 0.67 0.47 ------ ------ ------ ------ ------ Total from Investment Operations (1.15) 0.80 0.34 1.67 1.50 ------ ------ ------ ------ ------ DISTRIBUTIONS Net Investment Income (1.00) (0.95) (0.98) (1.00) (1.05) In Excess of Net Investment Income -- (0.01) (0.00)+ -- (0.00)+ Net Realized Gain -- -- (0.14) -- -- In Excess of Net Realized Gain -- -- (0.04) -- -- Return of Capital -- (0.01) (0.01) -- -- ------ ------ ------ ------ ------ Total Distributions (1.00) (0.97) (1.17) (1.00) (1.05) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $8.43 $10.58 $10.75 $11.58 $10.91 ====== ====== ====== ====== ====== TOTAL RETURN (11.51)% 7.77% 3.03% 15.87% 15.01% ====== ====== ====== ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $95,174 $136,386 $128,237 $113,006 $95,663 Ratio of Expenses to Average Net Assets (1) 0.62% 0.59% 0.67% 0.69% 0.75% Ratio of Net Investment Income to Average Net Assets (1) 9.96% 8.72% 8.70% 8.70% 9.78% Portfolio Turnover Rate 36% 58% 93% 111% 117% - ------------------ (1) Effect of voluntary expense limitation during the period: Per share benefit to net investment income N/A N/A N/A N/A $0.01 Ratios before expense limitation: Expenses to Average Net Assets N/A N/A N/A N/A 0.82% Net Investment Income to Average Net Assets N/A N/A N/A N/A 9.71% - ----------------------------------------------------------------------------------------------------------------------------
CLASS B --------------------------------------------------------------- PERIOD FROM JANUARY 2, YEAR ENDED DECEMBER 31, 1996*** TO ----------------------------------------------- DECEMBER 31, 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.55 $10.73 $11.56 $10.90 $10.49 ------- ------- ------- ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (2) 0.92 0.92 0.90 0.97 0.98 Net Realized and Unrealized Gain (Loss) on Investments (2.09) (0.15) (0.59) 0.65 0.45 ------- ------- ------- ------ ------ Total from Investment Operations (1.17) 0.77 0.31 1.62 1.43 ------- ------- ------- ------ ------ DISTRIBUTIONS Net Investment Income (0.98) (0.93) (0.95) (0.96) (1.02) In Excess of Net Investment Income -- (0.01) (0.00)+ -- -- Net Realized Gain -- -- (0.14) -- -- In Excess of Net Realized Gain -- -- (0.04) -- -- Return of Capital -- (0.01) (0.01) -- -- ------- ------- ------- ------ ------ Total Distributions (0.98) (0.95) (1.14) (0.96) (1.02) ------- ------- ------- ------ ------ NET ASSET VALUE, END OF PERIOD $8.40 $10.55 $10.73 $11.56 $10.90 ======= ======= ======= ====== ====== TOTAL RETURN (11.77)% 7.44% 2.79% 15.48% 14.37% ======= ======= ======= ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $19,384 $48,457 $56,804 $7,213 $5,665 Ratio of Expenses to Average Net Assets (2) 0.87% 0.85% 0.95% 0.93% 1.00%** Ratio of Net Investment Income to Average Net Assets (2) 9.66% 8.49% 8.73% 8.48% 9.49%** Portfolio Turnover Rate 36% 58% 93% 111% 117% - ------------------ (2) Effect of voluntary expense limitation during the period: Per share benefit to net investment income N/A N/A N/A N/A $0.01 Ratios before expense limitation: Expenses to Average Net Assets N/A N/A N/A N/A 1.05%** Net Investment Income to Average Net Assets N/A N/A N/A N/A 9.44%** - -----------------------------------------------------------------------------------------------------------------------------
** Annualized *** The Portfolio began offering Class B Shares on January 2, 1996. + Amount is less than $0.01 per share. The accompanying notes are an integral part of the financial statements. 182 [GRAPHIC] Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS: - ------------------------------------------------------------------------------- MONEY MARKET PORTFOLIO - -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.600 0.047 0.051 0.051 0.049 ------ ------ ------ ------ ------ DISTRIBUTIONS Net Investment Income (0.600) (0.047) (0.051) (0.051) (0.049) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 ====== ====== ====== ====== ====== TOTAL RETURN 3.57% 4.80% 5.20% 5.20% 5.03% ====== ====== ====== ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $3,026,412 $2,931,316 $1,958,177 $1,506,210 $1,284,633 Ratio of Expenses to Average Net Assets 0.48% 0.50% 0.49% 0.49% 0.52% Ratio of Net Investment Income to Average Net Assets 6.07% 4.73% 5.07% 5.12% 4.92% - ----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO - -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.044 0.027 0.030 0.031 0.030 DISTRIBUTIONS Net Investment Income (0.044) (0.027) (0.030) (0.031) (0.030) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 ====== ====== ====== ====== ====== TOTAL RETURN 6.06% 2.77% 3.00% 3.17% 3.02% ====== ====== ====== ====== ====== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Period (Thousands) $1,476,436 $1,405,646 $990,579 $804,607 $721,410 Ratio of Expenses to Average Net Assets 0.48% 0.50% 0.50% 0.50% 0.53% Ratio of Net Investment Income to Average Net Assets 3.50% 2.76% 2.96% 3.14% 2.98% - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 183 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 - ------------------------------------------------------------------------------- Morgan Stanley Dean Witter Institutional Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund is comprised of twenty-five separate, active, diversified and non-diversified portfolios (individually referred to as a "Portfolio", collectively as the "Portfolios"). Each Portfolio (with the exception of the International Small Cap, Money Market and Municipal Money Market Portfolios) offers two classes of shares -- Class A and Class B. Both classes of shares have identical voting rights (except that shareholders of a Class have exclusive voting rights regarding any matter relating solely to that Class of shares), dividend, liquidation and other rights. The investment objectives of each of the Portfolios are described in detail in the Investment Overviews appearing elsewhere in this Annual Report. Generally, the investment objective of the domestic and international equity portfolios is to seek capital appreciation by investing in equity and equity-related securities. The investment objective of the domestic and international fixed income portfolios is primarily to seek a high total return consistent with preservation of capital. The investment objective of the money market portfolios is to seek current income and preserve capital. A. ACCOUNTING POLICIES: The following significant accounting policies are in conformity with generally accepted accounting principles. Such policies are consistently followed by the Fund in the preparation of the financial statements. Generally accepted accounting principles may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates. 1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity securities traded on NASDAQ are valued at the latest quoted sales price on the valuation date. Securities listed on a foreign exchange are valued at their closing price. Unlisted securities and listed securities not traded on the valuation date for which market quotations are readily available are valued at the average of the mean between the current bid and asked prices obtained from reputable brokers. Bonds and other fixed income securities may be valued according to the broadest and most representative market. In addition, bonds and other fixed income securities may be valued on the basis of prices provided by a pricing service. The prices provided by a pricing service take into account broker dealer market price quotations for institutional size trading in similar groups of securities, security quality, maturity, coupon and other security characteristics as well as any developments related to the specific securities. Debt securities purchased with remaining maturities of 60 days or less are valued at amortized cost, if it approximates market value. Securities owned by the Money Market and Municipal Money Market Portfolios are stated at amortized cost, which approximates market value. All other securities and investments for which market values are not readily available, including restricted securities, are valued at fair value as determined in good faith under procedures adopted by the Board of Directors, although the actual calculations may be done by others. 2. INCOME TAXES: It is each Portfolio's intention to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for Federal income taxes is required in the financial statements. A Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based on net investment income, net realized gains and net unrealized appreciation as income and/or capital gains are earned. Taxes may also be based on the movement of foreign currency and are accrued based on the value of investments denominated in such currency. 3. REPURCHASE AGREEMENTS: The Portfolios may enter into repurchase agreements under which a Portfolio lends excess cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In connection with transactions in repurchase agreements, a bank as custodian for the Fund takes possession of the underlying securities which are held as collateral, with a market value at least equal to the amount of the repurchase transaction, including principal and accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to determine the adequacy of the collateral. In the event of default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. The Portfolios, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into repurchase agreements. 4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the mean of the bid and asked - -------------------------------------------------------------------------------- 184 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) DECEMBER 31, 2000 - -------------------------------------------------------------------------------- prices of such currencies against U.S. dollars last quoted by a major bank as follows: - - investments, other assets and liabilities - at the prevailing rates of exchange on the valuation date; - - investment transactions, investment income and expenses - at the prevailing rates of exchange on the dates of such transactions. Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, the Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of the securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) on investments in securities are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. However, pursuant to U.S. Federal income tax regulations, gains and losses from certain foreign currency transactions and the foreign currency portion of gains and losses realized on sales and maturities of foreign denominated debt securities are treated as ordinary income for U.S. Federal income tax purposes. Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from foreign currency exchange contracts, disposition of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) on the Statement of Net Assets. The change in net unrealized currency gains (losses) for the period is reflected on the Statement of Operations. Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, fluctuations of exchange rates in relation to the U.S. dollar, the possibility of lower levels of government supervision and regulation of foreign securities markets and the possibility of political or economic instability. Prior governmental approval for foreign investments may be required under certain circumstances in some countries, and the extent of foreign investments in domestic companies may be subject to limitation in other countries. Foreign ownership limitations also may be imposed by the charters of individual companies to prevent, among other concerns, violations of foreign investment limitations. As a result, an additional class of shares (identified as "Foreign" in the Statement of Net Assets) may be created and offered for investment. The "local" and "foreign" shares' market values may differ. In the absence of trading of the foreign shares in such markets, the Fund values the foreign shares at the closing exchange price of the local shares. Such securities are identified as fair valued on the Statement of Net Assets. 5. FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolios may enter into foreign currency exchange contracts generally to attempt to protect securities and related receivables and payables against changes in future foreign currency exchange rates and, in certain situations, to gain exposure to foreign currencies. A foreign currency exchange contract is an agreement between two parties to buy or sell currency at a set price on a future date. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked-to-market daily and the change in market value is recorded by the Portfolios as unrealized gain or loss. The Portfolios record realized gains or losses when the contract is closed equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Credit risk may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and is generally limited to the amount of the unrealized gains on the contracts, if any, at the date of default. Risks may also arise from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. 6. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: Each Portfolio may make forward commitments to purchase or sell securities. Payment and delivery for securities which have been purchased or sold on a forward commitment basis can take place up to 120 days after the date of the transaction. Additionally, certain Portfolios may purchase securities on a when-issued or delayed delivery basis. Securities purchased on a when- issued or delayed delivery basis are purchased for delivery beyond the normal settlement date at a stated price and yield, and no income accrues to the Portfolio on such securities prior to delivery. When the Portfolio enters into a purchase transaction on a when-issued or delayed delivery basis, it either establishes a segregated account in which it maintains liquid assets in an amount at least equal in value to the Portfolio's commitments to purchase such securities or designates such assets as segregated on the Portfolio's records. Purchasing securities on a forward commitment or when-issued or delayed-delivery basis may involve a risk that the market price at the time of delivery may be lower - -------------------------------------------------------------------------------- 185 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) DECEMBER 31, 2000 - -------------------------------------------------------------------------------- than the agreed upon purchase price, in which case there could be an unrealized loss at the time of delivery. Purchasing investments on a when issued or delayed delivery basis may be considered a form of leverage which may increase the impact that gains or losses may have on a Portfolio. 7. LOAN AGREEMENTS: Certain Portfolios may invest in fixed and floating rate loans ("Loans") arranged through private negotiations between an issuer of sovereign debt obligations and one or more financial institutions ("Lenders") deemed to be creditworthy by the investment adviser. A Portfolio's investments in Loans may be in the form of participations in Loans ("Participations") or assignments of all or a portion of Loans ("Assignments") from third parties. A Portfolio's investment in Participations typically results in the Portfolio having a contractual relationship with only the Lender and not with the borrower. The Portfolios have the right to receive payments of principal, interest and any fees to which it is entitled only upon receipt by the Lender of the payments from the borrower. The Portfolios generally have no right to enforce compliance by the borrower under the terms of the loan agreement. As a result, the Portfolio may be subject to the credit risk of both the borrower and the Lender that is selling the Participation and any intermediaries between the Lender and the Portfolio. When a Portfolio purchases Assignments from Lenders, it typically acquires direct rights against the borrower on the Loan. Because Assignments are arranged through private negotiations between potential assignees and potential assignors, the rights and obligations acquired by the Portfolio as the purchaser of an Assignment may differ from, and be more limited than, those held by the assigning Lender. 8. SHORT SALES: Certain Portfolios may sell securities short. A short sale is a transaction in which a Portfolio sells securities it may or may not own, but has borrowed, in anticipation of a decline in the market price of the securities. The Portfolio is obligated to replace the borrowed securities at the market price at the time of replacement. The Portfolio may have to pay a premium to borrow the securities as well as pay any dividends or interest payable on the securities until they are replaced. Dividends and interest payable on such securities sold short are included as dividend expense and interest expense, respectively, in the Statement of Operations. A Portfolio's obligation to replace the securities borrowed in connection with a short sale will generally be secured by collateral deposited with the broker that consists of cash, U.S. government securities or other liquid, high grade debt obligations. In addition, the Portfolio will either designate on the Portfolio's records or place in a segregated account with its Custodian an amount of cash, U.S. government securities or other liquid high grade debt obligations equal to the difference, if any, between (1) the market value of the securities sold at the time they were sold short and (2) cash, U.S. government securities or other liquid high grade debt obligations deposited as collateral with the broker in connection with the short sale. Short sales by the Portfolios involve certain risks and special considerations. Possible losses from short sales differ from losses that could be incurred from the purchase of a security, because losses from short sales may be unlimited, whereas losses from purchases cannot exceed the total amount invested. 9.SECURITY LENDING: Certain Portfolios may lend investment securities to investors who borrow securities in order to complete certain transactions. By lending investment securities, a Portfolio attempts to increase its net investment income through the receipt of interest earned on loan collateral. Any increase or decline in the market price of the securities loaned that might occur and any interest earned or dividends declared during the term of the loan would be for the account of the Portfolio. Risks of delay in recovery of the securities or even loss of rights in the collateral may occur should the borrower of the securities fail financially. Risks may also arise to the extent that the value of the securities loaned increases above the value of the collateral received. Portfolios that lend securities receive cash as collateral in an amount equal to or exceeding 100% of the current market value of the loaned securities. Any cash received as collateral is invested by the securities lending agent in accordance with pre-established guidelines. A portion of the interest received on the loan collateral is retained by the Portfolio, and the remainder is rebated to the borrower of the securities. From the interest retained by the Portfolio, 25% is paid to the securities lending agent for its services. The net amount of interest earned, after the interest rebate and allocation to the securities lending agent, is included in the Statement of Operations as interest income. The value of loaned securities and related collateral outstanding at December 31, 2000 are as follows:
VALUE OF VALUE OF LOANED COLLATERAL PORTFOLIO SECURITIES (000) (000) - --------- ---------------- ---------- Active International Allocation $18,620 $19,398 Emerging Markets 153,377 159,354 International Equity 185,390 196,378 International Magnum 10,432 10,705
The following Portfolios have earned interest income on securities lending (after rebates to borrowers and allocation to the securities lending agent):
NET INTEREST EARNED PORTFOLIO BY PORTFOLIO (000) - --------- ------------------- Active International Allocation $218 Emerging Markets 455 International Equity 2,723 International Magnum 45
- -------------------------------------------------------------------------------- 186 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) DECEMBER 31, 2000 - -------------------------------------------------------------------------------- 10. STRUCTURED SECURITIES: The Emerging Markets Debt Portfolio may invest in interests in entities organized and operated solely for the purpose of restructuring the investment characteristics of sovereign debt obligations. This type of restructuring involves the deposit with or purchase by an entity of specified instruments and the issuance by that entity of one or more classes of securities ("Structured Securities") backed by, or representing interests in, the underlying instruments. Structured Securities generally will expose the Portfolio to credit risks of the underlying instruments as well as of the issuer of the structured security. Structured securities are typically sold in private placement transactions with no active trading market. Investments in Structured Securities may be more volatile than their underlying instruments, however, any loss is limited to the amount of the original investment. 11. FUTURES: Certain Portfolios may purchase and sell futures contracts. Futures contracts provide for the sale by one party and purchase by another party of a specified amount of a specified security, index, instrument or basket of instruments. Futures contracts (secured by cash, government securities or other high grade liquid investments deposited with brokers or custodians as "initial margin") are valued based upon their quoted daily settlement prices; changes in initial settlement value (represented by cash paid to or received from brokers as "variation margin") are accounted for as unrealized appreciation (depreciation). When futures contracts are closed, the difference between the opening value at the date the contract was entered into and the value at closing is recorded as realized gains or losses in the Statement of Operations. Certain Portfolios may use futures contracts in order to manage their exposure to the stock and bond markets, to hedge against unfavorable changes in the value of securities or to remain fully invested and to reduce transaction costs. Futures contract involve market risk in excess of the amounts recognized in the Statement of Net Assets. Risks arise from the possible movements in security values underlying these instruments. The change in value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in value of hedged investments. 12. SWAP AGREEMENTS: Certain Portfolios may enter into swap agreements to exchange one return or cash flow for another return or cash flow in order to hedge against unfavorable changes in the value of securities or to remain fully invested and to reduce transaction costs. INTEREST RATE SWAPS: Interest rate swaps involve the exchange of commitments to pay and receive interest based on a notional principal amount. Net periodic interest payments to be received or paid are accrued daily and are recorded in the Statement of Operations as an adjustment to interest income. Interest rate swaps are marked-to-market daily based upon quotations from market makers and the change, if any, is recorded as unrealized appreciation or depreciation in the Statement of Operations. TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest in exchange for a market-linked return based on a notional amount. To the extent the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Portfolio will receive a payment from or make a payment to the counterparty, respectively. Total return swaps are marked- to-market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gains or losses in the Statement of Operations. Periodic payments received or made at the end of each measurement period are recorded as realized gains or losses in the Statement of Operations. Realized gains or losses on maturity or termination of interest rate and total return swaps are presented in the Statement of Operations. Because there is no organized market for these swap agreements, the value reported in the Statement of Net Assets may differ from that which would be realized in the event the Portfolio terminated its position in the agreement. Credit risks may arise upon entering into these agreements from the potential inability of the counterparties to meet the terms of the agreements and are generally limited to the amount of net interest payments to be received and/or favorable movements in the value of the underlying security, if any, at the date of default. Risks also arise from potential for losses from adverse market movements; and such losses could exceed the related amounts shown in the Statement of Net Assets. 13. PURCHASED AND WRITTEN OPTIONS: Certain Portfolios may write covered call and put options on portfolio securities and other financial instruments. Premiums are received and are recorded as liabilities. The liabilities are subsequently adjusted to reflect the current value of the options written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the net realized gain or loss. By writing a covered call option, a Portfolio, in exchange for the premium, foregoes the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase. By writing a put option, a Portfolio, in exchange for the premium, accepts the risk of having to purchase a security at an exercise price that is above the current market price. - -------------------------------------------------------------------------------- 187 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) DECEMBER 31, 2000 - -------------------------------------------------------------------------------- Certain Portfolios may purchase call and put options on their portfolio securities or other financial instruments. Each Portfolio may purchase call options to protect against an increase in the price of the security or financial instrument it anticipates purchasing. Each Portfolio may purchase put options on securities which it holds or other financial instruments to protect against a decline in the value of the security or financial instrument or to close out covered written put positions. Risks may arise from an imperfect correlation between the change in market value of the securities held by the Portfolio and the prices of options relating to the securities purchased or sold by the Portfolio and from the possible lack of a liquid secondary market for an option. The maximum exposure to loss for any purchased option is limited to the premium initially paid for the option. 14. OTHER: Security transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses on the sale of investment securities are determined on the specific identified cost basis. Dividend income is recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividends) net of applicable withholding taxes. Interest income is recognized on the accrual basis except where collection is in doubt. Discounts and premiums on securities purchased (other than mortgage-backed securities) are amortized according to the effective yield method over their respective lives. Most expenses of the Fund can be directly attributed to a particular Portfolio. Expenses which cannot be directly attributed are apportioned among the Portfolios based upon relative net assets. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets. Dividends to the shareholders of the Money Market and the Municipal Money Market Portfolios are accrued daily and are distributed on or about the 15th of each month. Distributions for the remaining Portfolios are recorded on the ex- distribution date. The U.S. Real Estate Portfolio owns shares of real estate investment trusts ("REITs") which report information on the source of their distributions annually. A portion of distributions received from REITs during the year is estimated to be a return of capital and is recorded as a reduction of their cost. The amount and character of income and capital gain distributions to be paid by the Portfolios of the Fund are determined in accordance with Federal income tax regulations, which may differ from generally accepted accounting principles. The book/tax differences are either considered temporary or permanent in nature. Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains and losses on certain investment transactions and the timing of the deductibility of certain expenses. Permanent book and tax basis differences may result in reclassification among undistributed net investment income (loss), accumulated net realized gain (loss) and paid in capital. Permanent book and taxes differences, if any, are not included in ending undistributed (distributions in excess of) net investment income/accumulated net investment loss for the purpose of calculating net investment income (loss) per share in the Financial Highlights. During 2000, a transaction fee of one-half of one percent was charged on subscriptions and redemptions of capital shares of the International Small Cap Portfolio and is included in paid in capital. Effective January 18, 2001, this fee has been eliminated. Effective January 29, 2001, for certain Portfolios that invest in international securities a 2.00% redemption fee will be imposed on shares purchased in those Portfolios and held less than 60 days. The purpose of the redemption fees is to protect the Portfolios and their shareholders from the effects of short-term trading in Portfolios' shares. In November 2000, the American Institute of Certified Public Accountants (AICPA) issued a revised version of the AICPA Audit and Accounting Guide for Investment Companies (the Guide). The Guide is effective for financial statements issued for fiscal years beginning after December 15, 2000. Management of the Fund does not anticipate that the adoption of the Guide will have a significant effect on the Fund's financial statements. B. ADVISER: Morgan Stanley Dean Witter Investment Management, Inc. (the "Adviser" or "MSDW Investment Management"), a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., provides the Fund with investment advisory services under the terms of an Investment Advisory and Management Agreement (the "Agreement") at the annual rates of average daily net assets indicated below. MSDW Investment Management has agreed to reduce fees payable to it and to reimburse the Portfolios, if necessary, if the annual operating expenses, as defined, expressed as a percentage of average daily net assets, exceed the maximum ratios indicated as follows:
MAXIMUM EXPENSE RATIO ADVISORY ----------------- PORTFOLIO FEE CLASS A CLASS B - --------- -------- ------- ------- Active International Allocation 0.65% 0.80% 1.05% Asian Equity 0.80 1.00 1.25 Asian Real Estate 0.80 1.00 1.25 Emerging Markets 1.25 1.75 2.00 European Equity 0.80 1.00 1.25 European Real Estate 0.80 1.00 1.25
- -------------------------------------------------------------------------------- 188 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) DECEMBER 31, 2000 - --------------------------------------------------------------------------------
MAXIMUM EXPENSE RATIO ADVISORY ------------------ PORTFOLIO FEE CLASS A CLASS B - --------- -------- ------- ------- Global Equity 0.80 1.00 1.25 International Equity 0.80 1.00 1.25 International Magnum 0.80 1.00 1.25 International Small Cap 0.95 1.15 N/A Japanese Equity 0.80 1.00 1.25 Latin American 1.10 1.70 1.95 Equity Growth 0.60 0.80 1.05 Focus Equity 0.80 1.00 1.25 Small Company Growth* 1.00 1.25 1.50 Technology 1.00 1.25 1.50 U.S. Equity Plus 0.45 0.80 1.05 U.S. Real Estate 0.80 1.00 1.25 Value Equity 0.50 0.70 0.95 Emerging Markets Debt 0.75 1.75 2.00 Fixed Income 0.35 0.45 0.60 Global Fixed Income 0.40 0.50 0.65 High Yield 0.375 0.695 0.945 Money Market 0.30 0.55 N/A Municipal Money Market 0.30 0.57 N/A
* Beginning January 1, 2001, the Adviser has voluntarily agreed to reduce fees payable to it and to reimburse, if necessary, the Small Company Growth Portfolio, if necessary, if the annual operating expenses, as defined, exceed 1.10% and 1.35% for the Class A and B shares, respectively. Morgan Stanley Dean Witter Advisors Inc., (the "Sub-Advisor" or "MSDW Advisors"), provides sub-advisory services to the Money Market and Municipal Money Market Portfolios. MSDW Advisors receives a sub-advisory fee from the investment advisory fees paid to MSDW Investment Management by the Money Market and Municipal Money Market Portfolios. C. ADMINISTRATOR: MSDW Investment Management also provides the Fund with administrative services pursuant to an administrative agreement for a monthly fee which on an annual basis equals 0.15% of the average daily net assets of each Portfolio, plus reimbursement of out-of-pocket expenses. Under an agreement between MSDW Investment Management and The Chase Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), an affiliate of Chase, provides certain administrative services to the Fund. For such services, MSDW Investment Management pays Chase a portion of the fee MSDW Investment Management receives from the Fund. Certain employees of CGFSC are officers of the Fund. In addition, the Fund incurs local administration fees in connection with doing business in certain emerging market countries. D. DISTRIBUTOR: Morgan Stanley & Co., Incorporated (the "Distributor"), a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., and an affiliate of MSDW Investment Management, serves as the distributor of the Fund and provides Class B shareholders of the applicable Portfolios with distribution services pursuant to a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Distributor is entitled to receive from each applicable Portfolio, a distribution fee, which is accrued daily and paid quarterly, at an annual rate of 0.25% of the Class B shares' average daily net assets. The Distributor may voluntarily waive from time to time all or any portion of its distribution fee. The Distributor has agreed to reduce its fees to 0.15% of the Class B shares' average daily net assets for the Fixed Income and Global Fixed Income Portfolios. E. CUSTODIAN: Chase serves as custodian for the Fund in accordance with a custodian agreement. F. DIRECTOR'S FEES: Each Director of the Fund who is not an officer of the Fund or an affiliated person as defined under the Investment Company Act of 1940, as amended, may elect to participate in the Directors' Deferred Compensation Plan (the "Compensation Plan"). Under the Compensation Plan, such Directors may elect to defer payment of a percentage of their total fees earned as a Director of the Fund. These deferred portions are treated, based on an election by the Director, as if they were either invested in certain Portfolios' shares or invested in U.S. Treasury Bills, as defined under the Compensation Plan. The deferred fees payable, under the Compensation Plan, at December 31, 2000, totaled $1,009,000 and are included in Directors' Fees and Expenses Payable for the applicable Portfolios on the Statement of Net Assets. G. CREDIT FACILITY: The Fund, along with an affiliated open-end fund (collectively, the "Funds"), maintains a 364- day Credit Agreement with a bank group comprised of major money center banks. Under the terms of the Agreement, the Funds are provided with a revolving credit facility (the "Facility") allowing the Funds to borrow, subject to the limitations set forth in each Fund's registration statement, amounts that, in the aggregate for the Funds, will not exceed $235 million. The Funds pay a commitment fee on the unused portion of the Facility at an annual rate of 0.09%. Fees incurred in connection with the arrangement of the Facility totaled approximately $150,000. The commitment fee and the arrangement fee are allocated to the Funds based on an estimate of the potential amount available to each Fund under their respective limitations. Such allocated costs are further allocated to the Portfolios based on their net assets. Amounts drawn down on the Facility bear interest at the annual rate equal to the then prevailing Federal Funds rate plus 0.50%, which is borne by the respective borrowing Portfolio. For the year ended December 31, 2000, there were no amounts drawn down on the Facility. H. PURCHASES AND SALES: During the year ended December 31, 2000, purchases and sales of investment securities, other than long-term U.S. Government securities and short- term investments, were: - -------------------------------------------------------------------------------- 189 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) DECEMBER 31, 2000 - --------------------------------------------------------------------------------
PURCHASES SALES PORTFOLIO (000) (000) --------- ------ Active International Allocation $ 423,559 $ 377,832 Asian Equity ................... 89,658 93,468 Asian Real Estate .............. 2,747 3,548 Emerging Markets ............... 1,192,204 1,275,616 European Equity ................ 43,429 81,546 European Real Estate ........... 6,919 9,911 Global Equity .................. 38,543 108,971 International Equity ........... 2,348,806 2,398,126 International Magnum ........... 123,873 112,466 International Small Cap ........ 232,811 196,246 Japanese Equity ................ 14,389 9,795 Latin American ................. 34,556 24,714 Focus Equity ................... 161,578 149,699 Small Company Growth ........... 316,951 201,154 Equity Growth .................. 1,125,770 949,845 Technology ..................... 261,773 194,796 U.S. Equity Plus ............... 24,340 29,114 U.S. Real Estate ............... 333,191 142,935 Value Equity ................... 49,375 36,444 Emerging Markets Debt .......... 206,719 211,705 Fixed Income ................... 386,423 405,281 Global Fixed Income ............ 20,174 26,385 High Yield ..................... 50,149 95,300
During the year ended December 31, 2000 purchases and sales of long-term U.S. Government securities by the Fixed Income and Global Fixed Income Portfolios were as follows:
PURCHASES SALES PORTFOLIO (000) (000) - --------- --------- ----- Fixed Income ................... $386,423 $405,281 Global Fixed Income ............ 20,174 26,385
During the year ended December 31, 2000, the following Portfolios paid brokerage commissions to Morgan Stanley & Co., an affiliated broker/dealer:
BROKERAGE COMMISSION PORTFOLIO (000) - --------- ---------- Active International Allocation .......... $ 1 Asian Equity ............................. 93 Asian Real Estate ........................ 4 Emerging Markets ......................... 203 European Equity .......................... 11 Global Equity ............................ 22 International Equity ..................... 409 International Magnum ..................... 14 Latin American ........................... 1 Equity Growth ............................ 2 Focus Equity ............................. 1 U.S. Real Estate ......................... 1 Value Equity ............................. 1
I. OTHER: At December 31, 2000, cost, unrealized appreciation, unrealized depreciation, and net unrealized appreciation (depreciation) for U.S. Federal income tax purposes of the investments of each of the Portfolios were:
NET APPREC. COST APPREC. DEPREC. (DEPREC.) PORTFOLIO (000) (000) (000) (000) - --------- --------- --------- -------- ---------- Active International Allocation $ 566,973 $ 36,595 $(63,688) $ (27,093) Asian Equity 80,851 1,467 (23,137) (21,670) Asian Real Estate 2,754 565 (63) 502 Emerging Markets 1,314,742 59,321 (449,999) (390,678) European Equity 59,610 10,254 (2,785) 7,469 European Real Estate 9,264 723 (922) (199) Global Equity 65,662 9,145 (4,672) 4,473 International Equity 4,248,216 783,171 (261,084) 522,087 International Magnum 196,155 27,086 (14,983) 12,103 International Small Cap 381,888 38,068 (56,486) (18,418) Japanese Equity 58,740 7,655 (6,817) 838 Latin American 30,463 846 (5,494) (4,648) Equity Growth 1,076,738 267,369 (99,443) 167,926 Focus Equity 144,408 17,550 (16,701) 849 Small Company Growth 198,989 21,937 (38,412) (16,475) Technology 131,975 9,306 (32,302) (22,996) U.S. Equity Plus 17,074 2,005 (2,138) (133) U.S. Real Estate 545,885 85,318 (26,991) 58,327 Value Equity 64,595 14,688 (7,152) 7,536 Emerging Markets Debt 48,444 498 (1,997) (1,499) Fixed Income 212,144 2,197 (2,822) (625) Global Fixed Income 29,166 305 (1,927) (1,622) High Yield 145,122 1,875 (35,077) (33,202) Money Market 3,024,084 -- -- -- Municipal Money Market 1,481,548 -- -- --
At December 31, 2000, the following Portfolios had available capital loss carryforwards to offset future net capital gains, to the extent provided by regulations, through the indicated expiration dates:
EXPIRATION DATE DECEMBER 31, (000) ------------------------------------------------------------------------- PORTFOLIO 2003 2004 2005 2006 2007 2008 TOTAL - --------- ---- ---- ---- ---- ---- ---- ----- Asian Equity.......... $ -- $ -- $10,633 $67,603 $ -- $ -- $78,236 Asian Real Estate..... -- -- -- 2,269 -- -- 2,269 European Real Estate.. -- -- 40 1,452 4,709 215 6,416 Japanese Equity....... -- -- 10,031 23,700 583 -- 34,314 Latin American -- -- -- 15,053 5,508 -- 20,561 Emerging Markets Debt. -- -- -- 83,972 9,760 -- 93,732 Fixed Income.......... -- -- -- -- 1,385 2,171 3,556 Global Fixed Income... 1,568 -- -- -- 53 304 1,925 High Yield............ -- -- -- -- 4,826 6,949 11,775 Money Market -- 292 -- -- -- -- 292 Municipal Money Market -- 22 -- 2 69 2 95
- ------------------------------------------------------------------------------- 190 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) DECEMBER 31, 2000 - -------------------------------------------------------------------------------- During the year ended December 31, 2000, the Asian Equity, Asian Real Estate, Emerging Markets, Japanese Equity, Latin American Equity, Emerging Markets Debt and Money Market Portfolios utilized capital loss carryforwards for U.S. Federal income tax purposes of approximately $7,351,000, $76,000, $224,775,000, $2,760,000, $762,000, $5,154,000, and $3,000, respectively. To the extent that capital loss carryovers are used to offset any future capital gains realized during the carryover period as provided by U.S. Federal income tax regulations, no capital gains tax liability will be incurred by a Portfolio for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the shareholders. Net capital and net currency losses incurred after October 31, and within the taxable year are deemed to arise on the first day of the Portfolio's next taxable year. For the year ended December 31, 2000, the Portfolio intends to defer to January 1, 2001 for U.S. Federal income tax purposes, post-October currency losses and post-October capital losses.
CAPITAL CURRENCY LOSSES LOSSES PORTFOLIO (000) (000) ----- ----- Active International Allocation ....... $ 3,715 $ -- Asian Equity .......................... -- 43 Asian Real Estate ..................... -- -- Emerging Markets ...................... 35,873 655 European Real Estate .................. 61 -- Global Equity ......................... 68 11 International Magnum .................. 2,583 38 Japanese Equity ....................... 724 22 Latin American ........................ 928 5 Small Company Growth .................. 3,134 -- U.S. Equity Plus ...................... 74 -- Emerging Markets Debt ................. 564 -- Fixed Income .......................... 319 -- Global Fixed Income ................... 6 175 High Yield ............................ 412 --
The net assets of certain Portfolios are substantially comprised of foreign denominated securities and currency. Changes in currency exchange rates will affect the U.S. dollar value of and investment income from such securities. Further, at times certain of the Portfolios' investments are concentrated in a limited number of countries and regions. This concentration may further increase the risk of the Portfolio. The Emerging Markets Debt and High Yield Portfolios hold a significant portion of their investment in securities which are traded by one market maker who may also be utilized by these Portfolios to provide pricing information used to value such investments. The amounts which will be realized upon disposition of these securities may differ from the value reflected on the Statement of Net Assets. Settlement and registration of foreign securities transactions may be subject to significant risks not normally associated with investments in the United States. In certain markets, including Russia, ownership of shares is defined according to entries in the issuer's share register. In Russia, there currently exists no central registration system and the share registrars may not be subject to effective state supervision. It is possible that a Portfolio could lose its share registration through fraud, negligence or even mere oversight. In addition, shares being delivered for sales and cash being paid for purchases may be delivered before the exchange is complete. This may subject the Portfolio to further risk of loss in the event of a failure to complete the transaction by the counterparty. From time to time, certain Portfolios may have shareholders that hold a significant portion of a Portfolio's outstanding shares. Investment decisions of these shareholders could have a material impact on those Portfolios. - ------------------------------------------------------------------------------- 191 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- To the Shareholders and Board of Directors of Morgan Stanley Dean Witter Institutional Fund, Inc. We have audited the accompanying statements of net assets of the Morgan Stanley Dean Witter Institutional Fund, Inc. (comprised of the Active International Allocation Portfolio, Asian Equity Portfolio, Asian Real Estate Portfolio, Emerging Markets Portfolio, European Equity Portfolio, European Real Estate Portfolio, Global Equity Portfolio, International Equity Portfolio, International Magnum Portfolio, International Small Cap Portfolio, Japanese Equity Portfolio, Latin American Portfolio, Equity Growth Portfolio, Focus Equity Portfolio, Small Company Growth Portfolio, Technology Portfolio, U.S. Equity Plus Portfolio, U.S. Real Estate Portfolio, Value Equity Portfolio, Emerging Markets Debt Portfolio, Fixed Income Portfolio, Global Fixed Income Portfolio, High Yield Portfolio, Money Market Portfolio, and the Municipal Money Market Portfolio) (the "Fund") as of December 31, 2000, and the related statements of operations, the statements of changes in net assets, and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statements of changes in net assets for the year ended December 31, 1999 and the financial highlights for each of the four years in the period then ended were audited by other auditors whose report, dated February 18, 2000, expressed an unqualified opinion on those statements and financial highlights. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2000 by correspondence with the custodian and brokers, or other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective portfolios constituting the Morgan Stanley Dean Witter Institutional Fund, Inc. at December 31, 2000, and the results of their operations, changes in their net assets, and their financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP BOSTON, MASSACHUSETTS FEBRUARY 2, 2001 - ------------------------------------------------------------------------------- 192 [GRAPHIC]Morgan Stanley Dean Witter Institutional Fund, Inc. - ------------------------------------------------------------------------------- FEDERAL TAX INFORMATION: - ------------------------------------------------------------------------------- For the year ended December 31, 2000, the percentage of dividends paid that qualify for the 70% dividend received deduction for corporate shareholders for the Global Equity, Equity Growth, Focus Equity, Small Company Growth, Technology, U.S. Equity Plus, U.S. Real Estate, Value Equity and High Yield Portfolios are 26.68%, 8.64%, 1.80%, 1.52%, 0.44%, 56.38%, 2.03% , 29.13% and 1.90%, respectively. For the year ended December 31, 1999, the percentage of exempt interest dividends paid by the Municipal Money Market Portfolios is 99.41%. For the year ended December 31, 2000, the following Portfolios intend to pass through foreign tax credits and have derived gross income from sources within foreign countries amounting to:
FOREIGN TAX CREDIT FOREIGN SOURCE PASS-THROUGH INCOME PORTFOLIO (000) (000) - --------- ------------------- ------------- Active International Allocation ......... $ 856 $ 8,868 Asian Real Estate ....................... 4 97 Emerging Markets Equity ................. 6,056 11,667 European Equity ......................... 250 2,260 European Real Estate .................... 42 277 Global Equity ........................... 124 1,104 International Equity* ................... 10,172 109,995 International Magnum .................... 369 3,337 International Small Cap ................. 1,130 9,917 Japanese Equity ......................... 76 510
For the year ended December 31, 2000, the following Portfolios distributed long-term capital gains totaling:
LONG-TERM CAPITAL GAINS -- 20% PORTFOLIO (000) - --------- -------------------- Active International Allocation .................. $ 26,231 European Equity .................................. 8,211 Emerging Markets Equity .......................... 52,121 Global Equity .................................... 9,976 International Magnum ............................. 7,648 International Small Cap .......................... 37,362 Focus Equity ..................................... 10,083 Small Company Growth ............................. 12,158 Equity Growth .................................... 65,527 Technology ....................................... 9,902 U.S. Equity Plus ................................. 545 U.S. Real Estate ................................. 6,748 Value Equity ..................................... 2,066
- ------------ * Amounts based on October 31 tax year end. - ------------------------------------------------------------------------------- 193 MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. - ------------------------------------------------------------------------------- DIRECTORS BARTON M. BIGGS CHAIRMAN OF THE BOARD Chairman, Director and Managing Director, Morgan Stanley Dean Witter Investment Management Inc. and Morgan Stanley Dean Witter Investment Management Limited; Managing Director, Morgan Stanley & Co. Incorporated John D. Barrett Ii Chairman and Director, Barrett Associates, Inc. Gerard E. Jones Partner, Richards & O'Neil, LLP Graham E. Jones Senior Vice President, BGK Properties John A. Levin Chairman and Chief Executive Officer, John A. Levin & Co., Inc. Andrew Mcnally IV Managing Director, Hammond Kennedy Whitney William G. Morton, Jr. Chairman and Chief Executive Officer, Boston Stock Exchange Samuel T. Reeves Chief Executive Officer, Pinnacle Trading, L.L.C. Fergus Reid Chairman and Chief Executive Officer, LumeLite Plastics Corporation Frederick O. Robertshaw, Esq. Attorney-at-Law INVESTMENT ADVISER AND ADMINISTRATOR Morgan Stanley Dean Witter Investment Management Inc. 1221 Avenue of the Americas New York, New York 10020 DISTRIBUTOR Morgan Stanley & Co. Incorporated 1221 Avenue of the Americas New York, New York 10020 OFFICERS Harold J. Schaaff, Jr. PRESIDENT Stefanie V. Chang VICE PRESIDENT Arthur J. Lev VICE PRESIDENT Joseph P. Stadler VICE PRESIDENT Mary E. Mullin SECRETARY Belinda A. Brady TREASURER Robin L. Conkey ASSISTANT TREASURER CUSTODIAN The Chase Manhattan Bank 3 Chase MetroTech Center Brooklyn, New York 11245 LEGAL COUNSEL Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, Pennsylvania 19103 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, MA 02116 FOR CURRENT PERFORMANCE, CURRENT NET ASSET VALUE AND INFORMATION REGARDING THE INVESTMENTS COMPRISING THE PORTFOLIOS, OR FOR ASSISTANCE WITH YOUR ACCOUNT, PLEASE CONTACT THE FUND AT (800) 548-7786, OR VISIT OUR WEBSITE AT www.msdw.com/im. - ------------------------------------------------------------------------------- 194 -----END PRIVACY-ENHANCED MESSAGE-----