N-CSR 1 tm232792d1_ncsr.htm N-CSR

  

 

  

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

FORM N-CSR

  

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

  

Investment Company Act file number: 811-05624

  

Morgan Stanley Institutional Fund, Inc.

(Exact name of registrant as specified in charter)

  

522 Fifth Avenue, New York, New York 10036
(Address of principal executive offices) (Zip code)

  

John H. Gernon

522 Fifth Avenue, New York, New York 10036

(Name and address of agent for service)

  

Registrant's telephone number, including area code: 212-296-0289

  

Date of fiscal year end: December 31,

  

Date of reporting period: December 31, 2022

  

 

  

  

 

  

  

  

Item 1 - Report to Shareholders

  

 

  

  

  

Morgan Stanley Institutional Fund, Inc.

Active International Allocation Portfolio

Annual Report

December 31, 2022


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Table of Contents (unaudited)

Shareholders' Letter

   

2

   

Expense Example

   

3

   

Investment Overview

   

4

   

Portfolio of Investments

   

8

   

Statement of Assets and Liabilities

   

11

   

Statement of Operations

   

13

   

Statements of Changes in Net Assets

   

14

   

Financial Highlights

   

16

   

Notes to Financial Statements

   

22

   

Report of Independent Registered Public Accounting Firm

   

34

   

Liquidity Risk Management Program

   

35

   

Federal Tax Notice

   

36

   

U.S. Customer Privacy Notice

   

37

   

Director and Officer Information

   

40

   

This report is authorized for distribution only when preceded or accompanied by a prospectus or summary prospectus of the applicable Fund of Morgan Stanley Institutional Fund, Inc. To receive a prospectus and/or statement of additional information ("SAI"), which contains more complete information such as investment objectives, charges, expenses, policies for voting proxies, risk considerations and describes in detail each of the Fund's investment policies to the prospective investor, please call toll free 1 (800) 869-6397. Please read the prospectuses carefully before you invest or send money.

Additionally, you can access information about the Fund, including performance, characteristics and investment team commentary, through Morgan Stanley Investment Management's website: www.morganstanley.com/im/shareholderreports.

Market forecasts provided in this report may not necessarily come to pass. There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the Fund in the future. There is no assurance that a fund will achieve its investment objective. Funds are subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund's shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund. Please see the prospectus for more complete information on investment risks.

 


1


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Shareholders' Letter (unaudited)

Dear Shareholders,

We are pleased to provide this Annual Report, in which you will learn how your investment in Active International Allocation Portfolio (the "Fund") performed during the latest twelve-month period.

Morgan Stanley Investment Management is a client-centric, investor-led organization. Our global presence, intellectual capital, and breadth of products and services enable us to partner with investors to meet the evolving challenges of today's financial markets. We aim to deliver superior investment service and to empower our clients to make the informed decisions that help them reach their investment goals.

As always, we thank you for selecting Morgan Stanley Investment Management, and look forward to working with you in the months and years ahead.

Sincerely,

John H. Gernon
President and Principal Executive Officer

January 2023

 


2


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Expense Example (unaudited)

Active International Allocation Portfolio

As a shareholder of the Fund, you incur two types of costs: (1) transactional costs; and (2) ongoing costs, which may include advisory fees, administration fees, distribution and shareholder services fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

This example is based on an investment of $1,000 invested at the beginning of the six-month period ended December 31, 2022 and held for the entire six-month period.

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the information for each class in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Beginning
Account
Value
7/1/22
  Actual Ending
Account
Value
12/31/22
  Hypothetical
Ending Account
Value
  Actual
Expenses
Paid
During
Period*
  Hypothetical
Expenses Paid
During Period*
  Net
Expense
Ratio
During
Period**
 

Active International Allocation Portfolio Class I

 

$

1,000.00

   

$

1,000.70

   

$

1,020.72

   

$

4.49

   

$

4.53

     

0.89

%

 

Active International Allocation Portfolio Class A

   

1,000.00

     

999.60

     

1,019.26

     

5.95

     

6.01

     

1.18

   

Active International Allocation Portfolio Class L

   

1,000.00

     

996.10

     

1,016.38

     

8.80

     

8.89

     

1.75

   

Active International Allocation Portfolio Class C

   

1,000.00

     

995.40

     

1,015.17

     

10.01

     

10.11

     

1.99

   

Active International Allocation Portfolio Class R6(1)

   

1,000.00

     

1,002.00

     

1,020.97

     

4.24

     

4.28

     

0.84

   

Active International Allocation Portfolio Class IR

   

1,000.00

     

1,001.30

     

1,020.97

     

4.24

     

4.28

     

0.84

   

*  Expenses are calculated using each Fund Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period and multiplied by 184/365 (to reflect the most recent one-half year period).

**  Annualized.

(1)  Effective April 29, 2022, Class IS shares were renamed Class R6 shares.

 


3


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Investment Overview (unaudited)

Active International Allocation Portfolio

The Fund seeks long-term capital appreciation.

Performance

For the fiscal year ended December 31, 2022, the Fund's Class I shares had a total return based on net asset value and reinvestment of distributions per share of –21.57%, net of fees. The Fund's Class I shares underperformed the Fund's benchmark, the MSCI All Country World ex USA Index (the "Index"), which returned –16.00%.

Factors Affecting Performance

•  In mid-January 2022 international equities (measured by the Index) peaked for the year and saw prices decline from there as the markets digested the steep rate increases by the Federal Reserve (Fed), a higher level of inflation exacerbated by rising food and energy prices following Russia's invasion of Ukraine, and China's zero-COVID policy. Our investment discipline is to act when we see large disconnects between market values and our estimates of fair value, and to take advantage of volatility when long-term value appears to emerge.

•  Early in 2022 we increased positions in energy, and over the course of the year we increased the defensiveness of the portfolio with companies that have solid balance sheets, low leverage and high free cash flow by our measures. In the fourth quarter of 2022, we added to semiconductors, which had been a portfolio underweight. Within the semiconductor industry, we see long-term demand trends underpinned by data consumption growth; synchronized production and capital expenditure cuts, which should result in the lowest supply growth on record in 2023; and trading at what we consider cyclical trough valuations, as measured by price-to-book multiples.

•  For the full-year period, Fund performance was negatively impacted by positioning in communication services, led by the overweight allocation to a gaming and e-commerce company based in the ASEAN (Association of Southeast Asian Nations) region, which was the largest stock detractor for the one-year period. The overweight to and stock selection among consumer discretionary names detracted as an Argentina-based online travel platform and a Japan-based global consumer

electronics company underperformed. The underweight allocation to financials also detracted.

•  Health care & equipment companies — one based in the Netherlands and another based in Germany — were among the top stock detractors from performance. The allocation to a U.K. internet and direct marketing retail company was among the top detractors for the year.

•  Positioning in China, led by the overweight to a leading internet company, and the overweight to and positioning in Germany, led by the allocation to a manufacturer of warehouse equipment and industrial trucks, detracted. Within South Korea, a consumer electronics manufacturer underperformed.

•  Elsewhere, the allocation to the United States and stock selection in Japan hampered returns.

•  The overweight to and stock selection in materials contributed to performance, led by the allocations to a Canada-based copper producer and a diversified natural resources company headquartered in Switzerland, which was the single largest contributor to returns for the full-year period. Stock selection among energy names contributed to performance through allocations to a U.K.-based oil and gas company and a U.S.-based offshore driller.

•  The overweight to and positioning in pharmaceuticals contributed, namely through a diabetes-focused drug company in Denmark, a biopharmaceuticals company headquartered in the U.K. and a U.S.-based biotech company, all of which were among the top contributors to returns. Elsewhere, the allocation to a U.K.-based consumer goods company and zero allocation to an e-commerce platform based in Canada contributed to returns.

•  Overweight to and positioning in the United Kingdom and Brazil contributed to returns for the period. The zero allocation to Russia also contributed.

•  The Fund utilized stock index futures and forward currency contracts in 2022 to manage certain market and currency exposures. This was a performance detractor in the period.

 
 


4


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Investment Overview (unaudited) (cont'd)

Active International Allocation Portfolio

Management Strategies

•  There is a consensus among some observers that in 2023 the U.S. economy will experience a weak first half followed by a V-shaped recovery in the second half as inflation fades and the Fed relents on its aggressive tightening stance. We are skeptical that the economy and markets will move in a V-shaped manner. Economic adjustment may take longer, as housing and the labor markets could take longer to normalize than in the past cycles. Inflation has peaked to date and has since weakened primarily from goods prices but still faces upward pressures from undersupplied labor markets and resource-intensive decarbonization. It will not be easy for the Fed to achieve the 2% inflation target, and policy makers will try to avoid the stop-and-go monetary policy of the 1970s in fighting inflation. Policy rates may stay higher for longer rather than the smooth path of disinflation and Fed cuts being priced by economic forecasters.

•  Europe suffered in 2022 from an energy crisis and the shutdown in China from its zero-COVID policy. During the year, global investors generally sold the region, with the euro falling 6% in the 12-month period including a sharp 9% fourth quarter rally.(i) We believe that valuations are now at extreme levels of cheapness versus the U.S. market. Recently sentiment has improved as forecasts have been upgraded from a worst-case recession scenario as the energy situation has stabilized and China reopens. Europe's sector composition (light technology/heavy health care and industrials) hampered relative performance in the tech-dominant 2010s, and as sector performance shifts, we think Europe should benefit given its lower valuations relative to the U.S. Europe is also a beneficiary of migrant flows that should boost demographics and support labor markets. The portfolio is overweight to core Europe and to the U.K., which is based on the strong bottom-up opportunities in materials, energy, pharma and staples.

•  We added to emerging markets in 2022 in China, India and Brazil. In the 2010s, emerging markets experienced their worst decade of performance since

the 1930s. Today, absolute and relative equity and currency valuations are near record lows, and generally investors are significantly underweight. Portfolio positions in China detracted for much of 2022, but we see our holdings as attractive based on very cheap valuations, underappreciated fundamentals and negative sentiment that is quickly reversing.

•  Our 2023 outlook is quite favorable for international equity markets. U.S. dollar strength since 2010 has been a headwind to non-U.S. equity returns, and we believe that a reversal in this trend has begun. Even though valuations were already elevated, the U.S. dollar benefited in 2022 from rate and growth differentials favoring the U.S. and the flight-to-safety. The dollar reached a 20-year high in late September 2022 before weakening into year-end;(i) a trend we expect to continue based on unattractive fundamentals such as the U.S. twin deficits, U.S. dollar as a falling share of central bank reserves, a convergence in growth rates with other large economic regions and the increasing importance of alternate payment systems. U.S. dollar weakness is a key feature in our constructive outlook for non-U.S. equity market returns; over time local currency has represented roughly 30% of the equity market return to U.S. investors.(ii)

•  Overall, we believe that the U.S./tech market regime that has dominated global equity markets since the Global Financial Crisis has likely concluded. In our view, non-U.S. markets offer improving and underappreciated fundamentals, attractive valuations, appreciating currencies and should benefit from asset allocation shifts to this under-owned asset class.

•  We believe Active International Allocation Portfolio is well positioned to potentially outperform in this environment with a focus on long-term structural winners in supply-constrained industries (materials and energy), innovation (health care, consumer and semiconductor capex), and mispriced cyclicals with structural drivers (heavy industrials, airlines and aerospace & defense).

 
 

(i)  Source: Bloomberg L.P. Data as of December 31, 2022.

(ii)  Source: Bloomberg L.P., FactSet and Global Insight. Average annual currency contributions to total returns since 1988. Data as of May 25, 2022.

 
 


5


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Investment Overview (unaudited) (cont'd)

Active International Allocation Portfolio

*  Minimum Investment for Class I shares

In accordance with SEC regulations, the Fund's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class A, L, C, R6 and IR shares will vary from the performance of Class I shares based upon their different inception dates and will be negatively impacted by additional fees assessed to those classes (if application).

Performance Compared to the MSCI All Country World ex USA Index(1), the Active International Allocation Blend Index(2), and the Lipper International Large-Cap Growth Funds Index(3)

    Period Ended December 31, 2022
Total Returns(4)
 
       

Average Annual

 
    One
Year
  Five
Years
  Ten
Years
  Since
Inception(10)
 
Fund — Class I Shares
w/o sales charges(5)
   

–21.57

%

   

1.70

%

   

4.19

%

   

5.35

%

 
Fund — Class A Shares
w/o sales charges(6)
   

–21.77

     

1.40

     

3.85

     

4.61

   
Fund — Class A Shares with
maximum 5.25% sales charges(6)
   

–25.86

     

0.31

     

3.29

     

4.40

   
Fund — Class L Shares
w/o sales charges(7)
   

–22.22

     

0.85

     

3.30

     

4.83

   
Fund — Class C Shares
w/o sales charges(8)
   

–22.43

     

0.60

     

     

1.37

   
Fund — Class C Shares with
maximum 1.00% deferred
sales charges(8)
   

–23.20

     

0.60

     

     

1.37

   
Fund — Class R6 Shares
w/o sales charges(9)
   

–21.45

     

     

     

3.79

   
Fund — Class IR Shares
w/o sales charges(9)
   

–21.51

     

     

     

3.77

   

MSCI All Country World ex USA Index

   

–16.00

     

0.88

     

3.80

     

5.27

   
Active International Allocation
Blend Index
   

–16.00

     

0.88

     

4.51

     

5.10

   
Lipper International Large-Cap
Growth Funds Index
   

–21.89

     

2.49

     

4.94

     

N/A

   

Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. Performance assumes that all dividends and distributions, if any, were reinvested. For the most recent month-end performance figures, please visit www.morganstanley.com/im/shareholderreports. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance of share classes will vary due to difference in sales charges and expenses. Fund's total returns are calculated based on the net asset value as of the last business day of the period.

(1)  The MSCI All Country World ex USA Index is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging markets, excluding the United States. The term ""free float"" represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. Returns, including periods prior to January 1, 2001, are calculated using the return data of the MSCI All Country World ex USA Index (gross dividends) through December 31, 2000 and the return data of the MSCI All Country World ex USA Index (net dividends) after December 31, 2000. Net total return indices reinvest dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.

 
 


6


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Investment Overview (unaudited) (cont'd)

Active International Allocation Portfolio

(2)  The Active International Allocation Blend Index is performance linked benchmark of the old and new benchmark of the Fund, the old benchmark represented by MSCI EAFE Index (a benchmark measures the international equity market performance of developed markets excluding the United States and Canada) from the Fund's inception to December 31, 2016 and the new benchmark represented by MSCI All Country World ex USA Index for periods thereafter. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.

(3)  The Lipper International Large-Cap Growth Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper International Large-Cap Growth Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 30 funds represented in this Index. As of the date of this report, the Fund was in the Lipper International Large-Cap Growth Funds classification.

(4)  Total returns for the Fund reflect fees waived and expenses reimbursed, if applicable, by the Adviser (as defined herein). Without such waivers and reimbursements, total returns would have been lower.

(5)  Commenced operations on January 17, 1992.

(6)  Commenced offering on January 2, 1996.

(7)  Commenced offering on June 14, 2012.

(8)  Commenced offering on April 30, 2015.

(9)  Commenced offering on October 31, 2019. Effective April 29,2022, Class IS shares were renamed to Class R6 shares.

(10)  For comparative purposes, average annual since inception returns listed for the Indexes refer to the inception date of Class I of the Fund, not the inception of the Index.

 
 


7


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Portfolio of Investments

Active International Allocation Portfolio

   

Shares

  Value
(000)
 

Common Stocks (98.5%)

 

Brazil (2.0%)

 

Itau Unibanco Holding SA (Preference) ADR

   

374,285

   

$

1,763

   

Vale SA

   

90,176

     

1,528

   
     

3,291

   

Canada (6.6%)

 

Agnico Eagle Mines Ltd.

   

36,706

     

1,907

   

Cameco Corp.

   

27,331

     

620

   

Canadian National Railway Co.

   

27,206

     

3,234

   

First Quantum Minerals Ltd. (a)

   

144,865

     

3,027

   

Teck Resources Ltd., Class B

   

48,044

     

1,817

   
     

10,605

   

China (7.7%)

 

Alibaba Group Holding Ltd. ADR (b)

   

80,257

     

7,070

   

China Resources Beer Holdings Co., Ltd. (c)

   

130,000

     

904

   

JD.com, Inc., Class A (c)

   

2,469

     

69

   

Tencent Holdings Ltd. (c)

   

50,100

     

2,124

   

Tencent Holdings Ltd. ADR (a)

   

50,351

     

2,133

   
     

12,300

   

Denmark (2.2%)

 

Novo Nordisk AS Series B

   

25,850

     

3,511

   

France (8.9%)

 

Air Liquide SA

   

7,797

     

1,107

   

Airbus SE

   

24,957

     

2,967

   

Hermes International

   

342

     

529

   

Kering SA

   

1,573

     

801

   

L'Oreal SA

   

3,147

     

1,127

   

Legrand SA

   

5,439

     

436

   

LVMH Moet Hennessy Louis Vuitton SE

   

1,803

     

1,312

   

Pernod Ricard SA

   

5,564

     

1,095

   

Sanofi

   

20,947

     

2,020

   

Technip Energies NV

   

86,488

     

1,360

   

TotalEnergies SE (a)

   

25,653

     

1,610

   
     

14,364

   

Germany (10.4%)

 

Bayer AG (Registered)

   

134,129

     

6,904

   

CTS Eventim AG & Co. KGaA (b)

   

9,956

     

632

   

Infineon Technologies AG

   

42,656

     

1,296

   

Jungheinrich AG (Preference)

   

27,330

     

774

   

KION Group AG

   

37,318

     

1,063

   

Linde PLC (b)

   

11,808

     

3,849

   

Siemens Healthineers AG

   

43,409

     

2,165

   
     

16,683

   

India (5.0%)

 

Apollo Hospitals Enterprise Ltd.

   

18,756

     

1,014

   

HDFC Bank Ltd. ADR

   

39,412

     

2,696

   

ICICI Bank Ltd.

   

107,965

     

1,161

   

ICICI Prudential Life Insurance Co., Ltd.

   

118,925

     

647

   

Reliance Industries Ltd.

   

41,297

     

1,268

   

State Bank of India

   

159,592

     

1,180

   
     

7,966

   
   

Shares

  Value
(000)
 

Ireland (1.0%)

 

Ryanair Holdings PLC ADR (b)

   

21,043

   

$

1,573

   

Japan (8.7%)

 

FANUC Corp.

   

4,350

     

651

   

Hoya Corp.

   

6,200

     

594

   

Keyence Corp.

   

5,600

     

2,174

   

Nikon Corp.

   

377,600

     

3,339

   

Shimano, Inc. (a)

   

3,650

     

577

   

Shiseido Co., Ltd. (a)

   

7,600

     

372

   

SMC Corp.

   

1,805

     

754

   

Sony Group Corp.

   

30,693

     

2,339

   

Sony Group Corp. ADR

   

22,219

     

1,695

   

Tokyo Electron Ltd.

   

3,400

     

999

   

Unicharm Corp.

   

11,200

     

429

   
     

13,923

   

Korea, Republic of (2.7%)

 

Samsung Electronics Co., Ltd.

   

99,861

     

4,383

   

Netherlands (3.5%)

 

Akzo Nobel NV

   

11,150

     

748

   
ASML Holding NV    

4,047

     

2,207

   

Universal Music Group NV

   

70,741

     

1,711

   

Wolters Kluwer NV

   

8,671

     

907

   
     

5,573

   

Norway (0.6%)

 

Adevinta ASA (b)

   

157,062

     

1,040

   

Singapore (2.3%)

 

Sea Ltd. ADR (b)

   

71,289

     

3,709

   

South Africa (0.8%)

 

Impala Platinum Holdings Ltd.

   

54,156

     

681

   

Sibanye Stillwater Ltd.

   

192,792

     

511

   

Thungela Resources Ltd. (a)

   

6,854

     

113

   
     

1,305

   

Spain (0.6%)

 

Amadeus IT Group SA (b)

   

18,997

     

985

   

Sweden (0.2%)

 

Atlas Copco AB, Class A

   

24,389

     

289

   

Switzerland (2.3%)

 

Nestle SA (Registered)

   

31,832

     

3,677

   

Taiwan (2.9%)

 

Taiwan Semiconductor Manufacturing Co., Ltd.

   

202,000

     

2,934

   
Taiwan Semiconductor Manufacturing Co., Ltd.
ADR
   

22,187

     

1,652

   
     

4,586

   

United Kingdom (19.0%)

 

Anglo American PLC

   

30,100

     

1,179

   

AstraZeneca PLC

   

35,337

     

4,782

   

Diageo PLC

   

63,866

     

2,796

   

Experian PLC

   

62,171

     

2,106

   

Glencore PLC

   

1,203,907

     

8,028

   

Shell PLC

   

175,884

     

4,958

   

Unilever PLC

   

38,302

     

1,922

   
 
 
 

The accompanying notes are an integral part of the financial statements.
8


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Portfolio of Investments (cont'd)

Active International Allocation Portfolio

   

Shares

  Value
(000)
 

United Kingdom (cont'd)

 

Unilever PLC ADR (a)

   

34,045

   

$

1,714

   

Unilever PLC CVA

   

60,317

     

3,045

   
     

30,530

   

United States (11.1%)

 

Air Products & Chemicals, Inc.

   

2,815

     

868

   

Despegar.com Corp. (a)(b)

   

507,252

     

2,602

   

Estee Lauder Cos., Inc., Class A

   

3,854

     

956

   

Farfetch Ltd., Class A (a)(b)

   

223,380

     

1,057

   

Medtronic PLC

   

22,982

     

1,786

   

MercadoLibre, Inc. (b)

   

2,095

     

1,773

   

Newmont Corp. (NYSE)

   

23,638

     

1,114

   

Newmont Corp. (TSX)

   

68,304

     

3,224

   

Schlumberger NV

   

45,591

     

2,437

   

Vertex Pharmaceuticals, Inc. (b)

   

6,682

     

1,930

   
     

17,747

   

Total Common Stocks (Cost $138,426)

   

158,040

   

Preferred Stock (0.7%)

 

United States (0.7%)

 
Neurogenesis Ltd. Series A (b)(d) (acquisition
cost — $1,250; acquired 12/16/21)
(Cost $1,250)
   

30,697

     

1,174

   

Investment Company (0.4%)

 

United States (0.4%)

 
Morgan Stanley China A Share Fund, Inc.
(See Note G) (Cost $1,067)
   

46,002

     

653

   

Short-Term Investments (1.6%)

 

Securities held as Collateral on Loaned Securities (1.6%)

 

Investment Company (1.3%)

 
Morgan Stanley Institutional Liquidity
Funds — Treasury Securities Portfolio —
Institutional Class (See Note G)
   

2,084,769

     

2,085

   
    Face
Amount
(000)
     

Repurchase Agreements (0.3%)

 
HSBC Securities USA, Inc., (4.27%,
dated 12/30/22, due 1/3/23; proceeds
$193; fully collateralized by a U.S. Government
obligation; 4.38% due 5/15/41;
valued at $197)
 

$

193

     

193

   
Merrill Lynch & Co., Inc., (4.25%,
dated 12/30/22, due 1/3/23; proceeds
$194; fully collateralized by a U.S. Government
obligation; 1.50% due 2/15/25;
valued at $197)
   

194

     

194

   
     

387

   

Total Short-Term Investments (Cost $2,472)

   

2,472

   
Total Investments (101.2%) (Cost $143,215)
Including $7,419 of Securities Loaned (e)(f)(g)
   

162,339

   

Liabilities in Excess of Other Assets (–1.2%)

   

(1,946

)

 

Net Assets (100.0%)

 

$

160,393

   

Country assignments and aggregations are based generally on third party vendor classifications and information, and may be different from the assignments and aggregations under the policies set forth in the Fund's prospectus and/or statement of additional information relating to geographic classifications.

(a)  All or a portion of this security was on loan at December 31, 2022.

(b)  Non-income producing security.

(c)  Security trades on the Hong Kong exchange.

(d)  At December 31, 2022, the Fund held fair valued securities valued at approximately $1,174,000, representing 0.7% of net assets. These securities have been fair valued as determined in good faith under procedures established by and under the general supervision of the Company's (as defined herein) Directors.

(e)  Securities are available for collateral in connection with open foreign currency forward exchange contracts.

(f)  The approximate fair value and percentage of net assets, $105,683,000 and 65.9%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in Note A-1 within the Notes to the Financial Statements.

(g)  At December 31, 2022, the aggregate cost for federal income tax purposes is approximately $145,336,000. The aggregate gross unrealized appreciation is approximately $38,165,000 and the aggregate gross unrealized depreciation is approximately $21,458,000, resulting in net unrealized appreciation of approximately $16,707,000.

ADR  American Depositary Receipt.

CVA  Certificaten Van Aandelen.

NYSE  New York Stock Exchange.

TSX  Toronto Stock Exchange.

 
 
 

The accompanying notes are an integral part of the financial statements.
9


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Portfolio of Investments (cont'd)

Active International Allocation Portfolio

Foreign Currency Forward Exchange Contracts:

The Fund had the following foreign currency forward exchange contracts open at December 31, 2022:

Counterparty

  Contracts to
Deliver
(000)
  In Exchange
For
(000)
  Delivery
Date
  Unrealized
Depreciation
(000)
 

Barclays Bank PLC

 

EUR

1,479

   

$

1,585

   

3/16/23

 

$

(6

)

 

Citibank NA

 

EUR

1,593

   

$

1,707

   

3/16/23

   

(7

)

 

Goldman Sachs International

 

EUR

633

   

$

679

   

3/16/23

   

(3

)

 
               

$

(16

)

 

EUR  —  Euro

USD  —  United States Dollar

Portfolio Composition*

Classification

  Percentage of
Total Investments
 

Other**

   

51.8

%

 

Metals & Mining

   

14.4

   

Pharmaceuticals

   

10.8

   

Internet & Direct Marketing Retail

   

6.2

   

Personal Products

   

5.7

   

Semiconductors & Semiconductor Equipment

   

5.7

   

Oil, Gas & Consumable Fuels

   

5.4

   

Total Investments

   

100.0

%***

 

*  Percentages indicated are based upon total investments (excluding Securities held as Collateral on Loaned Securities) as of December 31, 2022.

**  Industries and/or investment types representing less than 5% of total investments.

***  Does not include open foreign currency forward exchange contracts with total unrealized depreciation of approximately $16,000.

 
 

The accompanying notes are an integral part of the financial statements.
10


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Active International Allocation Portfolio

Statement of Assets and Liabilities

  December 31, 2022
(000)
 

Assets:

 

Investments in Securities of Unaffiliated Issuers, at Value(1) (Cost $140,063)

 

$

159,601

   

Investments in Securities of Affiliated Issuer, at Value (Cost $3,152)

   

2,738

   

Total Investments in Securities, at Value (Cost $143,215)

   

162,339

   

Receivable for Investments Sold

   

782

   

Tax Reclaim Receivable

   

289

   

Dividends Receivable

   

112

   

Due from Broker

   

54

   

Receivable for Fund Shares Sold

   

18

   

Receivable from Securities Lending Income

   

8

   

Receivable from Affiliate

   

@

 

Other Assets

   

70

   

Total Assets

   

163,672

   

Liabilities:

 

Collateral on Securities Loaned, at Value

   

2,472

   

Deferred Capital Gain Country Tax

   

245

   

Payable to Bank

   

191

   

Payable for Advisory Fees

   

127

   

Payable for Professional Fees

   

94

   

Payable for Fund Shares Redeemed

   

34

   

Payable for Sub Transfer Agency Fees — Class I

   

14

   

Payable for Sub Transfer Agency Fees — Class A

   

8

   

Payable for Sub Transfer Agency Fees — Class L

   

1

   

Payable for Sub Transfer Agency Fees — Class C

   

@

 

Unrealized Depreciation on Foreign Currency Forward Exchange Contracts

   

16

   

Payable for Shareholder Services Fees — Class A

   

11

   

Payable for Distribution and Shareholder Services Fees — Class L

   

3

   

Payable for Distribution and Shareholder Services Fees — Class C

   

@

 

Payable for Custodian Fees

   

12

   

Payable for Administration Fees

   

11

   

Payable for Transfer Agency Fees

   

@

 

Payable for Transfer Agency Fees — Class I

   

1

   

Payable for Transfer Agency Fees — Class A

   

1

   

Payable for Transfer Agency Fees — Class L

   

1

   

Payable for Transfer Agency Fees — Class C

   

@

 

Payable for Transfer Agency Fees — Class R6*

   

@

 

Payable for Transfer Agency Fees — Class IR

   

@

 

Other Liabilities

   

37

   

Total Liabilities

   

3,279

   

Net Assets

 

$

160,393

   

Net Assets Consist of:

 

Paid-in-Capital

 

$

140,657

   

Total Distributable Earnings

   

19,736

   

Net Assets

 

$

160,393

   
 
 

The accompanying notes are an integral part of the financial statements.
11


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Active International Allocation Portfolio

Statement of Assets and Liabilities (cont'd)

  December 31, 2021
(000)
 

CLASS I:

 

Net Assets

 

$

104,002

   
Shares Outstanding $0.001 par value shares of beneficial interest (unlimited shares authorized) (not in 000's)    

7,534,341

   

Net Asset Value, Offering and Redemption Price Per Share

 

$

13.80

   

CLASS A:

 

Net Assets

 

$

51,769

   
Shares Outstanding $0.001 par value shares of beneficial interest (unlimited shares authorized) (not in 000's)    

3,664,016

   

Net Asset Value, Redemption Price Per Share

 

$

14.13

   

Maximum Sales Load

   

5.25

%

 

Maximum Sales Charge

 

$

0.78

   

Maximum Offering Price Per Share

 

$

14.91

   

CLASS L:

 

Net Assets

 

$

4,129

   
Shares Outstanding $0.001 par value shares of beneficial interest (unlimited shares authorized) (not in 000's)    

295,160

   

Net Asset Value, Offering and Redemption Price Per Share

 

$

13.99

   

CLASS C:

 

Net Assets

 

$

459

   
Shares Outstanding $0.001 par value shares of beneficial interest (unlimited shares authorized) (not in 000's)    

33,081

   

Net Asset Value, Offering and Redemption Price Per Share

 

$

13.89

   

CLASS R6:*

 

Net Assets

 

$

23

   
Shares Outstanding $0.001 par value shares of beneficial interest (unlimited shares authorized) (not in 000's)    

1,649

   

Net Asset Value, Offering and Redemption Price Per Share

 

$

13.82

   

CLASS IR:

 

Net Assets

 

$

11

   
Shares Outstanding $0.001 par value shares of beneficial interest (unlimited shares authorized) (not in 000's)    

814

   

Net Asset Value, Offering and Redemption Price Per Share

 

$

13.81

   
(1) Including:
Securities on Loan, at Value:
 

$

7,419

   

*  Effective April 29, 2022, Class IS shares were renamed Class R6 shares.

@  Amount is less than $500.

 
 

The accompanying notes are an integral part of the financial statements.
12


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Active International Allocation Portfolio

Statement of Operations

  Year Ended
December 31, 2022
(000)
 

Investment Income:

 

Dividends from Securities of Unaffiliated Issuers (Net of $333 of Foreign Taxes Withheld)

 

$

3,892

   

Income from Securities Loaned — Net

   

45

   

Dividends from Securities of Affiliated Issuer (Note G)

   

4

   

Total Investment Income

   

3,941

   

Expenses:

 

Advisory Fees (Note B)

   

1,236

   

Professional Fees

   

255

   

Shareholder Services Fees — Class A (Note D)

   

144

   

Distribution and Shareholder Services Fees — Class L (Note D)

   

33

   

Distribution and Shareholder Services Fees — Class C (Note D)

   

6

   

Administration Fees (Note C)

   

152

   

Sub Transfer Agency Fees — Class I

   

92

   

Sub Transfer Agency Fees — Class A

   

43

   

Sub Transfer Agency Fees — Class L

   

3

   

Sub Transfer Agency Fees — Class C

   

@

 

Registration Fees

   

113

   

Custodian Fees (Note F)

   

57

   

Shareholder Reporting Fees

   

45

   

Transfer Agency Fees — Class I (Note E)

   

10

   

Transfer Agency Fees — Class A (Note E)

   

9

   

Transfer Agency Fees — Class L (Note E)

   

4

   

Transfer Agency Fees — Class C (Note E)

   

3

   

Transfer Agency Fees — Class R6* (Note E)

   

2

   

Transfer Agency Fees — Class IR (Note E)

   

2

   

Pricing Fees

   

8

   

Directors' Fees and Expenses

   

7

   

Interest Expenses

   

1

   

Other Expenses

   

23

   

Total Expenses

   

2,248

   

Waiver of Advisory Fees (Note B)

   

(281

)

 

Reimbursement of Class Specific Expenses — Class I (Note B)

   

(38

)

 

Reimbursement of Class Specific Expenses — Class C (Note B)

   

(2

)

 

Reimbursement of Class Specific Expenses — Class R6* (Note B)

   

(2

)

 

Reimbursement of Class Specific Expenses — Class IR (Note B)

   

(2

)

 

Rebate from Morgan Stanley Affiliate (Note G)

   

(12

)

 

Net Expenses

   

1,911

   

Net Investment Income

   

2,030

   

Realized Gain (Loss):

 

Investments Sold

   

3,555

   

Foreign Currency Forward Exchange Contracts

   

(690

)

 

Foreign Currency Translation

   

(113

)

 

Futures Contracts

   

241

   

Net Realized Gain

   

2,993

   

Change in Unrealized Appreciation (Depreciation):

 

Investments (Net of Increase in Deferred Capital Gain Country Tax of $18)

   

(56,072

)

 

Investments in Affiliates

   

(286

)

 

Foreign Currency Forward Exchange Contracts

   

(32

)

 

Foreign Currency Translation

   

(39

)

 

Net Change in Unrealized Appreciation (Depreciation)

   

(56,429

)

 

Net Realized Gain and Change in Unrealized Appreciation (Depreciation)

   

(53,436

)

 

Net Decrease in Net Assets Resulting from Operations

 

$

(51,406

)

 

*  Effective April 29, 2022, Class IS shares were renamed Class R6 shares.

@  Amount is less than $500.

 
 

The accompanying notes are an integral part of the financial statements.
13


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Active International Allocation Portfolio

Statements of Changes in Net Assets

  Year Ended
December 31, 2022
(000)
  Year Ended
December 31, 2021
(000)
 

Increase (Decrease) in Net Assets:

 

Operations:

 

Net Investment Income

 

$

2,030

   

$

1,791

   

Net Realized Gain

   

2,993

     

18,612

   

Net Change in Unrealized Appreciation (Depreciation)

   

(56,429

)

   

(15,214

)

 

Net Increase (Decrease) in Net Assets Resulting from Operations

   

(51,406

)

   

5,189

   

Dividends and Distributions to Shareholders:

 

Class I

   

(1,796

)

   

(11,586

)

 

Class A

   

(702

)

   

(5,407

)

 

Class L

   

(39

)

   

(381

)

 

Class C

   

(4

)

   

(50

)

 

Class R6*

   

(—

@)

   

(2

)

 

Class IR

   

(—

@)

   

(1

)

 

Total Dividends and Distributions to Shareholders

   

(2,541

)

   

(17,427

)

 

Capital Share Transactions:(1)

 

Class I:

 

Subscribed

   

51,639

     

96,854

   

Distributions Reinvested

   

1,784

     

11,451

   

Redeemed

   

(66,942

)

   

(92,525

)

 

Class A:

 

Subscribed

   

7,349

     

22,358

   

Distributions Reinvested

   

696

     

5,349

   

Redeemed

   

(11,717

)

   

(21,357

)

 

Class L:

 

Exchanged

   

155

     

62

   

Distributions Reinvested

   

39

     

373

   

Redeemed

   

(300

)

   

(386

)

 

Class C:

 

Subscribed

   

126

     

789

   

Distributions Reinvested

   

4

     

50

   

Redeemed

   

(318

)

   

(94

)

 

Class R6:*

 

Subscribed

   

70

     

23

   

Distributions Reinvested

   

@

   

2

   

Redeemed

   

(65

)

   

(4

)

 

Class IR:

 

Distributions Reinvested

   

@

   

1

   

Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions

   

(17,480

)

   

22,946

   

Total Increase (Decrease) in Net Assets

   

(71,427

)

   

10,708

   

Net Assets:

 

Beginning of Period

   

231,820

     

221,112

   

End of Period

 

$

160,393

   

$

231,820

   
 
 

The accompanying notes are an integral part of the financial statements.
14


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Active International Allocation Portfolio

Statements of Changes in Net Assets (cont'd)

  Year Ended
December 31, 2022
(000)
  Year Ended
December 31, 2021
(000)
 

(1) Capital Share Transactions:

 

Class I:

 

Shares Subscribed

   

3,321

     

4,920

   

Shares Issued on Distributions Reinvested

   

130

     

661

   

Shares Redeemed

   

(4,507

)

   

(4,666

)

 

Net Increase (Decrease) in Class I Shares Outstanding

   

(1,056

)

   

915

   

Class A:

 

Shares Subscribed

   

459

     

1,104

   

Shares Issued on Distributions Reinvested

   

49

     

302

   

Shares Redeemed

   

(757

)

   

(1,051

)

 

Net Increase (Decrease) in Class A Shares Outstanding

   

(249

)

   

355

   

Class L:

 

Shares Exchanged

   

11

     

3

   

Shares Issued on Distributions Reinvested

   

3

     

21

   

Shares Redeemed

   

(20

)

   

(19

)

 

Net Increase (Decrease) in Class L Shares Outstanding

   

(6

)

   

5

   

Class C:

 

Shares Subscribed

   

9

     

40

   

Shares Issued on Distributions Reinvested

   

@@

   

3

   

Shares Redeemed

   

(21

)

   

(5

)

 

Net Increase (Decrease) in Class C Shares Outstanding

   

(12

)

   

38

   

Class R6:*

 

Shares Subscribed

   

5

     

1

   

Shares Issued on Distributions Reinvested

   

@@

   

@@

 

Shares Redeemed

   

(5

)

   

(—

@@)

 

Net Increase (Decrease) in Class R6 Shares Outstanding

   

(—

@@)

   

1

   

Class IR:

 

Shares Issued on Distributions Reinvested

   

@@

   

@@

 

*  Effective April 29, 2022, Class IS shares were renamed Class R6 shares.

@  Amount is less than $500.

@@  Amount is less than 500 shares.

 
 

The accompanying notes are an integral part of the financial statements.
15


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Financial Highlights

Active International Allocation Portfolio

   

Class I

 
   

Year Ended December 31,

 

Selected Per Share Data and Ratios

 

2022

 

2021

 

2020

 

2019

 

2018

 

Net Asset Value, Beginning of Period

 

$

17.91

   

$

19.03

   

$

14.59

   

$

12.07

   

$

14.46

   

Income (Loss) from Investment Operations:

 

Net Investment Income(1)

   

0.18

     

0.17

     

0.04

     

0.16

     

0.23

   

Net Realized and Unrealized Gain (Loss)

   

(4.06

)

   

0.24

     

4.41

     

2.54

     

(2.41

)

 

Total from Investment Operations

   

(3.88

)

   

0.41

     

4.45

     

2.70

     

(2.18

)

 

Distributions from and/or in Excess of:

 

Net Investment Income

   

(0.10

)

   

(0.23

)

   

(0.01

)

   

(0.18

)

   

(0.21

)

 

Net Realized Gain

   

(0.13

)

   

(1.30

)

   

     

     

   

Total Distributions

   

(0.23

)

   

(1.53

)

   

(0.01

)

   

(0.18

)

   

(0.21

)

 

Redemption Fees

   

     

     

     

0.00

(2)

   

0.00

(2)

 

Net Asset Value, End of Period

 

$

13.80

   

$

17.91

   

$

19.03

   

$

14.59

   

$

12.07

   

Total Return(3)

   

(21.57

)%

   

2.33

%

   

30.48

%

   

22.41

%

   

(15.14

)%

 

Ratios to Average Net Assets and Supplemental Data:

 

Net Assets, End of Period (Thousands)

 

$

104,002

   

$

153,810

   

$

146,087

   

$

126,860

   

$

119,925

   

Ratio of Expenses Before Expense Limitation

   

1.08

%

   

0.95

%

   

1.02

%

   

0.97

%

   

0.97

%

 

Ratio of Expenses After Expense Limitation

   

0.89

%(4)

   

0.89

%(4)

   

0.89

%(4)

   

0.89

%(4)

   

0.88

%(4)

 

Ratio of Expenses After Expense Limitation Excluding Interest Expenses

   

0.89

%(4)

   

0.89

%(4)

   

0.89

%(4)

   

N/A

     

N/A

   

Ratio of Net Investment Income

   

1.18

%(4)

   

0.87

%(4)

   

0.24

%(4)

   

1.22

%(4)

   

1.67

%(4)

 

Ratio of Rebate from Morgan Stanley Affiliates

   

0.01

%

   

0.01

%

   

0.01

%

   

0.01

%

   

0.02

%

 

Portfolio Turnover Rate

   

25

%

   

39

%

   

37

%

   

34

%

   

43

%

 

(1)  Per share amount is based on average shares outstanding.

(2)  Amount is less than $0.005 per share.

(3)  Calculated based on the net asset value as of the last business day of the period.

(4)  The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."

 
 

The accompanying notes are an integral part of the financial statements.
16


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Financial Highlights

Active International Allocation Portfolio

   

Class A

 
   

Year Ended December 31,

 

Selected Per Share Data and Ratios

 

2022

 

2021

 

2020

 

2019

 

2018

 

Net Asset Value, Beginning of Period

 

$

18.32

   

$

19.43

   

$

14.94

   

$

12.36

   

$

14.79

   

Income (Loss) from Investment Operations:

 

Net Investment Income (Loss)(1)

   

0.13

     

0.11

     

(0.01

)

   

0.11

     

0.19

   

Net Realized and Unrealized Gain (Loss)

   

(4.13

)

   

0.25

     

4.51

     

2.61

     

(2.46

)

 

Total from Investment Operations

   

(4.00

)

   

0.36

     

4.50

     

2.72

     

(2.27

)

 

Distributions from and/or in Excess of:

 

Net Investment Income

   

(0.06

)

   

(0.17

)

   

(0.01

)

   

(0.14

)

   

(0.16

)

 

Net Realized Gain

   

(0.13

)

   

(1.30

)

   

     

     

   

Total Distributions

   

(0.19

)

   

(1.47

)

   

(0.01

)

   

(0.14

)

   

(0.16

)

 

Redemption Fees

   

     

     

     

0.00

(2)

   

0.00

(2)

 

Net Asset Value, End of Period

 

$

14.13

   

$

18.32

   

$

19.43

   

$

14.94

   

$

12.36

   

Total Return(3)

   

(21.77

)%

   

2.03

%

   

30.10

%

   

22.00

%

   

(15.38

)%

 

Ratios to Average Net Assets and Supplemental Data:

 

Net Assets, End of Period (Thousands)

 

$

51,769

   

$

71,668

   

$

69,135

   

$

58,339

   

$

50,726

   

Ratio of Expenses Before Expense Limitation

   

1.34

%

   

1.22

%

   

1.31

%

   

1.25

%

   

1.26

%

 

Ratio of Expenses After Expense Limitation

   

1.18

%(4)

   

1.18

%(4)

   

1.19

%(4)

   

1.22

%(4)

   

1.19

%(4)

 

Ratio of Expenses After Expense Limitation Excluding Interest Expenses

   

1.18

%(4)

   

1.18

%(4)

   

1.19

%(4)

   

N/A

     

N/A

   

Ratio of Net Investment Income (Loss)

   

0.88

%(4)

   

0.55

%(4)

   

(0.06

)%(4)

   

0.82

%(4)

   

1.37

%(4)

 

Ratio of Rebate from Morgan Stanley Affiliates

   

0.01

%

   

0.01

%

   

0.01

%

   

0.01

%

   

0.02

%

 

Portfolio Turnover Rate

   

25

%

   

39

%

   

37

%

   

34

%

   

43

%

 

(1)  Per share amount is based on average shares outstanding.

(2)  Amount is less than $0.005 per share.

(3)  Calculated based on the net asset value which does not reflect sales charges, if applicable, as of the last business day of the period.

(4)  The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income (Loss) reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."

 
 

The accompanying notes are an integral part of the financial statements.
17


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Financial Highlights

Active International Allocation Portfolio

   

Class L

 
   

Year Ended December 31,

 

Selected Per Share Data and Ratios

 

2022

 

2021

 

2020

 

2019

 

2018

 

Net Asset Value, Beginning of Period

 

$

18.16

   

$

19.27

   

$

14.90

   

$

12.32

   

$

14.73

   

Income (Loss) from Investment Operations:

 

Net Investment Income (Loss)(1)

   

0.05

     

0.00

(2)

   

(0.09

)

   

0.05

     

0.13

   

Net Realized and Unrealized Gain (Loss)

   

(4.09

)

   

0.24

     

4.47

     

2.59

     

(2.46

)

 

Total from Investment Operations

   

(4.04

)

   

0.24

     

4.38

     

2.64

     

(2.33

)

 

Distributions from and/or in Excess of:

 

Net Investment Income

   

     

(0.05

)

   

0.01

     

(0.06

)

   

(0.08

)

 

Net Realized Gain

   

(0.13

)

   

(1.30

)

   

     

     

   

Total Distributions

   

(0.13

)

   

(1.35

)

   

(0.01

)

   

(0.06

)

   

(0.08

)

 

Redemption Fees

   

     

     

     

0.00

(2)

   

0.00

(2)

 

Net Asset Value, End of Period

 

$

13.99

   

$

18.16

   

$

19.27

   

$

14.90

   

$

12.32

   

Total Return(3)

   

(22.22

)%

   

1.48

%

   

29.38

%

   

21.43

%

   

(15.87

)%

 

Ratios to Average Net Assets and Supplemental Data:

 

Net Assets, End of Period (Thousands)

 

$

4,129

   

$

5,475

   

$

5,718

   

$

4,644

   

$

4,375

   

Ratio of Expenses Before Expense Limitation

   

1.90

%

   

1.76

%

   

1.86

%

   

1.81

%

   

1.76

%

 

Ratio of Expenses After Expense Limitation

   

1.74

%(4)

   

1.74

%(4)

   

1.74

%(4)

   

1.74

%(4)

   

1.69

%(4)

 

Ratio of Expenses After Expense Limitation Excluding Interest Expenses

   

1.74

%(4)

   

1.74

%(4)

   

1.74

%(4)

   

N/A

     

N/A

   

Ratio of Net Investment Income (Loss)

   

0.32

%(4)

   

0.02

%(4)

   

(0.61

)%(4)

   

0.35

%(4)

   

0.92

%(4)

 

Ratio of Rebate from Morgan Stanley Affiliates

   

0.01

%

   

0.01

%

   

0.01

%

   

0.01

%

   

0.02

%

 

Portfolio Turnover Rate

   

25

%

   

39

%

   

37

%

   

34

%

   

43

%

 

(1)  Per share amount is based on average shares outstanding.

(2)  Amount is less than $0.005 per share.

(3)  Calculated based on the net asset value as of the last business day of the period.

(4)  The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income (Loss) reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."

 
 

The accompanying notes are an integral part of the financial statements.
18


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Financial Highlights

Active International Allocation Portfolio

   

Class C

 
   

Year Ended December 31,

 

Selected Per Share Data and Ratios

 

2022

 

2021

 

2020

 

2019

 

2018

 

Net Asset Value, Beginning of Period

 

$

18.08

   

$

19.22

   

$

14.89

   

$

12.34

   

$

14.77

   

Income (Loss) from Investment Operations:

 

Net Investment Income (Loss)(1)

   

0.01

     

(0.02

)

   

(0.12

)

   

0.00

(2)

   

0.09

   

Net Realized and Unrealized Gain (Loss)

   

(4.07

)

   

0.21

     

4.46

     

2.59

     

(2.45

)

 

Total from Investment Operations

   

(4.06

)

   

0.19

     

4.34

     

2.59

     

(2.36

)

 

Distributions from and/or in Excess of:

 

Net Investment Income

   

     

(0.03

)

   

(0.01

)

   

(0.04

)

   

(0.07

)

 

Net Realized Gain

   

(0.13

)

   

(1.30

)

   

     

     

   

Total Distributions

   

(0.13

)

   

(1.33

)

   

(0.01

)

   

(0.04

)

   

(0.07

)

 

Redemption Fees

   

     

     

     

0.00

(2)

   

0.00

(2)

 

Net Asset Value, End of Period

 

$

13.89

   

$

18.08

   

$

19.22

   

$

14.89

   

$

12.34

   

Total Return(3)

   

(22.43

)%

   

1.23

%

   

29.13

%

   

21.03

%

   

(16.04

)%

 

Ratios to Average Net Assets and Supplemental Data:

 

Net Assets, End of Period (Thousands)

 

$

459

   

$

821

   

$

144

   

$

45

   

$

42

   

Ratio of Expenses Before Expense Limitation

   

2.54

%

   

2.36

%

   

5.66

%

   

7.49

%

   

7.18

%

 

Ratio of Expenses After Expense Limitation

   

1.99

%(4)

   

1.99

%(4)

   

1.99

%(4)

   

1.99

%(4)

   

1.98

%(4)

 

Ratio of Expenses After Expense Limitation Excluding Interest Expenses

   

1.99

%(4)

   

1.99

%(4)

   

1.99

%(4)

   

N/A

     

N/A

   

Ratio of Net Investment Income (Loss)

   

0.05

%(4)

   

(0.09

)%(4)

   

(0.81

)%(4)

   

0.03

%(4)

   

0.67

%(4)

 

Ratio of Rebate from Morgan Stanley Affiliates

   

0.01

%

   

0.01

%

   

0.01

%

   

0.01

%

   

0.02

%

 

Portfolio Turnover Rate

   

25

%

   

39

%

   

37

%

   

34

%

   

43

%

 

(1)  Per share amount is based on average shares outstanding.

(2)  Amount is less than $0.005 per share.

(3)  Calculated based on the net asset value which does not reflect sales charges, if applicable, as of the last business day of the period.

(4)  The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income (Loss) reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."

 
 

The accompanying notes are an integral part of the financial statements.
19


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Financial Highlights

Active International Allocation Portfolio

   

Class R6(1)

 
   

Year Ended December 31,

  Period from
October 31, 2019(2) to
 

Selected Per Share Data and Ratios

 

2022

 

2021

 

2020

 

December 31, 2019

 

Net Asset Value, Beginning of Period

 

$

17.91

   

$

19.04

   

$

14.59

   

$

13.79

   

Income (Loss) from Investment Operations:

 

Net Investment Income(3)

   

0.21

     

0.18

     

0.04

     

0.00

(4)

 

Net Realized and Unrealized Gain (Loss)

   

(4.06

)

   

0.23

     

4.42

     

0.98

   

Total from Investment Operations

   

(3.85

)

   

0.41

     

4.46

     

0.98

   

Distributions from and/or in Excess of:

 

Net Investment Income

   

(0.11

)

   

(0.24

)

   

(0.01

)

   

(0.18

)

 

Net Realized Gain

   

(0.13

)

   

(1.30

)

   

     

   

Total Distributions

   

(0.24

)

   

(1.54

)

   

(0.01

)

   

(0.18

)

 

Net Asset Value, End of Period

 

$

13.82

   

$

17.91

   

$

19.04

   

$

14.59

   

Total Return(5)

   

(21.45

)%

   

2.39

%

   

30.55

%

   

7.15

%(7)

 

Ratios to Average Net Assets and Supplemental Data:

 

Net Assets, End of Period (Thousands)

 

$

23

   

$

32

   

$

14

   

$

11

   

Ratio of Expenses Before Expense Limitation

   

5.55

%

   

10.73

%

   

21.16

%

   

14.33

%(8)

 

Ratio of Expenses After Expense Limitation

   

0.84

%(6)

   

0.84

%(6)

   

0.84

%(6)

   

0.84

%(6)(8)

 

Ratio of Expenses After Expense Limitation Excluding Interest Expenses

   

0.84

%(6)

   

0.84

%(6)

   

0.84

%(6)

   

N/A

   

Ratio of Net Investment Income

   

1.41

%(6)

   

0.89

%(6)

   

0.28

%(6)

   

0.18

%(6)(8)

 

Ratio of Rebate from Morgan Stanley Affiliates

   

0.01

%

   

0.01

%

   

0.01

%

   

0.01

%(8)

 

Portfolio Turnover Rate

   

25

%

   

39

%

   

37

%

   

34

%

 

(1)  Effective April 29, 2022, Class IS shares were renamed Class R6 shares.

(2)  Commencement of Offering.

(3)  Per share amount is based on average shares outstanding.

(4)  Amount is less than $0.005 per share.

(5)  Calculated based on the net asset value as of the last business day of the period.

(6)  The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."

(7)  Not annualized.

(8)  Annualized.

 
 

The accompanying notes are an integral part of the financial statements.
20


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Financial Highlights

Active International Allocation Portfolio

   

Class IR

 
   

Year Ended December 31,

  Period from
October 31, 2019(1) to
 

Selected Per Share Data and Ratios

 

2022

 

2021

 

2020

 

December 31, 2019

 

Net Asset Value, Beginning of Period

 

$

17.91

   

$

19.04

   

$

14.59

   

$

13.79

   

Income (Loss) from Investment Operations:

 

Net Investment Income(2)

   

0.18

     

0.18

     

0.04

     

0.00

(3)

 

Net Realized and Unrealized Gain (Loss)

   

(4.04

)

   

0.23

     

4.42

     

0.98

   

Total from Investment Operations

   

(3.86

)

   

0.41

     

4.46

     

0.98

   

Distributions from and/or in Excess of:

 

Net Investment Income

   

(0.11

)

   

(0.24

)

   

(0.01

)

   

(0.18

)

 

Net Realized Gain

   

(0.13

)

   

(1.30

)

   

     

   

Total Distributions

   

(0.24

)

   

(1.54

)

   

(0.01

)

   

(0.18

)

 

Net Asset Value, End of Period

 

$

13.81

   

$

17.91

   

$

19.04

   

$

14.59

   

Total Return(4)

   

(21.51

)%

   

2.39

%

   

30.55

%

   

7.15

%(6)

 

Ratios to Average Net Assets and Supplemental Data:

 

Net Assets, End of Period, (Thousands)

 

$

11

   

$

14

   

$

14

   

$

11

   

Ratio of Expenses Before Expense Limitation

   

18.22

%

   

14.38

%

   

20.70

%

   

14.33

%(7)

 

Ratio of Expenses After Expense Limitation

   

0.84

%(5)

   

0.84

%(5)

   

0.84

%(5)

   

0.84

%(5)(7)

 

Ratios of Expenses After Expense Limitation Excluding Interest Expenses

   

0.84

%(5)

   

0.84

%(5)

   

0.84

%(5)

   

N/A

   

Ratio of Net Investment Income

   

1.21

%(5)

   

0.92

%(5)

   

0.29

%(5)

   

0.18

%(5)(7)

 

Ratio of Rebate from Morgan Stanley Affiliates

   

0.01

%

   

0.01

%

   

0.01

%

   

0.01

%(7)

 

Portfolio Turnover Rate

   

25

%

   

39

%

   

37

%

   

34

%

 

(1)  Commencement of Offering.

(2)  Per share amount is based on average shares outstanding.

(3)  Amount is less than $0.005 per share.

(4)  Calculated based on the net asset value as of the last business day of the period.

(5)  The Ratio of Expenses After Expense Limitation and Ratio of Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates."

(6)  Not annualized.

(7)  Annualized.

 
 

The accompanying notes are an integral part of the financial statements.
21


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Notes to Financial Statements

Morgan Stanley Institutional Fund, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Company is comprised of thirty-three separate, active, diversified and non-diversified funds (individually referred to as a "Fund," collectively as the "Funds"). The Company applies investment company accounting and reporting guidance Accounting Standards Codification ("ASC") Topic 946.

The accompanying financial statements relate to the Active International Allocation Portfolio. The Fund seeks long-term capital appreciation.

The Fund offers six classes of shares — Class I, Class A, Class L, Class C, Class R6 and Class IR. On April 30, 2015, the Fund suspended offering of Class L shares. Existing Class L shareholders may invest through reinvestment of dividends and distributions. In addition, Class L shares of the Fund may be exchanged for Class L shares of any Morgan Stanley Multi-Class Fund, even though Class L shares are closed to investors. Effective April 29, 2022, Class IS shares were renamed Class R6 shares.

A. Significant Accounting Policies: The following significant accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). Such policies are consistently followed by the Company in the preparation of its financial statements. GAAP 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: (1) An equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), and if there were no sales on a given day and if there is no official exchange closing price for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant exchanges. If only bid prices are available then the latest bid price may be used. Listed equity securities not traded on the valuation date with no reported bid and asked prices available on the exchange are valued at the mean between the current bid and asked prices obtained from one or more reputable brokers/dealers. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market;

(2) all other equity portfolio securities for which over-the-counter ("OTC") market quotations are readily available are valued at the latest reported sales price (or at the market official closing price if such market reports an official closing price), and if there was no trading in the security on a given day and if there is no official closing price from relevant markets for that day, the security is valued at the mean between the last reported bid and asked prices if such bid and asked prices are available on the relevant markets. An unlisted equity security that does not trade on the valuation date and for which bid and asked prices from the relevant markets are unavailable is valued at the mean between the current bid and asked prices obtained from one or more reputable brokers/dealers; (3) listed options are valued at the last reported sales price on the exchange on which they are listed (or at the exchange official closing price if such exchange reports an official closing price). If an official closing price or last reported sales price is unavailable, the listed option should be fair valued at the mean between its latest bid and ask prices. Unlisted options are valued at the mean between their latest bid and ask prices from a broker/dealer or valued by a pricing service/vendor; (4) fixed income securities may be valued by an outside pricing service/vendor approved by the Company's Board of Directors (the "Directors"). The pricing service/vendor may employ a pricing model that takes into account, among other things, bids, yield spreads and/or other market data and specific security characteristics. If Morgan Stanley Investment Management Inc. (the "Adviser"), a wholly-owned subsidiary of Morgan Stanley, determines that the price provided by the outside pricing service/vendor does not reflect the security's fair value or is unable to provide a price, prices from brokers/dealers may also be utilized. In these circumstances, the value of the security will be the mean of bid and asked prices obtained from brokers/dealers; (5) futures are valued at the settlement price on the exchange on which they trade or, if a settlement price is unavailable, at the last sale price on the exchange; (6) when market quotations are not readily available, as defined by Rule 2a-5 under the Act, including circumstances under which the Adviser determines that the closing price, last sale price or the mean between the last reported bid and asked prices are not reflective of a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures approved by and under the general supervision of the Directors. Occasionally, developments affecting the

 
 


22


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Notes to Financial Statements (cont'd)

closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business of the New York Stock Exchange ("NYSE"). If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Directors or by the Adviser using a pricing service and/or procedures approved by the Directors; (7) foreign exchange transactions ("spot contracts") and foreign exchange forward contracts ("forward contracts") are valued daily using an independent pricing vendor at the spot and forward rates, respectively, as of the close of the NYSE; and (8) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day.

In connection with Rule 2a-5 of the Act, which became effective September 8, 2022, the Directors have designated the Company's Adviser as its valuation designee. The valuation designee has responsibility for determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Directors. Under procedures approved by the Directors, the Company's Adviser, as valuation designee, has formed a Valuation Committee whose members are approved by the Directors. The Valuation Committee provides administration and oversight of the Company's valuation policies and procedures, which are reviewed at least annually by the Directors. These procedures allow the Company to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.

2.  Fair Value Measurement: Financial Accounting Standards Board ("FASB") ASC 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the price that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing an asset or liability developed based on market data obtained from sources independent of the reporting entity

(observable inputs) and (2) inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in valuing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund's investments. The inputs are summarized in the three broad levels listed below:

•  Level 1 – unadjusted quoted prices in active markets for identical investments

•  Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

•  Level 3 – significant unobservable inputs including the Fund's own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.

The following is a summary of the inputs used to value the Fund's investments as of December 31, 2022:

Investment Type

  Level 1
Unadjusted
quoted
prices
(000)
  Level 2
Other
significant
observable
inputs
(000)
  Level 3
Significant
unobservable
inputs
(000)
  Total
(000)
 

Assets:

 

Common Stocks

 

Aerospace & Defense

 

$

   

$

2,967

   

$

   

$

2,967

   

Airlines

   

1,573

     

     

     

1,573

   

Banks

   

4,459

     

2,341

     

     

6,800

   

Beverages

   

     

4,795

     

     

4,795

   

Biotechnology

   

1,930

     

     

     

1,930

   
 
 


23


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Notes to Financial Statements (cont'd)

Investment Type

  Level 1
Unadjusted
quoted
prices
(000)
  Level 2
Other
significant
observable
inputs
(000)
  Level 3
Significant
unobservable
inputs
(000)
  Total
(000)
 

Common Stocks (cont'd)

 

Chemicals

 

$

868

   

$

5,704

   

$

   

$

6,572

   

Electrical Equipment

   

     

436

     

     

436

   
Electronic Equipment,
Instruments &
Components
   

     

2,174

     

     

2,174

   
Energy Equipment &
Services
   

2,437

     

1,360

     

     

3,797

   

Entertainment

   

3,709

     

2,343

     

     

6,052

   

Food Products

   

     

3,677

     

     

3,677

   
Health Care Equipment &
Supplies
   

1,786

     

2,759

     

     

4,545

   
Health Care Providers &
Services
   

     

1,014

     

     

1,014

   
Hotels, Restaurants &
Leisure
   

2,602

     

     

     

2,602

   

Household Durables

   

1,695

     

5,678

     

     

7,373

   

Household Products

   

     

429

     

     

429

   
Information Technology
Services
   

     

985

     

     

985

   

Insurance

   

     

647

     

     

647

   
Interactive Media &
Services
   

2,133

     

3,164

     

     

5,297

   
Internet & Direct
Marketing Retail
   

9,900

     

69

     

     

9,969

   

Leisure Products

   

     

577

     

     

577

   

Machinery

   

     

3,531

     

     

3,531

   

Metals & Mining

   

11,089

     

11,927

     

     

23,016

   
Oil, Gas & Consumable
Fuels
   

620

     

7,949

     

     

8,569

   

Personal Products

   

2,670

     

6,466

     

     

9,136

   

Pharmaceuticals

   

     

17,217

     

     

17,217

   

Professional Services

   

     

3,013

     

     

3,013

   

Road & Rail

   

3,234

     

     

     

3,234

   
Semiconductors &
Semiconductor
Equipment
   

1,652

     

7,436

     

     

9,088

   
Tech Hardware, Storage &
Peripherals
   

     

4,383

     

     

4,383

   
Textiles, Apparel &
Luxury Goods
   

     

2,642

     

     

2,642

   

Total Common Stocks

   

52,357

     

105,683

     

     

158,040

   

Investment Type

  Level 1
Unadjusted
quoted
prices
(000)
  Level 2
Other
significant
observable
inputs
(000)
  Level 3
Significant
unobservable
inputs
(000)
  Total
(000)
 

Preferred Stock

 

Biotechnology

 

$

   

$

   

$

1,174

   

$

1,174

   

Investment Company

   

653

     

     

     

653

   

Short-Term Investments

 

Investment Company

   

2,085

     

     

     

2,085

   

Repurchase Agreements

   

     

387

     

     

387

   
Total Short-Term
Investments
   

2,085

     

387

     

     

2,472

   

Total Assets

   

55,095

     

106,070

     

1,174

     

162,339

   

Liabilities:

 
Foreign Currency
Forward Exchange
Contracts
   

     

(16

)

   

     

(16

)

 

Total

 

$

55,095

   

$

106,054

   

$

1,174

   

$

162,323

   

Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes.

Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:

    Common
Stock
(000)
  Preferred
Stock
(000)
 

Beginning Balance

 

$

@

 

$

1,250

   

Purchases

   

     

   

Sales

   

(—

)†

   

   

Amortization of discount

   

     

   

Transfers in

   

     

   

Transfers out

   

     

   

Corporate actions

   

     

   

Change in unrealized appreciation (depreciation)

   

     

(76

)

 

Realized gains (losses)

   

(—

@)

   

   

Ending Balance

 

$

   

$

1,174

   
Net change in unrealized appreciation
(depreciation) from investments still
held as of December 31, 2022
 

$

   

$

(76

)

 

@  Value is less than $500.

†  Includes a security valued at zero.

 
 

The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 as of December 31, 2022:

    Fair Value at
December 31, 2022
(000)
  Valuation
Technique
  Unobservable
Input
 

Amount

  Impact to
Valuation from an
Increase in Input*
 

Preferred Stock

 

$

1,174

   

Market Transaction Method

 

Precedent Transaction

 

$

38.24

   

Increase

 

*  Represents the expected directional change in the fair value of the Level 3 investments that would result from an increase in the corresponding input. A decrease to the unobservable input would have the opposite effect. Significant changes in these inputs could result in significantly higher or lower fair value measurements.


24


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Notes to Financial Statements (cont'd)

3.  Repurchase Agreements: The Fund may enter into repurchase agreements under which the Fund lends 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 that the value of the collateral does not decrease below the repurchase price plus accrued interest as earned. If such a decrease occurs, additional collateral will be requested and, when received, will be added to the account to maintain full collateralization. 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 of the collateral proceeds may be subject to cost and delays. The Fund, 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 as follows:

–  investments, other assets and liabilities at the prevailing rate of exchange on the valuation date;

–  investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions.

Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, the Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of 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 forward exchange contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. The change in unrealized currency gains (losses) on foreign currency transactions for the period is reflected in 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 governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.

Governmental approval for foreign investments may be required in advance of making an investment under certain circumstances in some countries, and the extent of foreign investments in U.S. 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 Portfolio of Investments) 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.

5.  Derivatives: The Fund may, but is not required to, use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. Derivative instruments used by the Fund

 
 


25


 

Morgan Stanley Institutional Fund, Inc.

Annual Report — December 31, 2022

Notes to Financial Statements (cont'd)