Morgan Stanley Institutional Fund

Emerging Markets Leaders PortfolioEmerging Markets Leaders Portfolio

Performance ReviewPerformance Review

In the quarter period ending March 31, 2018, the Portfolio’s I shares returned 0.00% (net of fees) , while the benchmark returned 1.42%.

The biggest contributor to performance was our position in sportswear company Adidas (3.70% of the portfolio), which reported a pick-up inrevenue growth and strength in its China business. South African quick-service restaurant company Famous Brands (3.93%) also contributed toperformance, rebounding following the election of President Cyril Ramaphosa at the African National Congress (ANC) elective conference inDecember. Peruvian financial Credicorp (4.33%) also contributed for the quarter.

The biggest detractor from performance was our position in Indian hospital company Apollo Hospitals (5.56%), which gave back some gains afterstrong performance in the fourth quarter. Indian consumer electrical company Crompton Greaves Consumer Electricals (2.38%) also detractedfollowing a sharp rally in the fourth quarter. Korean furniture company Hanssem (2.41%) was an additional detractor for the quarter after reportingdisappointing fourth quarter results.

Market ReviewMarket Review

The MSCI Emerging Markets Index returned +1.42% in the first quarter, outperforming the MSCI World Index at -1.28%. Energy (+7.51%), health care(+7.04%) and financials (+4.19%) were the top-performing sectors, while consumer discretionary (-6.12%), telecommunications (-3.70%) and realestate (-2.66%) lagged. From a country perspective, the top-performing markets were Brazil (+12.36%), Pakistan (+11.44%) and Egypt (+10.87%).Laggards were the Philippines (-11.57%), Poland (-8.18%) and Indonesia (-7.18%).

Portfolio ActivityPortfolio Activity

We made a few changes to the portfolio during the quarter. We initiated a position in Despegar (1.67%), the leading online travel agent in LatinAmerica. Latin America is a $100 billion travel market growing at 6 to 7%, with only 30% online penetration, a much lower rate than the U.S.,Europe and Asia. Despegar is a play on the structural growth of the travel market, with growing online penetration. Despegar has been outpacingthat growth by gaining market share. We believe the company is well-positioned to compete in the market with a better product offering and hugefirst-mover advantage. The complexities and unique characteristics of the Latin American market, including bookings on installments, preferencesfor vacation packages, a fragmented supplier base and different tax regimes across 20 different markets, create significant entry barriers.

We initiated a position in Indian financial L&T Finance (3.36%). L&T Finance has three broad growth verticals: infrastructure, housing and rural. Theyhave sharply defined focuses in each vertical: within rural on two wheelers, microfinance and tractors; within housing on developer financing andretail housing; and in infrastructure on pockets like renewable energy, transmission & distribution, and road refinance. Management is increasinglyconcentrating on building the rural and housing businesses, verticals with a higher return on equity (ROE).

We also established a position in KBank (1.25%) in Thailand. We expect lending growth to pick up as Thailand gross domestic product (GDP)improves led by investments. KBank has over two-thirds exposure to business lending, is the leader in technology investments and is a few yearsahead of their competitors in digital banking. Bad-debt expenses have peaked and are falling. We expect earnings growth to be 17 to 20% and ROEto improve over the next few years.

During the quarter, we exited our position in Russian food retailer Magnit. The founder sold his stake to a Russian state-owned bank, and we donot have confidence in the bank’s corporate governance practices and respect for minority shareholders. We also sold our position in Taiwaneseauto-part company Superalloy as there were unexpected management changes, and we have lost confidence in management’s strategy. In SouthAfrica, we sold our position in hospital company Life Healthcare where the growth profile has deteriorated following poor capital allocationdecisions by the company. In Mexico, we sold our position in Mexican beverage producer and food retailer FEMSA ahead of upcoming elections.

During the period, we also exited a few positions where we saw limited upside, selling market expansion company DKSH, Brazilian financialBrandesco and global beverage company AB-Inbev, and preferring to rotate the capital to positions where we see higher upside potential.

Source: Morgan Stanley Investment Management. Data as of March 31, 2018.

This document constitutes a commentary and does not constitute investment advice nor a recommendation to invest. The value of investments mayrise as well as fall. Independent advice should be sought before any decision to invest.

ACTIVE FUNDAMENTAL EQUITY | ACTIVE FUNDAMENTAL EQUITY | EMERGING MARKETS TEAM | EMERGING MARKETS TEAM | COMMENTARY | COMMENTARY | MARCH 31 , 2018MARCH 31 , 2018

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OutlookOutlook

While the world has engaged in global reflation since July 2016, we believe there are constraints to the sustainability of such high levels. Globalgrowth in 2017 exceeded its trend rate since 2012. We think it will revert closer to its five-year trend owing to fundamental constraints imposed bydemographic challenges and lower productivity levels. We believe investors will increasingly come to understand—and markets will reflect—thatdifferent regions of the world are at different stages of the current business cycle. The United States is now nine years into recovery, nearing fullemployment with interest rates rising. China is tightening to correct financial imbalances. Most emerging markets (EM) ex-China are experiencing aneconomic recovery that is just beginning after a long economic adjustment.

An overdue correction could produce a shift toward sectors and countries that have been overlooked and underperformed last year—wheninvestors were all-consumed by the tech story. Beyond any correction, what is expected to keep EM equities in good health as an asset class overthe next four to five years is that for EM in aggregate, the EM current account is in surplus and the capital account is no longer negative, placing theasset class in better shape to sustain what has been a well-signaled and gradually rising U.S. interest rate environment. This has been a well-signaled U.S. rate hike cycle and the Federal Reserve’s moves have been only 25 basis points at a time—in sharp contrast to the abrupt and largerrate hikes that occurred in the 1990s and early 2000s. EM equities historically perform well when EM economic differentials are rising relative todeveloped countries, and we expect this trend—which began in 2016—to continue.

Historically, volatility has risen with some lag following Federal Reserve interest rate hikes, and 2018 is the year in which volatility is likely toincrease at some point. We believe we are well-positioned to provide a measure of protection on the downside in the volatile environment weexpect this year. We also note that historically, when country and sector outperformance concentration is as narrow as it was in 2017—whenChina, Korea and technology dominated the EM index—those same countries and sectors tend to produce middling relative returns in subsequentperiods. We also have exposure to high-quality small- and mid-cap companies, which lagged the domination of mega-cap companies’ performance in2017.

Our portfolio continues to own high-quality growth businesses in countries where export dependency is limited, domestic consumer demand isstrong and credit growth is in healthy early stages. We own technology companies which are growing for structural reasons, while we avoid morecyclical tech plays. We favor consumer plays benefiting from healthy domestic demand and believe there is rising demand for health care, traveland leisure activities.

FUND FACTSFUND FACTSLaunch dateJune 30, 2011

Base currencyU.S. dollars

IndexMSCI Emerging Markets Net Index

RISK CONSIDERATIONS

There is no assurance that a portfolio will achieve its investmentobjective. Portfolios are subject to market risk, which is the possibilitythat the market values of securities owned by the portfolio willdecline. Accordingly, you can lose money investing. Please be awarethat this portfolio may be subject to certain additional risks. In general,equities securities’ values also fluctuate in response to activitiesspecific to a company. Investments in foreign markets entail specialrisks such as currency, political, economic, market and liquidity risks.The risks of investing in emerging market countries are greater thanthe risks generally associated with investments in foreign developedcountries. Stocks of small- and medium-capitalization companiesentail special risks, such as limited product lines, markets, and financialresources, and greater market volatility than securities of larger, more-established companies. Derivative instruments can be illiquid, maydisproportionately increase losses and may have a potentially largenegative impact on the Portfolio’s performance. Illiquid securitiesmay be more difficult to sell and value than public traded securities(liquidity risk). Nondiversified portfolios often invest in a more limitednumber of issuers. As such, changes in the financial condition ormarket value of a single issuer may cause greater volatility.

INDEX INFORMATION

The MSCI Emerging Markets Net Index is a free float-adjustedmarket capitalization weighted index that is designed to measureequity market performance of emerging markets. The term “free

float” represents the portion of shares outstanding that are eemed tobe available for purchase in the public equity markets by investors. TheMSCI Emerging Markets Index currently consists of 24 emerging-market country indices. The performance of the index is listed inU.S. dollars and assumes reinvestment of net dividends.

The MSCI World Index is a free float-adjusted market capitalizationweighted index that is designed to measure the global equity marketperformance of developed markets. The term “free float” representsthe portion of shares outstanding that are deemed to be available forpurchase in the public equity markets by investors. The MSCI WorldIndex currently consists of 23 developed market country indexes. Theperformance of the Index is listed in U.S. dollars andassumes reinvestment of net dividends.

The Indexes are unmanaged and do not include any expenses, fees orsales charges. It is not possible to invest directly in an Index.

IMPORTANT INFORMATION

The views and opinions expressed are those of the portfoliomanagement team at the time of writing and are subject to change atany time due to market, economic, or other conditions, and may notnecessarily come to pass. These comments are not representative ofthe opinions and views of the firm as a whole. Holdings andsectors/region weightings are subject to change daily. All informationprovided is for informational purposes only and should not be deemedas a recommendation to buy or sell securities in the sectors andregions referenced.

Performance (%)

As of date March 31, 2018 (Class I Share at NAV)

MTDMTD QTDQTD YTDYTD 1 YR1 YR 3 YR3 YR 5 YR5 YR 10 YR10 YR SINCE INCEPTIONSINCE INCEPTION

MSIF Emerging Markets Leaders Portfolio - I Shares 0.66 0.00 0.00 13.52 5.60 3.03 -- 4.31

MSCI Emerging Markets Net Index (1.86) 1.42 1.42 24.93 8.81 4.99 -- 2.73

Performance data quoted represents past performance, which is no guarantee of future results, and current performance may belower or higher than the figures shown. For the most recent month end performance figures, please visit morganstanley.com/im.Investment returns and principal value will fluctuate and fund shares, when redeemed, may be worth more or less than theiroriginal cost.

The gross expense ratio is 1.35% for Class I shares and the net expense ratio is 1.15%. Where the net expense ratio is lower than thegross expense ratio, certain fees have been waived and/or expenses reimbursed. These waivers and/or reimbursements willcontinue for at least one year from the date of the applicable fund's current prospectus (unless otherwise noted in the applicableprospectus) or until such time as the fund's Board of Directors acts to discontinue all or a portion of such waivers and/orreimbursements. Absent such waivers and/or reimbursements, returns would have been lower. Expenses are based on the fund'scurrent prospectus. The minimum initial investment is $5,000,000.

Returns are net of fees and assume the reinvestment of all dividends and income. They are compared to an unmanaged market index. Returns forless than one year are cumulative (not annualized). Performance for one year or more is based on average annual total returns. The returns arereported for Class I shares. Performance for other share classes will vary.

Pursuant to an agreement and plan of reorganization, between the fund, on behalf of the Emerging Markets Leaders Portfolio (the “Portfolio”), andMorgan Stanley Emerging Markets Leaders Fund (Cayman) LP (the “Private Fund”), a private fund managed by Morgan Stanley InvestmentManagement Inc., the Portfolio’s adviser, on January 6, 2015, the Portfolio acquired substantially all of the assets and liabilities of the Private Fund inexchange for shares of the Portfolio (the “Reorganization”). The Private Fund commenced operations on June 30, 2011, and had an investmentobjective, policies , and strategies that were, in all material respects, the same as those of the Portfolio, and was managed in a manner that, in allmaterial respects, complied with the investment guidelines and restrictions of the Portfolio. However, the Private Fund was not registered as aninvestment company under the Investment Company Act of 1940 (the “1940 Act”), and therefore was not subject to certain investment limitations,diversification requirements, liquidity requirements, and other restrictions imposed by the 1940 Act and the Internal Revenue Code of 1986, asamended, which, if applicable, may have adversely affected its performance . The Portfolio adopted the performance history of the Private Fund. Asa result, the historical performance information shown reflects, for the periods prior to the Reorganization, the historical performance of thePrivate Fund. The performance of the Private Fund has been restated to reflect any applicable sales charge but is otherwise not adjusted to reflectdifferences in expenses between the Private Fund and each Class. If adjusted to reflect such difference in expenses, returns would be different.

This material is a general communication, which is not impartial and allinformation provided has been prepared solely for informational andeducational purposes and does not constitute an offer or arecommendation to buy or sell any particular security or to adopt anyspecific investment strategy. The information herein has not been basedon a consideration of any individual investor circumstances and is notinvestment advice, nor should it be construed in any way as tax,accounting, legal or regulatory advice. To that end, investors shouldseek independent legal and financial advice, including advice as to taxconsequences, before making any investment decision.

Please consider the investment objectives, risks, charges andexpenses of the fund carefully before investing. The prospectus

contains this and other information about the fund. To obtain aprospectus, contact your financial advisor or download one atmorganstanley.com/im. Please read the prospectus carefully beforeinvesting.

Morgan Stanley Investment Management is the asset managementdivision of Morgan Stanley.

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