<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 1999
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 0.7%
Belgium 1.5%
Canada 2.0%
Denmark 0.5%
France 9.4%
Germany 4.8%
Ireland 2.4%
Italy 2.7%
Japan 8.9%
Netherlands 4.3%
Portugal 0.7%
Spain 3.4%
Sweden 1.0%
Switzerland 8.1%
United Kingdom 11.0%
United States 31.5%
Other 7.1%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
PERCENT
OF
NET
SECURITY COUNTRY ASSETS
- ---------------------------------------- --------------- ---------
<S> <C> <C>
Cie Financiere Richemont, AG Switzerland 3.5%
Phillip Morris Cos., Inc. United States 3.4
Albertson's, Inc. United States 3.0
Nippon Telegraph & Telephone Japan 3.0
Nestle (Registered) Switzerland 2.7
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD
INDEX(1)
- ------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------
AVERAGE
ANNUAL
ONE SINCE
YTD YEAR INCEPTION
---------- ---------- -------------
<S> <C> <C> <C>
PORTFOLIO............................... 3.65% 4.85% 14.85%
INDEX................................... 8.51 15.67 19.98
</TABLE>
1. The MSCI World Index is an unmanaged index of common stocks and includes
securities representative of the market structure of 22 developed market
countries in North America, Europe, and the Asia/Pacific region (includes
dividends).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
<TABLE>
<CAPTION>
TOP FIVE SECTORS
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- ---------------------------------------- ------------ ------------
<S> <C> <C>
Consumer Products $ 11,812 24.8%
Services 8,233 17.3
Finance 7,996 16.8
Capital Equipment 7,734 16.2
Materials 3,108 6.5
</TABLE>
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK
CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
The Global Equity Portfolio seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including U.S.
issuers, using an approach that is oriented to the selection of individual
stocks that the Adviser believes are undervalued.
For the six months ended June 30, 1999, the Portfolio had a total return of
3.65% compared to 8.51% for the Morgan Stanley Capital International (MSCI)
World Index (the "Index"). For the one year ended June 30, 1999, the Portfolio
had a total return of 4.85% compared to 15.67% for the Index. For the period
since inception on January 2, 1997 through June 30, 1999, the Portfolio had an
average annual total return of 14.85% compared to 19.98% for the Index.
After a difficult first quarter, the second quarter of 1999 was a rewarding one
for value investors. The stronger than expected global growth that emerged over
the quarter and led the Federal Reserve to raise interest rates by 25 basis
points to 5%, changed the leadership of the global equity market. Mega cap
growth stocks have dominated globally since the third quarter of 1998,
especially in the U.S. However, Mega caps underperformed the Index when
confronted with higher interest rates, some earnings disappointments and
recognition of sublime valuation.
Pharmaceutical and technology stocks had been sought after for their rising
top-line growth in a deflationary world. From early April, investor interest
turned to companies with operating leverage to the economy. Low quality also
outperformed in the second quarter, evidenced by the 18% return of "B" credit
rated companies in the U.S. compared to a 5% return for "A+" rated companies.
With the economy turning more positive, investors felt more comfortable
exploiting the unprecedented valuation gap of small and mid caps relative to big
index stocks.
The small and mid cap rally in the second quarter of 1999 has given us an
opportunity to modestly reduce our large overweighting to the segment, although
the continued valuation gap still warrants an overweighting. New ideas, however,
have been concentrated in the large cap $5-$100 billion
1
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
range although relative weakness of the mega cap segment so far in 1999 may
provide opportunities in the coming months. Our underweight to mega cap remains
our largest disagreement with the market. The average price-earnings (IBES one
year forecast) for the group is 47. The average price/cash flow ratio in this
group is 27 versus 15 for the Index and 10 for the Portfolio.
Our industry weights are little changed from the beginning of the year. Consumer
defensive staples are heavily overweighted due to their cash generative
franchises and current attractive free cash flow valuations. Pharmaceutical and
technology are underweighted on valuation and franchise risk concerns. The
Portfolio is roughly neutral weight toward interest rate sensitive sectors
(overweight insurance, underweight banks, and overweight utilities).
There has been little change to the geographic weights derived from our bottom
up stock selection. The U.S. remains underweighted due to the still high
valuation of the important mega cap stocks in that market. In the U.S., we have
reduced, on strong outperformance, our cyclical exposure (Alcoa, Boise Cascade,
Georgia Pacific) and technology exposure (Data General & GenRad). Rite-Aid, a
drug retailer, and U.S. Bancorp were added in the U.S.
The Portfolio is slightly underweight in Japan. Over the period, our
pharmaceutical exposure shifted following a switch out of Fujisawa (reached
price target) into existing holding Daiichi Pharmaceutical. We also sold
Matsushita and TDK while adding to positions in Nippon Telegraph & Telephone,
Fuji Photo and Kao.
The Portfolio is overweight both Euro and Non-Euro bloc regions. Given the
weakness of the Euro in the second quarter of 1999 (-4.3%), our Euroland
exposure has benefited from a partial hedge of our overweighted position back to
dollars. Valuation continues to be attractive relative to the U.S. and Japan.
Two new ideas Pernod Ricard (spirits, France) and J. Sainsbury (supermarket,
U.K.) were purchased in the quarter.
July 1999
2
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------
COMMON STOCKS (92.5%)
AUSTRALIA (0.7%)
117,900 CSR Ltd.......................................... $ 336
-------
BELGIUM (1.5%)
5,240 Delhaize-Le Lion................................. 447
6,790 G.I.B. Group..................................... 253
-------
700
-------
CANADA (2.0%)
15,897 BCT. Telus Communications, Inc................... 382
5,299 BCT. Telus Communications, Inc., Class A......... 125
9,050 Potash Corp. of Saskatchewan, Inc................ 468
-------
975
-------
DENMARK (0.5%)
5,150 Danisco A.S...................................... 232
-------
FRANCE (9.4%)
1,120 Bongrain......................................... 423
6,240 Elf Aquitaine.................................... 917
3,300 France Telecom................................... 250
3,910 Groupe Danone.................................... 1,009
5,040 Michelin (C.G.D.E.), Class B..................... 206
6,180 Pernod Ricard.................................... 415
15,950 Rhone-Poulence, Class A.......................... 730
10,300 Scor............................................. 512
-------
4,462
-------
GERMANY (4.4%)
16,400 BASF AG.......................................... 721
8,580 Bayer AG......................................... 358
11,270 VEBA AG.......................................... 666
158 Viag AG.......................................... 73
4,140 Volkswagen AG.................................... 267
-------
2,085
-------
IRELAND (2.4%)
12,300 Bank of Ireland.................................. 207
34,820 Bank of Ireland.................................. 586
60,901 Green Property plc............................... 336
-------
1,129
-------
ITALY (2.7%)
52,900 Mediaset S.p.A................................... 471
154,400 Telecom Italia S.p.A. Di Risp (NCS).............. 838
-------
1,309
-------
JAPAN (8.9%)
28,000 Daiichi Pharmaceutical Co., Ltd.................. 435
19,000 Fuji Photo Film Ltd.............................. 720
2,000 Fujisawa Pharmaceutical Co., Ltd................. 33
36,000 Hitachi Ltd...................................... 338
39,000 Kao Corp......................................... 1,097
118 Nippon Telegraph & Telephone Corp................ 1,377
2,000 Pioneer Electronic Corp.......................... 39
33,000 Sumitomo Marine & Fire Insurance Co.............. 199
-------
4,238
-------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------
NETHERLANDS (4.3%)
19,600 ABN Amro Holdings N.V............................ $ 425
8,395 Benckiser N.V., Class B.......................... 449
13,312 ING Groep N.V.................................... 722
4,692 Koninklijke (Royal) Phillips Electronics N.V..... 463
-------
2,059
-------
PORTUGAL (0.7%)
13,670 Cimpor-Cementos de Portugal...................... 353
-------
SPAIN (3.4%)
45,900 Iberdrola........................................ 700
(a)18,836 Telefonica de Espana............................. 908
-------
1,608
-------
SWEDEN (1.0%)
79,800 Nordbanken Holding AB............................ 468
-------
SWITZERLAND (8.1%)
853 Cie Financiere Richemont AG, Class A............. 1,644
420 Forbo Holding AG (Registered).................... 167
468 Holderbank Financiere Glarus AG, Class B
(Bearer)....................................... 553
703 Nestle (Registered).............................. 1,269
650 Swisscom AG (Registered)......................... 245
-------
3,878
-------
UNITED KINGDOM (11.0%)
84,200 Allied Domecq plc................................ 813
51,156 Blue Circle Industries plc....................... 341
25,525 Burmach Castrol plc.............................. 485
41,200 Imperial Tobacco Group plc....................... 450
74,176 Invensys plc..................................... 351
95,600 J. Sainsbury plc................................. 603
60,000 Matthews (Bernard) plc........................... 125
9,028 Premier Farnell plc.............................. 34
80,143 Reckitt & Colman plc............................. 836
68,172 Royal & Sun Alliance Insurance Group plc......... 612
38,000 Wolseley plc..................................... 286
38,676 WPP Group plc.................................... 327
-------
5,263
-------
UNITED STATES (31.5%)
27,701 Albertson's, Inc................................. 1,428
4,050 Alcoa, Inc....................................... 251
10,365 B. F. Goodrich Co................................ 441
(a)17,000 BJ's Wholesale Club, Inc......................... 511
8,400 Boise Cascade Corp............................... 361
8,550 Borg-Warner Automotive, Inc...................... 470
(a)24,000 Cadiz, Inc....................................... 227
5,700 Chase Manhattan Corp............................. 494
24,300 COMSAT Corp...................................... 790
(a)31,850 Data General Corp................................ 464
22,300 Enhance Financial Services Group, Inc............ 440
11,650 Finova Group, Inc................................ 613
(a)24,450 GenRad, Inc...................................... 509
4,800 Georgia Pacific Corp............................. 227
19,300 Houghton Mifflin Co.............................. 908
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<C> <S> <C>
8,530 IBP, Inc......................................... $ 203
(a)14,600 InteliData Technologies Corp..................... 37
14,860 MBIA, Inc........................................ 962
20,900 Mellon Bank Corp................................. 760
7,250 NCR Corp......................................... 354
(a)13,170 Noble Drilling Corp.............................. 259
(a)26,595 Ocean Energy, Inc................................ 256
(a)600 Penncorp Financial Group, Inc.................... --
6,900 Pharmacia & Upjohn, Inc.......................... 392
39,750 Philip Morris Cos., Inc.......................... 1,597
8,800 Rite Aid Corp.................................... 217
100 Sears Roebuck & Co............................... 4
9,250 Tenneco, Inc..................................... 221
6,150 Terra Nova (Bermuda) Holdings Ltd., Class A...... 166
7,400 U. S. Bancorp.................................... 252
24,050 Unicom Corp...................................... 927
8,000 UST Corp......................................... 242
-------
14,983
-------
TOTAL COMMON STOCKS (COST $41,024)............................ 44,078
-------
PREFERRED STOCK (0.4%)
GERMANY (0.4%)
4,830 Volkswagen AG (COST $201)........................ 182
-------
TOTAL SECURITIES (92.9%) (COST $41,225)....................... 44,260
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------
SHORT-TERM INVESTMENT (8.3%)
REPURCHASE AGREEMENT (8.3%)
$3,941 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/1/99, to be repurchased at $3,942,
collateralized by U.S. Treasury Notes, 11.125%,
due 8/15/03, valued at $4,043 (COST $3,941).... 3,941
-------
</TABLE>
FOREIGN CURRENCY (0.2%)
GBP 44 British Pound.................................... 70
EUR 6 Euro............................................. 6
JPY 5,844 Japanese Yen..................................... 49
-------
TOTAL FOREIGN CURRENCY (COST $125)............................ 125
-------
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- -----------------------------------------------------
TOTAL INVESTMENTS (101.4%) (COST $45,291)... $48,326
-------
OTHER ASSETS (7.9%)
Unrealized Gain on Foreign Currency
Exchange Conracts................. $ 149
Dividends Receivable............... 122
Receivable for Investments Sold.... 58
Foreign Withholding Tax Reclaim
Receivable........................ 57
Receivable for Portfolio Shares
Sold.............................. 26
Interest Receivable................ 1 413
-----
LIABILITIES (-9.3%)
Payable for Investments
Purchased......................... (948)
Investment Advisory Fees Payable... (36)
Professional Fees Payable.......... (33)
Payable for Portfolio Shares
Redeemed.......................... (30)
Custodian Fees Payable............. (18)
Administrative Fees Payable........ (13)
Other Liabilities.................. (23) (1,101)
----- -------
NET ASSETS (100%)........................... $47,638
-------
-------
NET ASSET VALUE, OFFERING AND
REDEMPTION
PRICE PER SHARE
Applicable to 3,497,218 outstanding $0.001
par value shares (authorized 9,000,000,000
shares)................................... $ 13.62
-------
-------
NET ASSETS CONSIST OF:
Paid in Capital............................. $42,716
Undistributed Net Investment Income......... 355
Accumulated Net Realized Gain............... 1,361
Unrealized Appreciation on Investments and
Foreign Currency Translations............. 3,206
-------
NET ASSETS.................................. $47,638
-------
-------
</TABLE>
- ---------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1999, the
Portfolio is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ---------- --------- ---------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C>
U.S.$ 41 $ 41 7/2/99 CAD 61 $ 41 $ --
U.S.$ 43 43 7/2/99 DKK 310 43 --
U.S.$ 69 69 7/2/99 EUR 67 69 --
U.S.$ 8 8 7/2/99 GBP 5 8 --
EUR 3,000 3,123 10/12/99 U.S.$3,272 3,272 149
--------- --------- -----
$ 3,284 $ 3,433 $ 149
--------- --------- -----
--------- --------- -----
</TABLE>
- ----------------------------------------------------------------
(a) -- Non-income producing security
CAD -- Canadian Dollar
DKK -- Danish Krone
NCS -- Non Convertible Shares
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 1999
(UNAUDITED)
- ----------------------------------------------------------------
At June 30, 1999, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the Portfolio were:
<TABLE>
<CAPTION>
NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
(000) (000) (000) (000)
- --------- ------------- --------------- -------------
<S> <C> <C> <C>
$ 45,166 $ 5,367 $ (2,332) $ 3,035
</TABLE>
- ----------------------------------------------------------------
For the six months ended June 30, 1999, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $10,625,000 and $10,297,000,
respectively. There were no purchases and sales of U.S. Government securities
for the six months ended June 30, 1999.
- ----------------------------------------------------------------
Net capital and net currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Portfolio's
next taxable year. For period from November 1, 1998 to December 31, 1998, the
Portfolio incurred and elected to defer until January 1, 1999 for U.S. Federal
income tax purposes, net currency losses of approximately $26,000.
- ----------------------------------------------------------------
SUMMARY OF SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
MARKET % OF
VALUE NET
SECTOR DIVERSIFICATION (000) ASSETS
- ---------------------------------------- ------- ---------
<S> <C> <C>
Capital Equipment....................... $ 7,734 16.2%
Consumer Products....................... 11,812 24.8
Energy.................................. 2,628 5.5
Finance................................. 7,996 16.8
Gold Mines.............................. 921 1.9
Materials............................... 3,108 6.5
Multi-Industry.......................... 739 1.6
Services................................ 8,233 17.3
Technology.............................. 1,089 2.3
------- ---
Total Securities........................ $44,260 92.9%
------- ---
------- ---
</TABLE>
- ---------------------------------------------------
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999
(UNAUDITED)
(000)
<S> <C>
- -------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 614
Interest 68
Less: Foreign Taxes Withheld (60)
------
Total Income 622
------
EXPENSES:
Investment Advisory Fees 176
Less: Fees Waived (81)
------
Net Investment Advisory Fees 95
Administrative Fees 61
Professional Fees 40
Shareholder Reports 34
Custodian Fees 20
Directors' Fees and Expenses 2
Other 2
------
Net Expenses 254
------
Net Investment Income 368
------
NET REALIZED GAIN ON:
Investments Sold 1,152
Foreign Currency Transactions 19
------
Net Realized Gain 1,171
------
CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments (95)
Foreign Currency Translations 171
------
Change in Unrealized
Appreciation/Depreciation 76
------
Net Realized Gain and Change in
Unrealized
Appreciation/Depreciation 1,247
------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,615
------
------
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 368 $ 306
Net Realized Gain 1,171 269
Change in Unrealized
Appreciation/Depreciation 76 2,296
------- --------
Net Increase in Net Assets
Resulting from Operations 1,615 2,871
------- --------
DISTRIBUTIONS:
Net Investment Income -- (282)
Net Realized Gain -- (243)
------- --------
Total Distributions -- (525)
------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 9,193 42,627
Distributions Reinvested -- 525
Redeemed (6,723) (16,652)
------- --------
Net Increase in Net Assets Resulting
from Capital Share Transactions 2,470 26,500
------- --------
Total Increase in Net Assets 4,085 28,846
NET ASSETS:
Beginning of Period 43,553 14,707
------- --------
End of Period (Including
undistributed (overdistributed)
net investment income of $355 and
$(13), respectively) $47,638 $ 43,553
------- --------
------- --------
- ---------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 699 3,307
Shares Issued on Distributions
Reinvested -- 41
Shares Redeemed (516) (1,286)
------- --------
Net Increase in Capital Shares
Outstanding 183 2,062
------- --------
------- --------
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 1999 YEAR ENDED JANUARY 2, 1997*
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) DECEMBER 31, 1998 TO DECEMBER 31, 1997
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.14 $ 11.74 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.11 0.10 0.08
Net Realized and Unrealized Gain 0.37 1.48 1.92
------- ------- -------
Total From Investment Operations 0.48 1.58 2.00
------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.09) (0.08)
Net Realized Gain -- (0.09) (0.18)
------- ------- -------
Total Distributions -- (0.18) (0.26)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 13.62 $ 13.14 $ 11.74
------- ------- -------
------- ------- -------
TOTAL RETURN 3.65% 13.47% 20.04%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $47,638 $43,553 $14,707
Ratio of Expenses to Average Net Assets 1.15%** 1.15% 1.15%**
Ratio of Net Investment Income to Average Net
Assets 1.67%** 1.03% 1.24%**
Portfolio Turnover Rate 25% 22% 20%
- ------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the
Period:
Per Share Benefit to Net Investment Income $ 0.02 $ 0.04 $ 0.09
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.52%** 1.63% 2.43%**
Net Investment Income (Loss) to Average Net
Assets 1.30%** 0.56% (0.04)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Universal Funds, Inc., formerly Morgan Stanley
Universal Funds, Inc., (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. As of
June 30, 1999, the Fund was comprised of twelve separate active portfolios
(individually referred to as a "Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Global Equity Portfolio.
Please refer to the Investment Overview for the Portfolio's investment
objectives.
The Fund is intended to be the funding vehicle for variable annuity contracts
and variable life insurance policies to be offered by the separate accounts of
certain life insurance companies.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles may require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
may differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date, for which market quotations are readily available, are valued at
the average of the mean between the current bid and asked prices obtained from
reputable brokers. Bonds and other fixed income securities may be valued
according to the broadest and most representative market. In addition, bonds and
other fixed income securities may be valued on the basis of prices provided by a
pricing service. The prices provided by a pricing service are determined without
regard to bid or last sale prices, but take into account institutional size
trading in similar groups of securities and any developments related to the
specific securities. Debt securities purchased with remaining maturities of 60
days or less are valued at amortized cost, if it approximates market value. All
other securities and assets for which market values are not readily available,
including restricted securities, are valued at fair value as determined in good
faith by the Board of Directors, although the actual calculations may be done by
others.
2. INCOME TAXES: It is each Portfolio's intention to qualify as a regulated
investment company and distribute all of its taxable and tax-exempt income.
Accordingly, no provision for Federal income taxes is required in the financial
statements.
Certain Portfolios may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on income and/or capital gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation as these amounts are earned.
Taxes may also be based on transactions in foreign currency and are accrued
based on the value of investments denominated in such currency.
3. REPURCHASE AGREEMENTS: The Portfolios of the Fund may enter into repurchase
agreements under which the Portfolio lends excess cash and takes possession of
securities with an agreement that the counterparty will repurchase such
securities. In connection with transactions in repurchase agreements, a bank as
custodian for the Fund takes possession of the underlying securities which are
held as collateral, with a market value at least equal to the amount of the
repurchase transaction, including principal and accrued interest. To the extent
that any repurchase transaction exceeds one business day, the value of the
collateral is marked-to-market on a daily basis to determine the adequacy of the
collateral. In the event of default on the obligation to repurchase, the Fund
has the right to liquidate the collateral and apply the proceeds in satisfaction
of the obligation. In the event of default or bankruptcy by the counterparty to
the agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the mean of the bid and asked prices of such
currencies against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the period, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency gains (losses) are
included in the reported net realized and unrealized gains (losses) on
investment transactions and balances. However, pursuant to U.S. Federal income
tax regulations, gains and losses from certain foreign currency transactions 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.
8
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from foreign currency exchange contracts,
disposition of foreign currencies, currency gains or losses realized between the
trade and settlement dates on securities transactions, and the difference
between the amount of investment income and foreign withholding taxes recorded
on the Fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized currency gains (losses) from valuing foreign currency
denominated assets and liabilities at period end exchange rates are reflected as
a component of unrealized appreciation (depreciation) on the Statement of Net
Assets. The change in net unrealized currency gains (losses) for the period is
reflected on the Statement of Operations.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and regulation of foreign securities markets
and the possibility of political or economic instability.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investments
in domestic companies may be subject to limitation in other countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations. As a result, an additional class of shares (identified as "Foreign"
in the Statement of Net Assets) may be created and offered for investment. The
"local" and "foreign" shares' market values may differ. In the absence of
trading of the foreign shares in such markets, the Fund values the foreign
shares at the closing exchange price of the local shares. Such securities are
identified as fair valued in the Statement of Net Assets.
The investment techniques of the Fund described in the following notes (5-11)
are applicable to certain, but not all, of the Portfolios of the Fund.
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolios may enter into
foreign currency exchange contracts generally to attempt to protect securities
and related receivables and payables against changes in future foreign currency
exchange rates. A foreign currency exchange contract is an agreement between two
parties to buy or sell currency at a set price on a future date. The market
value of the contract will fluctuate with changes in currency exchange rates.
The contract is marked-to-market daily and the change in market value is
recorded by the Portfolio as unrealized gain or loss. The Portfolio records
realized gains or losses when the contract is closed equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed. Risk may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
is generally limited to the amount of the unrealized gain on the contracts, if
any, at the date of default. Risks may also arise from unanticipated movements
in the value of a foreign currency relative to the U.S. dollar.
6. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: Certain
Portfolios may make forward commitments to purchase or sell securities. Payment
and delivery for securities which have been purchased or sold on a forward
commitment basis can take place up to 120 days after the date of the
transaction. Additionally, a Portfolio may purchase securities on a when-issued
or delayed delivery basis. Securities purchased on a when-issued or delayed
delivery basis are purchased for delivery beyond the normal settlement date at a
stated price and yield, and no income accrues to the Portfolio on such
securities prior to delivery. When the Portfolio enters into a purchase
transaction on a when-issued or delayed delivery basis, it establishes either a
segregated account in which it maintains liquid assets in an amount at least
equal in value to the Portfolio's commitments to purchase such securities or
designates such assets as segregated on the records of the Portfolio. Purchasing
securities on a forward commitment or when-issued or delayed-delivery basis may
involve a risk that the market price at the time of delivery may be lower than
the agreed upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
7. LOAN AGREEMENTS: Certain Portfolios may invest in fixed and floating rate
loans ("Loans") arranged through private negotiations between an issuer of
sovereign debt obligations and one or more financial institutions ("Lenders")
deemed to be creditworthy by the investment adviser. A Portfolio's investments
in Loans may be in the form of participations in Loans ("Participations") or
assignments of all or a portion of Loans ("Assignments") from third parties. A
Portfolio's investment in Participations typically results in the Portfolio
having a contractual relationship with only the Lender and not with the
borrower. The Portfolio has the right to receive payments of principal, interest
and any fees to which it is entitled only upon receipt by the Lender of the
payments from the borrower. A Portfolio generally has no right to enforce
compliance by the borrower with the terms of the loan agreement. As a result,
the Portfolio may be subject to the credit risk of both the borrower and the
Lender that is selling the Participation. When a Portfolio purchases Assignments
from Lenders, it typically acquires direct rights against the borrower on the
Loan. Because Assignments are arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by the Portfolio as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.
8. SHORT SALES: Certain Portfolios may sell securities short. A short sale is a
transaction in which the Portfolio sells securities it may or may not own, but
has borrowed, in anticipation of a decline in the market price of the
securities. The Portfolio is obligated to replace the borrowed securities at the
market price at the time of replacement. The Portfolio
9
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
may have to pay a premium to borrow the securities as well as pay any dividends
or interest payable on the securities until they are replaced. The Portfolio's
obligation to replace the securities borrowed in connection with a short sale
will generally be secured by collateral deposited with the broker that consists
of cash, U.S. government securities or other liquid, high grade debt
obligations. In addition, the Portfolio will either designate on the custodian
records in its regular custody account or place in a segregated account with its
Custodian an amount of cash, U.S. government securities or other liquid high
grade debt obligations equal to the difference, if any, between (1) the market
value of the securities sold and (2) any cash, U.S. government securities or
other liquid high grade debt obligations deposited as collateral with the broker
in connection with the short sale. Short sales by the Portfolio involve certain
risks and special considerations. Possible losses from short sales differ from
losses that could be incurred from a purchase of a security, because losses from
short sales may be unlimited, whereas losses from purchases cannot exceed the
total amount invested.
9. FUTURES: Certain Portfolios may purchase and sell futures contracts. Futures
contracts provide for the sale by one party and purchase by another party of a
specified amount of a specified security, index, instrument or basket of
instruments. Futures contracts (secured by cash or government securities
deposited with brokers or custodians as "initial margin") are valued based upon
their quoted daily settlement prices; changes in initial settlement value
(represented by cash paid to or received from brokers as "variation margin") are
accounted for as unrealized appreciation (depreciation). When futures contracts
are closed, the difference between the opening value at the date of purchase and
the value at closing is recorded as realized gains or losses in the Statement of
Operations.
Certain Portfolios may use futures contracts in order to manage exposure to the
stock and bond markets, to hedge against unfavorable changes in the value of
securities or to remain fully invested and to reduce transaction costs. Futures
contracts involve market risk in excess of the amounts recognized in the
Statement of Net Assets. Risks arise from the possible movements in security
values underlying these instruments. The change in value of futures contracts
primarily corresponds with the value of their underlying instruments, which may
not correlate with the change in value of the hedged investments. In addition,
there is the risk that a Portfolio may not be able to enter into a closing
transaction because of an illiquid secondary market.
10. SWAP AGREEMENTS: The Portfolios may enter into swap agreements to exchange
one return or cash flow for another return or cash flow in order to hedge
against unfavorable changes in the value of securities or to remain fully
invested and to reduce transaction costs. The following summarizes swaps which
may be entered into by the Portfolios.
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of commitments to
pay and receive interest based on a notional principal amount. Net periodic
interest payments to be received or paid are accrued daily and are recorded in
the Statement of Operations as an adjustment to interest income. Interest rate
swaps are marked-to-market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized appreciation or depreciation in
the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest in
exchange for a market-linked return based on a notional amount. To the extent
the total return of the security, instrument or basket of instruments underlying
the transaction exceeds or falls short of the offsetting interest obligation,
the Portfolio will receive a payment from or make a payment to the counterparty,
respectively. Total return swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
appreciation or depreciation in the Statement of Operations. Periodic payments
received or made at the end of each measurement period are recorded as realized
gains or losses in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and total
return swaps are presented in the Statement of Operations.
Because there is no organized market for these swap agreements, the value of
open swaps reported in the Statement of Net Assets may differ from that which
would be realized in the event the Portfolio terminated its position in the
agreement. Risks may arise upon entering into these agreements from the
potential inability of the counterparties to meet the terms of the agreements
and are generally limited to the amount of net interest payments to be received
and/or favorable movements in the value of the underlying security, instrument
or basket of instruments, if any, at the date of default.
11. PURCHASED AND WRITTEN OPTIONS: Certain Portfolios may write covered call and
put options on portfolio securities and other financial instruments. Premiums
are received and are recorded as liabilities. The liabilities are subsequently
adjusted to reflect the current value of the options written. Premiums received
from writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or are closed are added to or
offset against the proceeds or amount paid on the transaction to determine the
net realized gain or loss. By writing a covered call option, a Portfolio, in
exchange for the premium, foregoes the opportunity for capital appreciation
above the exercise price should the market price of the underlying security
increase. By writing a covered put option, a Portfolio, in exchange for the
premium, accepts the risk of a decline in the market value of the underlying
security below the exercise price.
Certain Portfolios may purchase call and put options on their portfolio
securities or other financial instruments. A
10
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
Portfolio may purchase call options to protect against an increase in the price
of the security or financial instrument it anticipates purchasing. Each
Portfolio may purchase put options on securities which it holds or other
financial instruments to protect against a decline in the value of the security
or financial instrument or to close out covered written put positions. Risks may
arise from an imperfect correlation between the change in market value of the
securities held by the Portfolio and the prices of options relating to the
securities purchased or sold by the Portfolio and from the possible lack of a
liquid secondary market for an option. The maximum exposure to loss for any
purchased option is limited to the premium initially paid for the option.
12. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Dividend income
is recorded on the ex-dividend date (except for certain foreign dividends that
may be recorded as soon as the Fund is informed of such dividends) net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on the accrual basis except where
collection is in doubt. Discounts and premiums on securities purchased (other
than mortgage-backed securities) are amortized according to the effective yield
method over their respective lives. Most expenses of the Fund can be directly
attributed to a particular Portfolio. Expenses which cannot be directly
attributed are apportioned among the Portfolios based upon relative net assets.
Distributions from the Portfolios are recorded on the ex-distribution date.
The amount and character of income and capital gain distributions to be paid by
Portfolios of the Fund are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing book and tax treatments for the
character and timing of the recognition of gains or losses on securities and
foreign currency exchange contracts, the timing of the deductibility of certain
foreign taxes and dividends received from real estate investment trusts.
Permanent book and tax basis differences relating to shareholder distributions
may result in reclassifications among undistributed net investment income
(loss), accumulated net realized gain (loss) and paid in capital.
Permanent book and tax differences, if any, are not included in ending
undistributed (distributions in excess of) net investment income/accumulated net
investment loss for the purpose of calculating net investment income (loss) per
share in the Financial Highlights.
Settlement and registration of foreign securities transactions may be subject to
significant risks not normally associated with investments in the United States.
In certain markets, including Russia, ownership of shares is defined according
to entries in the issuer's share register. In Russia, there currently exists no
central registration system and the share registrars may not be subject to
effective state supervision. It is possible that a Portfolio holding these
securities could lose its share registration through fraud, negligence or even
mere oversight. In addition, shares being delivered for sales and cash being
paid for purchases may be delivered before the exchange is complete. This may
subject the Portfolio to further risk of loss in the event of a failure to
complete the transaction by the counterparty.
B. ADVISER: Morgan Stanley Dean Witter Investment Management Inc. ("MSDW
Investment Management"), a wholly-owned subsidiary of Morgan Stanley Dean Witter
& Co., provides the Portfolio with investment advisory services for a fee, paid
quarterly, at the annual rate based on average daily net assets as follows:
<TABLE>
<CAPTION>
FROM MORE
FIRST $500 MILLION THAN
PORTFOLIO $500 MILLION TO $1 BILLION $1 BILLION
- ------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Global Equity 0.80% 0.75% 0.70%
</TABLE>
MSDW Investment Management has agreed to reduce fees payable to it and to
reimburse the Portfolio, if necessary, to the extent that the annual operating
expenses, as defined, expressed as a percentage of average daily net assets,
exceed the maximum ratio of 1.15%.
C. ADMINISTRATOR: MSDW Investment Management (the "Administrator") also provides
the Portfolio with administrative services pursuant to an administrative
agreement for a monthly fee which on an annual basis equals 0.25% of the average
daily net assets of the Portfolio, plus reimbursement of out-of-pocket expenses.
Under an agreement between the Administrator and Chase Global Funds Services
Company ("CGFSC"), a corporate affiliate of The Chase Manhattan Bank ("Chase"),
CGFSC provides certain administrative services to the Fund. For such services,
the Administrator pays CGFSC a portion of the fee the Administrator receives
from the Fund. Certain employees of CGFSC are officers of the Fund. In addition,
the Fund incurs local administration fees in connection with doing business in
certain emerging market countries.
D. CUSTODIAN: The Chase Manhattan Bank serves as custodian for the Fund in
accordance with a custodian agreement.
E. OTHER: At June 30, 1999, the net assets of certain Portfolios were
substantially comprised of foreign denominated securities and currency. Changes
in currency exchange rates will affect the U.S. dollar value of and investment
income from such securities.
From time to time, a Portfolio may have shareholders that hold a significant
portion of the Portfolio's outstanding shares. Investment activities of these
shareholders could have a material impact on those Portfolios.
11
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
- --------------------------------------------------------------------------------
DIRECTORS
Barton M. Biggs
CHAIRMAN OF THE BOARD
Chairman and Director, Morgan Stanley Dean Witter Investment
Management Inc. and Morgan Stanley Dean Witter
Investment Management Limited;
Managing Director, Morgan Stanley & Co. Incorporated
Michael F. Klein
DIRECTOR AND PRESIDENT
Principal, Morgan Stanley Dean Witter Investment Management
Inc. and Morgan Stanley & Co. Incorporated
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil LLP
Andrew McNally IV
River Road Partners
Samuel T. Reeves
Chairman of the Board and Chief Executive Officer,
Pinnacle L.L.C.
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw
Of Counsel, Copple, Chamberlin & Boehm, P.C.
OFFICERS
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Karl O. Hartmann
ASSISTANT SECRETARY
Belinda A. Brady
ASSISTANT TREASURER
INVESTMENT ADVISERS AND ADMINISTRATORS
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, PA 19428-2899
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas
New York, NY 10020
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, NY 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE MORGAN STANLEY UNIVERSAL FUNDS, INC. WHICH DESCRIBES IN
DETAIL EACH INVESTMENT PORTFOLIO'S INVESTMENT POLICIES, FEES AND EXPENSES.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
12
