<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Other (10.1%)
Thailand (2.3%)
Taiwan (18.0%)
Singapore (10.0%)
Malaysia (5.0%)
South Korea (23.4%)
Indonesia (0.8%)
Hong Kong (23.2%)
China (7.2%)
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY COUNTRY NET ASSETS
-------- ------- ----------
<S> <C> <C>
Samsung Electronics Co. South Korea 10.2%
Hutchison Whampoa Ltd. Hong Kong 7.1%
Taiwan Semiconductor Manufacturing Co. Taiwan 4.3%
China Telecom (Hong Kong) Hong Kong 4.0%
SK Telecom Co., Ltd. South Korea 3.4%
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN
STANLEY CAPITAL INTERNATIONAL (MSCI)
ALL-COUNTRY FAR EAST FREE EX-JAPAN
INDEX(1)
------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION(3)
------ ------ ------------------
<S> <C> <C> <C>
PORTFOLIO -14.33% 4.76% -6.00%
INDEX -14.15% -4.55% -9.21%
</TABLE>
1. The MSCI All-Country Far East Free ex-Japan Index is an unmanaged index of
common stocks and includes China Indonesia, Hong Kong, the Philippines,
Korea, Singapore, Taiwan and Thailand.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
3. Commenced operations on March 3, 1997.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
In accordance with SEC regulations, Portfolio performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested.
TOP FIVE SECTORS
<TABLE>
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
------ ------ ----------
<S> <C> <C>
Information Technology $5,206 33.8%
Financials 3,485 22.6
Telecommunication Services 2,497 16.2
Consumer Discretionary 981 6.4
Industrials 702 4.5
</TABLE>
The investment objective of the Asian Equity Portfolio is to seek long-term
capital appreciation by investing primarily in equity securities of Asian
issuers (excluding Japan). Foreign investing involves certain risks,
including currency fluctuations and controls, restrictions on foreign
investments, less liquidity and the potential for the market volatility and
political instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
-14.33% compared to -14.15% for the Morgan Stanley Capital International
(MSCI) All-Country Far East Free ex-Japan Index (the "Index"). For the one
year ended June 30, 2000, the Portfolio had a total return of 4.76% compared
to -4.55% for the Index. For the period from inception on March 3, 1997
through June 30, 2000, the Portfolio had an average annual total return of
-6.00% compared to -9.21% for the Index.
Markets globally continued to be volatile as higher inflation data in the
U.S. and a subsequent 0.5% rate hike by the Federal Reserve made equity
investors nervous about the prospects of a hard landing in the U.S. Asian
ex-Japan markets continued to slide lower and the high-performing technology
and telecom stocks corrected significantly from their highs in March of this
year. The markets began to stabilize towards the end of the second quarter of
2000 as the Federal Reserve kept interest rates on hold in June and economic
data releases pointed to a slow down in the U.S. economy.
The Korean market, which underperformed broader Asian markets in the first
quarter of 2000, was among the best performing markets in the second quarter
of 2000. Although, at one point the market
[SIDENOTE]
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A
RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY
SPECIFIC PERFORMANCE RESULTS PROVIDED ARE MEASURED BY THE MSCI ALL-COUNTRY
FAR EAST FREE EX-JAPAN INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
[/SIDENOTE]
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
touched a 12-month low as domestic retail investors and institutions sold
down equities heavily. However, strong policy action and several positive
postures by the government, including the injection of public funds into the
ailing investment trust companies, helped the market to bounce back strongly.
In addition, the Hyundai Group's implementation of an aggressive
restructuring plan to induce foreign capital and dissolve control by the
founding family, as well as a re-capitalization plan of its investment trust
company, were viewed positively by investors. With respect to the
restructuring of the defunct Daewoo Group, preliminary bids were submitted by
potential strategic investors for Daewoo Motors with the highest bid coming
in well above market expectations. With foreign portfolio investment inflows
in the second quarter of 2000 and growing foreign direct investment (FDI),
the Korean Won continued to show strength. One of the government measures to
calm financial markets was the implementation of the second tranche of the
bond stabilization plan worth 10 trillion Won to soak up some of the supply
from illiquid bond markets. Based on new demand sources and waning
redemptions at investment trust companies which resulted in forced sells in
the first quarter of 2000, benchmark bond yields started to trend down
towards the latter half of the second quarter of 2000. The monumental summit
between the leaders of the two Koreas did not have much impact on the stock
market. We continue to retain an extremely positive stance on Korea with our
Portfolio anchored in blue chips like Samsung Electronics and Korea Telecom.
While Taiwan was the best performing market in the first quarter of 2000, it
was among the worst performing in the second quarter of 2000. Although part
of this under-performance came from a generic sell-off in technology related
shares globally, much of this was due to diminishing domestic investor
confidence and confusion over the domestic policy moves of the new DPP
government. There were indications from the government that taxes would be
introduced to hi-tech companies, which traditionally paid little or no tax.
Technology companies in Taiwan, especially in the semiconductor sector, have
enjoyed significant tax advantages while the financial and other traditional
sector companies have been fully taxed. These feelers are perhaps the first
steps towards rationalization of the taxation system and attempts to bridge
the fiscal deficit, which has become bloated. We think that investors are
likely to be cautious in the long term towards the Taiwanese technology
sector and analysts are likely to start incorporating taxation anomalies in
valuations. The new President has done much to help calm cross-strait
relations and it seems that the worst is behind us.
Hong Kong was a weak performer in the second quarter of 2000, but the market
managed to recover towards the end of the second quarter of 2000 as investors
became increasingly comfortable with a soft landing scenario in the U.S.
There was increased interest in Hong Kong companies benefiting from growth
momentum in China. GDP growth rates in Hong Kong have been running ahead of
expectations for the last two quarters. With a benign outlook for interest
rates and a recent well-bided land auction, demand is returning to the Hong
Kong residential market. Although growth rates are heady, Hong Kong's
recovery has probably had its best quarter and growth is likely to be slower
in 2001 with deflation continuing to be a problem. Hutchison Whampoa, our
biggest position in Hong Kong, continues to be in the limelight with its
foray into 3G in the United Kingdom and its attractive mobile telecom assets
in the U.S. Our positive stance on global exports and supply logistics
leader, Li & Fung, performed very well this year.
China has been the star among Asian markets year-to-date. While there have
been substantial portfolio inflows into China on the back of the increased
weighting in the MSCI indices, positive macroeconomic news flow from China
continues to keep sentiment very strong. Economic growth in China, which had
been decelerating for the last seven years, is now showing impressive
cyclical revival. GDP growth for the first half of this year was over 8%.
Consumer spending in China has started to pick up and with exports continuing
to stay robust, the quality of growth is also changing for the better.
Political risks from Taiwan-China relations have diminished considerably
after the new Taiwanese President delivered a friendly inauguration speech in
May. The U.S. Senate approved PNTR (Permanent Normal Trade Relations) with
China. Indications from listed corporate companies in China lead us to
believe that corporate results for the first half of 2000 are likely to
exceed expectations. China has stated plans to open up the A-share market,
which when combined with the listed H-shares and red chips, would make China
the biggest stock market in Asia after Japan in the next few years. We have
been adding to the China weighting in our Portfolio, but the lack of liquid
and attractively priced investable ideas is a constraint in constructing a
broad-based portfolio. The current Index constituents are very skewed and top
heavy with China Mobile making up almost 60% of the China Index. We managed
to increase exposure to the growing mobile telecom sector by participating in
the highly successful listing of China Unicom, the second biggest mobile
communication services company in China.
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
Malaysia, which was the best performing Asian market in the first quarter of
2000, reversed direction in the second quarter of 2000. Malaysia's strength
has been its closed capital account, which was beneficial when U.S. interest
rate anxiety was at a high. This made Malaysia one of the best-performing
markets in Asia for the first five months of this year. However, in the month
of June, the market succumbed to selling pressure and ended the first half
with an increase of only 2.6%. The re-entry of Malaysia into various indices
on May 31, 2000 proved to be a non-event. Local investors harbored high
expectations that index funds would start a second wave of foreign portfolio
funds rushing into the market. Wavering government policies, relatively
expensive valuations and the lack of major corporate restructuring plans
proved to be major negative influences.
The smaller southeast Asian markets continued to be laggards and diminished
in importance as their country weights fell further after the Index
re-adjustments starting May 31, 2000. In Indonesia, protracted political
uncertainties, foot-dragging on economic reforms and increased disintegration
risk contributed to the market being the worst performer year-to-date. The
Indonesian Rupiah continues to remain highly vulnerable and volatile. Most
investors have also continued to ignore the Philippine market over the last
few quarters. In Thailand, the market is suffering from the reduction of its
weight in indices. Thai corporates face an uphill task of attracting foreign
investors amidst a backdrop of near-term political uncertainties and moderate
economic growth. Nonperforming loan (NPL) reduction, an important confidence
booster, is expected to be gradual. With concerns easing over the prospect of
a hard landing for the U.S. economy, banks and other interest-rate sensitive
stocks could do well in the short term. However, we are still underweight the
banking sector as banks are unlikely to solve their NPLs in an acceptable
time frame. We prefer the export and consumer sectors in Thailand, especially
those possessing strong balance sheets and good management.
The Indian market witnessed a huge increase in weighting for the TMT
(Technology, Media & Telecom) sector but it has been volatile in line with
the gyrations of the NASDAQ. Although data on industrial production over the
last few months demonstrated strength in the cyclical upswing of the economy,
the high fiscal deficit numbers continue to be a looming concern. An
incremental foreign portfolio inflow is a function of the perceived success
of the government's privatization program. We continue to favor high growth
software services stocks like Infosys Technologies, NIIT and SSI as these
companies are increasing market share in the global IT services market with
their smooth execution and cost competitiveness.
Singapore has been a relative laggard year-to-date but the underlying
economic fundamentals continue to stay strong. GDP growth in the second
quarter of 2000 was over 7.7%, much higher than consensus estimates. New U.S.
orders for electronics, a key leading indicator for Singapore exports, has
shown strong growth the last few quarters. In addition, the recovery in Japan
and increase in intra-Asian trade are creating impressive new demands for
Singapore exports.
Over the medium term, we believe that a soft landing in the U.S. will ease
off interest rate fears in Asia and refocus attention on some of the
inexpensive growth stocks, especially in South Korea. China's strong recovery
and entry into the World Trade Organization later this year will keep
sentiment on China stocks buoyant through the rest of the year. We think that
future performance will depend on judicious stock selection, as the gap
between the winners and losers continues to widen.
July 2000
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-----------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (89.9%)
CHINA (7.2%)
46,000 China Merchants Holdings International Co., Ltd. ... $ 31
(a)70,000 China Telecom (Hong Kong) .......................... 617
(a)132,000 China Unicom Ltd. .................................. 280
53,000 Cosco Pacific Ltd. ................................. 42
159,000 Great Wall Technology Co., Ltd. .................... 110
(a)92,000 TCL International Holdings Ltd. .................... 34
-------
1,114
-------
HONG KONG (23.2%)
24,000 Asia Satellite Telecommunications Holdings Ltd. .... 82
20,000 ASM Pacific Technology Ltd. ........................ 75
68,000 Cathway Pacific Airways ............................ 126
28,000 Cheung Kong Holdings Ltd. .......................... 310
(a)1,800 China.com Corp., Class A ........................... 37
13,000 Citic Pacific Ltd. ................................. 68
9,500 Dao Heng Bank Group Ltd. ........................... 42
7,500 Hang Seng Bank Ltd. ................................ 71
89,700 Hong Kong & China Gas Co. Ltd. ..................... 101
18,000 Hong Kong Land Holdings Ltd. ....................... 29
206,600 Hong Kong Telecommunications Ltd. .................. 455
86,819 Hutchison Whampoa Ltd. ............................. 1,091
(a)13,000 Johnson Electric Holdings Ltd. ..................... 123
34,000 Legend Holdings Ltd. ............................... 33
44,600 Li & Fung Ltd. ..................................... 223
(a)79,000 Phoenix Satellite Television Holdings Ltd. ......... 11
43,000 Sino Land Co. ...................................... 15
274,000 Sino-i.com Ltd. .................................... 12
13,100 SmarTone Telecommunications Holdings Ltd. .......... 29
(a)511,000 Soundwill Holdings Ltd. ............................ 12
42,000 Sun Hung Kai Properties Ltd. ....................... 302
31,467 Swire Pacific Ltd., Class A ........................ 184
17,100 Television Broadcasts Ltd. ......................... 114
(a)78,000 Timeless Software Ltd. ............................. 35
-------
3,580
-------
INDONESIA (0.8%)
21,500 Gudang Garam ....................................... 35
(a)22,500 PT Semen Fresik .................................... 21
9,280 Telekomunikasi Indonesia ADR ....................... 64
-------
120
-------
MALAYSIA (5.0%)
8,000 British American Tobacco (Malaysia) Bhd. ........... 65
17,000 Carlsberg Brewery Malaysia Bhd. .................... 57
11,000 Commerce Asset Holding Bhd. ........................ 32
(a)29,000 Digi.com Bhd. ...................................... 53
38,800 Malayan Banking Bhd. ............................... 157
8,000 Malaysian Pacific Industries Bhd. .................. 82
(a)71,000 Public Bank Bhd. ................................... 66
(a)22,000 Resorts World Bhd. ................................. 60
(a)16,000 Tanjong plc. ....................................... 38
30,000 Telekom Malaysia Bhd. .............................. 104
17,000 Tenaga Nasional Bhd. ............................... 56
-------
770
-------
SINGAPORE (10.0%)
(a)12,000 Chartered Semiconductor Ltd. ....................... 105
12,000 City Developments Ltd. ............................. 47
(a)10,400 Datacraft Asia Ltd. ................................ 91
24,276 DBS Group Holdings Ltd. ............................ 312
18,000 Keppel Corp., Ltd. ................................ 39
12,600 Natsteel Electronics Ltd. .......................... 39
(a)54,000 Neptune Orient Lines ............................... 50
38,000 Omni Industries Ltd. ............................... 63
26,150 Oversea-Chinese Banking Corp. (Foreign) ............ 180
14,982 Overseas Union Bank Ltd. ........................... 58
16,000 Sembcorp Logistics Ltd. ............................ 90
(a)22,000 SIA Engineering Co., Ltd. .......................... 25
(a)16,000 Singapore Airlines Ltd. ............................ 158
9,900 Singapore Press Holdings Ltd. ...................... 155
(a)25,000 ST Assembly Test Services Ltd. ..................... 64
6,700 Venture Manufacturing Ltd. ......................... 68
-------
1,544
-------
SOUTH KOREA (23.4%)
800 Cheil Communications, Inc. ......................... 104
1,110 CJ39 Shopping Corp. ................................ 36
(a)3,110 Communication Network Interface, Inc. .............. 17
1,476 Dongwon Securities Co. ............................. 11
5,657 H & CB ............................................. 132
(a)4,150 Humax Co., Ltd. .................................... 58
3,511 Hyundai Electronics Industries Co. ................. 69
8,446 Kookmin Bank ....................................... 108
(a)10,480 Korea Electric Power Corp. ADR ..................... 193
(a)110 Korea Telecom Corp. ................................ 10
4,250 Korea Telecom Corp. ADR ............................ 206
(a)710 Korea Telecom Freetel .............................. 47
(a)590 LG Home Shopping, Inc. ............................. 56
270 LG Information & Communication Ltd. ................ 15
(a)360 Locus Corp. ........................................ 29
2,850 Pohang Iron & Steel Co.,Ltd. ADR ................... 68
(a)5,310 Prochips Technology, Inc. .......................... 21
2,600 Samsung Electro-Mechanics Co. ...................... 163
4,768 Samsung Electronics Co. ............................ 1,578
10,040 Shinhan Bank Co., Ltd. ............................. 95
(a)220 SK Telecom Co., Ltd. ............................... 72
(a)12,270 SK Telecom Co., Ltd. ADR ........................... 446
4,120 Telson Electronics Co., Ltd. ....................... 44
1,480 Tong Yang Confectionery Co. ........................ 32
-------
3,610
-------
TAIWAN (18.0%)
(a)1,400 Accton Technology Corp. ............................ 3
33,344 Acer Peripherals, Inc. ............................. 94
(a)20,300 Acer, Inc. ........................................ 38
(a)24,103 Advanced Semiconductor Engineering, Inc. ........... 74
8,100 Advantech Co., Ltd. ................................ 43
(a)3,000 Ambit Microsystems Corp. ........................... 30
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
VALUE
SHARES (000)
-----------------------------------------------------------------------------
<S> <C>
TAIWAN (CONT.)
(a)1,700 ASE Test Ltd. ...................................... $ 50
19,098 Asustek Computer, Inc. ............................. 158
63,200 China Steel Corp. .................................. 43
(a)50,880 Chinatrust Commercial Bank ......................... 44
22,839 Compal Electronics ................................. 56
(a)20,000 Delta Electronics, Inc. ............................ 95
(a)44,770 Far Eastern Textile Ltd. ........................... 56
(a)700 Gigamedia Ltd. ..................................... 8
(a)19,520 Hon Hai Precision Industry ......................... 177
(a)21,600 Macronix International Co., Ltd. ................... 54
(a)11,000 Microelectronics Technology, Inc. .................. 36
66,470 Nan Ya Plastic Corp. ............................... 134
(a)13,860 President Chain Store Corp. ........................ 52
(a)6,000 Pro Mos Technologies, Inc. ......................... 24
(a)8,250 Ritek Corp. ........................................ 33
(a)39,268 Siliconware Precision Industries Co. ............... 88
(a)2,200 Siliconware Precision Industries Co. ADR ........... 20
71,284 Taishin International Bank ......................... 46
(a)139,484 Taiwan Semiconductor Manufacturing Co. ............. 663
(a)166,000 United Microelectronics Corp. Ltd. ................. 462
35,160 United World Chinese Commercial Bank ............... 33
15,800 Universal Scientific Industrial Co., Ltd. .......... 39
(a)42,300 Winbond Electronics Corp. .......................... 123
-------
2,776
-------
THAILAND (2.3%)
(a)9,200 Advanced Info Service PCL (Foreign) ................ 114
7,500 BEC World (Foreign) ................................ 45
4,646 Delta Electronics (Thailand) PCL (Foreign) ......... 33
(a)86,500 Golden Land Property Development PCL (Foreign) ..... 13
3,200 Hana Microelectronics PCL (Foreign) ................ 25
(a)17,433 Siam Cement PCL (Foreign) .......................... 66
(a)70,800 Thai Farmers Bank PCL (Foreign) .................... 60
-------
356
-------
TOTAL COMMON STOCKS (COST $13,885) .............................. 13,870
-------
<CAPTION>
NO. OF
WARRANTS
----------
<S> <C>
WARRANTS (0.0%)
THAILAND (0.0%)
(a)58,700 Siam Commercial Bank PCL, (Foreign) expiring
5/10/02 ......................................... 7
(a)32,700 Siam Commercial Bank PCL, expiring 5/10/02 ......... 4
-------
TOTAL WARRANTS (COST $22) ....................................... 11
-------
TOTAL FOREIGN SECURITIES (89.9%) (COST $13,907) ................. 13,881
-------
<CAPTION>
FACE
AMOUNT
(000)
----------
<S> <C>
SHORT-TERM INVESTMENTS (4.2%)
REPURCHASE AGREEMENT (4.2%)
648 Chase Securities, Inc., 6.15%, dated 6/30/00, due
7/3/00, to be repurchased at $648 collateralized
by U.S. Treasury Notes, 4.75%, due 11/15/08,
valued at $663 (COST $649) ......................... $648
-------
FOREIGN CURRENCY (1.2%)
IDR 7,447 Indonesian Rupiah .................................. 1
SGD 1 Singapore Dollar ................................... 1
HKD 86 Hong Kong Dollar ................................... 11
MYR 14 Malaysian Ringgit .................................. 4
KRW 332 South Korean Won ................................... --@
TWD 4,848 Taiwan Dollar ...................................... 158
-------
TOTAL FOREIGN CURRENCY (COST $174) ............................ 175
-------
TOTAL INVESTMENTS (95.3%) (COST $14,730) ........................ 14,704
-------
OTHER ASSETS (7.2%)
Receivable for Portfolio Shares Sold ................... $ 778
Receivable for Investments Sold ........................ 226
Dividends Receivable ................................... 61
Due from Adviser ....................................... 41 1,106
-----
LIABILITIES (-2.5%)
Payable for Investments Purchased ...................... (137)
Payable for Portfolio Shares Redeemed .................. (113)
Custodian Fees Payable ................................. (81)
Investment Advisory Fees Payable ....................... (30)
Professional Fees Payable .............................. (10)
Administrative Fees Payable ............................ (8)
Shareholder Reporting Expense Payable................... (7)
Unrealized Loss on Foreign Currency Exchange Contracts . (1)
Bank Overdraft Payable ................................. (6) (393)
----- -------
NET ASSETS (100%) ............................................... $15,417
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,923,910 outstanding $0.001 par value shares
(authorized 500,000,000 shares) ............................... $8.01
=======
NET ASSETS CONSIST OF:
Paid in Capital $12,428
Undistributed Net Investment Income 34
Accumulated Net Realized Gain 2,981
Unrealized Depreciation on Investments and Foreign Currency
Translations (Net of foreign taxes of $57) (26)
-------
NET ASSETS $15,417
=======
--------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing security
@ -- Value is less than $500
ADR -- American Depositary Receipt
PCL -- Public Company Limited
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
-----------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 2000,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY TO IN EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
------------- ---- ---------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C>
SGD 27 $ 16 7/3/00 U.S.$ 16 $ 16 $ --
U.S. 7,447 1 7/5/00 IDR 1 1 --
U.S. 3,735 -- 7/6/00 IDR -- -- --
U.S. 4,700 153 6/29/00 TWB 152 152 (1)
U.S. 27 1 7/5/00 THB 1 1 --
---- ---- ----
$171 $170 $ (1)
==== ==== ====
</TABLE>
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
VALUE % OF NET
SECTOR CLASSIFICATION (000) ASSETS
--------------------- ------- --------
<S> <C> <C>
Information Technology $ 5,206 33.8%
Financials 3,485 22.6
Telecommunication Services 2,497 16.2
Consumer Discretionary 981 6.4
Industrials 702 4.5
Materials 396 2.5
Utilities 349 2.3
Consumer Staples 241 1.5
Other 24 0.1
------- ----
Total Foreign Securities $13,881 89.9%
======= ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 121
Interest 33
Less: Foregin Taxes Withheld (9)
-------
Total Income 145
-------
EXPENSES:
Investment Advisory Fees 66
Less: Fees Waived (66)
-------
Net Investment Advisory Fees --
Custodian Fees 86
Administrative Fees 27
Shareholder Reports 20
Professional Fees 17
Interest Expense 8
Foreign Tax Expense 2
Directors' Fees and Expenses 1
Other 2
Expenses Reimbursed by Adviser (54)
-------
Net Expenses 109
-------
NET INVESTMENT INCOME 36
-------
NET REALIZED GAIN (LOSS) ON:
Investments Sold 1,688
Foreign Currency Transactions (27)
-------
Net Realized Gain 1,661
-------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (3,160)
Foreign Currency Translations 1
-------
Change in Unrealized Appreciation/Depreciation (3,159)
-------
NET REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION (1,498)
-------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,462)
=======
------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
(000) (000)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 36 $ 57
Net Realized Gain 1,661 8,408
Change in Unrealized Appreciation/Depreciation (3,159) 2,180
-------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations (1,462) 10,645
-------- --------
DISTRIBUTIONS
Net Investment Income -- (57)
In Excess of Net Investment Income -- (29)
-------- --------
Total Distributions -- (86)
-------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 72,726 61,037
Distributions Reinvested -- 85
Redeemed (72,965) (67,067)
-------- --------
Net Decrease in Net Assets Resulting from Capital Share Transactions (239) (5,945)
-------- --------
Total Increase in Net Assets (1,701) 4,614
-------- --------
NET ASSETS:
Beginning of Period 17,118 12,504
-------- --------
End of Period (including undistributed / (distribution in excess of)
net investment income of $34 and $(2), respectively) $ 15,417 $ 17,118
======== ========
-----------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 8,487 8,451
Shares Issued on Distributions Reinvested -- 10
Shares Redeemed (8,394) (9,021)
-------- --------
Net Increase/Decrease in Capital Shares Outstanding 93 (560)
======== ========
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
SIX MONTHS
ENDED
JUNE 30, PERIOD FROM
2000 MARCH 3, 1997*
(UNAUDITED) 1999 1998 TO DECEMBER 31, 1997
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.35 $ 5.23 $ 5.64 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.02 0.03 0.05 0.01
Net Realized and Unrealized Gain (Loss) (1.36) 4.14 (0.42) (4.36)
------- ------- ------- -------
Total from Investment Operations (1.34) 4.17 (0.37) (4.35)
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.03) (0.04) (0.01)
In Excess of Net Investment Income -- (0.02) -- --
------- ------- ------- -------
Total Distributions -- (0.05) (0.04) (0.01)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 8.01 $9.35 $ 5.23 $ 5.64
======= ======= ======= =======
TOTAL RETURN (14.33)% 79.81% (6.45)% (43.52)%
======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $15,417 $17,118 $12,504 $12,571
Ratio of Expenses to Average Net Assets 1.31%** 1.27% 1.21% 1.35%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense and Foreign Tax
Expense 1.20%** 1.20% 1.20% 1.20%**
Ratio of Net Investment Income (Loss) to Average
Net Assets 0.44%** 0.32% 1.14% 0.32%**
Portfolio Turnover Rate 104% 190% 121% 130%
--------------
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment Income $0.06 $ 0.19 $ 0.07 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.76%** 3.03% 2.80% 3.10%**
Net Investment Loss to Average Net Assets (1.01)%** (1.43)% (0.45)% (1.43)%**
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen
separate active, diversified and non-diversified portfolios (individually
referred to as a "Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Asian Equity Portfolio.
The investment objective of the Portfolio is to seek long-term capital
appreciation by investing primarily in equity securities of Asian issuers
(excluding Japan).
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
under procedures approved 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
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
and unrealized gains (losses) on investment transactions and balances.
However, pursuant to U.S. Federal income tax regulations, gains and losses
from certain foreign currency transactions and the foreign currency portion
of gains and losses realized on sales and maturities of foreign denominated
debt securities are treated as ordinary income for U.S. Federal income tax
purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from foreign currency exchange contracts,
disposition of foreign currencies, currency gains or losses realized between
the trade and settlement dates on securities transactions, and the difference
between the amount of investment income and foreign 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 clos ing exchange price of the local
shares. Such securities are identified as fair valued in the Statement of Net
Assets.
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolios may enter into
foreign currency exchange contracts generally to attempt to protect
securities and related receivables and payables against changes in future
foreign currency exchange rates. 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. 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.
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, ownership of shares is defined according to
entries in the issuer's share register. It is possible that a Portfolio
holding
10
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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 Asset Management ("MSAM"), 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>
Asian Equity........... 0.80% 0.75% 0.70%
</TABLE>
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio,
if necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 1.20%.
C. ADMINISTRATOR: MSAM (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, 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. CREDIT FACILITY: The Fund, along with an affiliated open-end fund
(collectively the "Funds") maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the
Agreement, the Funds are provided with a revolving credit facility (the
"Facility") allowing the Funds to borrow, subject to the limitations set
forth in each Fund's registration statement, amounts that, in the aggregate
for the Funds, will not exceed $235 million. The Funds pay a commitment fee
on the unused portion of the Facility at an annual rate of 0.09%. Fees
incurred in connection with the arrangement of the Facility totaled
approximately $225,000. The commitment fee and the arrangement fee are
allocated to the Funds based on an estimate of the potential amount available
to each Fund under their respective limitations. Such allocated costs are
further allocated to the Portfolios based on their net assets. Amounts drawn
down on the Facility bear interest at the annual rate equal to the then
prevailing Federal Funds rate plus 0.50% which is borne by the respective
borrowing Portfolio. For the six months ended June 30, 2000, there were no
amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, cost and unrealized appreciation (depreciation)
for U.S. Federal income tax purposes of the investments of the Portfolio were:
<TABLE>
<CAPTION>
NET
APPRECIATION DEPRECIATION DEPRECIATION
COST (000) (000) (000) (000)
--------- ------------ -------------- ------------
<S> <C> <C> <C>
$ 14,730 $1,223 $(1,249) $(26)
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $15,839,000 and $16,056,000,
respectively. There were no purchases and sales of U.S. Government securities
for the six months ended June 30, 2000. During the six months ended June 30,
2000, the portfolio incurred $18,037 of brokerage commissions to Morgan
Stanley & Co. Incorporated, an affiliated broker dealer.
During the year ended December 31, 1999, the Portfolio utilized capital loss
carryforwards for U.S. Federal income tax purposes of approximately
$6,486,000.
Net capital and currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Portfolio's
next taxable year. For the year ended December 31, 1999, the Portfolio
deferred to January 1, 2000 for U.S. Federal income tax purposes, post-
October currency losses of $1,000.
At June 30, 2000, 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>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
--------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE THE UNIVERSAL INSTITUTIONAL 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. FOR
ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000, PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG LLP
AS ITS NEW INDEPENDENT ACCOUNTANTS.
12
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS DEBT PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS DEBT PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Other (3.6%)
Algeria (2.4%)
Argentina (13.5%)
Brazil (21.9%)
Bulgaria (3.3%)
Colombia (5.4%)
Ecuador (0.7%)
Indonesia (1.9%)
Ivory Coast (0.2%)
Jordan (0.3%)
Mexico (16.6%)
Morocco (1.4%)
Netherlands (1.0%)
Panama (0.3%)
Peru (3.0%)
Philippines (6.7%)
Poland (1.2%)
Russia (11.7%)
Turkey (2.4%)
Venezuela (2.5%)
</TABLE>
TOP FIVE COUNTRIES
<TABLE>
<CAPTION>
VALUE PERCENT OF
COUNTRY (000) NET ASSETS
------- ------ ----------
<S> <C> <C>
Brazil $9,361 21.9%
Mexico 7,062 16.6%
Argentina 5,745 13.5%
Russia 5,010 11.7%
Philippines 2,844 6.7%
</TABLE>
PERFORMANCE COMPARED TO THE J.P.
MORGAN EMERGING MARKETS BOND GLOBAL
INDEX AND J.P. MORGAN EMERGING MARKETS
BOND PLUS INDEX
--------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(3)
--------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION(4)
----- -------- --------------------
<S> <C> <C> <C>
PORTFOLIO .......... 6.51% 22.00% -0.18%
EMERGING
MARKETS BOND
GLOBAL INDEX(1)..... 6.95 20.74 5.82
EMERGING
MARKETS
BOND
PLUS INDEX(2) ...... 8.10 23.16 5.82
</TABLE>
1. The J.P. Morgan Emerging Markets Bond Global Index tracks total returns for
the U.S. dollar-denominated debt instruments issued by emerging markets
sovereign and quasi-sovereign entities: Brady Bonds, loans, Eurobonds and
local market instruments for 27 emerging market countries.
2. The J.P Morgan Emerging Markets Bond Plus Index is a market weighted index
composed of all Brady Bonds, outstanding loans and Eurobonds, as well as U.S.
Dollar local market instruments outstanding and includes Argentina, Brazil,
Bulgaria, Colombia, Ecuador, Mexico, Morocco, Nigeria, Panama, Peru, the
Philippines, Poland, Russia, South Korea and Venezuela.
3. 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.
4. Commenced operations on June 16, 1997.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
The Emerging Markets Debt Portfolio seeks high total return by investing
primarily in fixed income securities of government and government related
issuers, and, to a lesser extent, of corporate issuers, located in emerging
market countries.
For the six months ended June 30, 2000, the Portfolio had a total return of
6.51% compared to 8.10% for the J.P. Morgan Emerging Markets Bond Plus Index and
6.95% for the J.P. Morgan Emerging Markets Bond Global Index (the "Index"). For
the one year ended June 30, 2000, the Portfolio had a total return of 22.00%
compared to 23.16% for the J.P Morgan Emerging Markets Bond Plus Index and
20.74% for the Index. For the period from inception on June 16, 1997 through
June 30, 2000, the Portfolio had an average annual total return of -0.18%
compared to 5.82% for the J.P Morgan Emerging Markets Bond Plus Index and 5.82%
for the Index.
The performance of emerging markets debt experienced wide shifts during the
first half of 2000. The first quarter of 2000 was very positive with a return in
the Index of 6.57%. This good performance was impressive considering the
volatility in equity markets, surging swap spreads, and a deterioration in all
other fixed income credit spreads. There were many positive events in the first
quarter of 2000 including improving credit ratings as Mexico, Russia, South
Africa, Hungary, and Tunisia were all upgraded. Furthermore, global growth was
better than expected and we continued to have a very supportive commodity price
environment.
In April and May of 2000, the environment changed and the returns, as measured
by the Index, were -4.11%. The increase in rates by the Federal Reserve, a
sell-off in the U.S. equity markets, and the general consensus that emerging
markets debt prices had risen too much in comparison to U.S. high yield and
other spread products, all caused the asset class to perform poorly during these
two months. Fortunately,
[SIDENOTE]
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED
AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL
INVESTING. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
[/SIDENOTE]
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS DEBT PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
the market had a big rebound in June as investors began feeling that the Federal
Reserve may be near the end of their rate-hike cycle. The Index rose 4.66% in
June 2000, increasing the return for the six months to 6.95%, far outpacing all
other fixed income asset classes. In comparison, the Portfolio had a return of
6.51%.
Bolstering Portfolio returns were overweight positions in Russia, Mexico,
Brazil, and Bulgaria at the right times during the second quarter of 2000. Also
helping our results was an overall defensive portfolio strategy that we
established in late March 2000. Finally, underweight positions in Argentina and
Korea, and a zero-weighting in Nigeria helped performance as these countries
performed worse than the Index. Detracting from the Portfolio's return were
overweight positions in Colombia, the Philippines, and our emerging markets
corporate positions.
In the near term, the outlook for Emerging Markets Debt will likely be
influenced by three important considerations. The first consideration is the
continued favorable sentiment generated by the successful Mexican elections. As
the spreads on Mexican bonds tighten, asset prices of a number of higher rated
countries (e.g., Peru, Philippines, and Panama) should benefit also. The second
influence will be new supply. Continued external market stability will most
certainly prompt even more issuance by Argentina and Brazil, as well as other
sovereigns. Finally, our market will remain hostage to global financial market
developments. Insofar as the three influences are offsetting, rendering no clear
direction, our team is staying with a neutral stance hoping to, in the interim,
benefit from a portfolio that may out-yield the Index. Longer term, we are very
positive on emerging markets debt due to good global economic growth, improving
fiscal policies by many of these countries, and the continued advancement of
structural reform agendas. We expect to become more aggressive when more
favorable market conditions exist.
July 2000
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
---------------------------------------------------------------------------
<S> <C>
DEBT INSTRUMENTS (94.4%)
ALGERIA (2.4%)
SOVEREIGN (2.4%)
U.S.$ 300 Republic of Algeria Loan Agreements,
0.00%, 3/31/10 ............................. $ 247
1,000 Republic of Algeria Loan Agreements,
0.00%, 3/31/10 ............................. 778
--------
1,025
--------
ARGENTINA (13.5%)
CORPORATE (1.2%)
(e)100 Cablevision S.A.,
13.75%, 5/1/09 ............................. 91
ARP (e)480 CIA International Telecommunications,
10.375%, 8/1/04 ............................ 422
--------
513
--------
SOVEREIGN (12.3%)
U.S.$ 950 Republic of Argentina, Global Bond,
11.75%, 4/7/09 ............................. 885
(v)2,610 Republic of Argentina, Global Bond,
11.75%, 6/15/15 ............................ 2,375
(v)(n)2,160 Republic of Argentina, Global Bond,
Series L, (Floating Rate), (Bearer),
7.375%, 3/31/05 ............................ 1,972
--------
5,232
--------
5,745
--------
BRAZIL (21.9%)
CORPORATE (1.3%)
600 Banco Nacional De Desenvolvimento
Economic E Social, (Registered),
12.554%, 6/16/08 ........................... 564
--------
SOVEREIGN (20.6%)
(n)1,560 Federative Republic of Brazil Debt
Conversion Bond, Series L,
(Floating Rate),
7.438% 4/15/12 ............................. 1,150
(n)300 Federative Republic of Brazil,
6.00%, 4/15/24 ............................. 196
2,400 Federative Republic of Brazil,
12.25%, 3/6/30 ............................. 2,196
(v)902 Federative Republic of Brazil,
14.50%, 10/15/09 ........................... 955
(v)(n)150 Federative Republic of Brazil,
Series NMB L, (Floating Rate),
7.438%, 4/15/09 ............................ 126
(n)215 Federative Republic of Brazil,
C Bond, PIK,
8.00%, 4/15/14 ............................. 156
(n)2,278 Federative Republic of Brazil,
C Bond, PIK,
8.00%, 4/15/14 ............................. 1,653
U.S.$ (v)(n)29 Federative Republic of Brazil, Debt
Conversion Bond, RG, (Floating Rate),
7.438%, 4/15/12 ............................ $ 21
(n)1,409 Federative Republic of Brazil,
Series EI-L, (Floating Rate),
7.375%, 4/15/06 ............................ 1,285
(n)130 Federative Republic of Brazil,
Series NMB L, (Floating Rate),
7.438%, 4/15/09 ............................ 109
1,200 Federative Republic of Brazil,
Series ZL, (Floating Rate),
7.375%, 4/15/24 ............................ 950
--------
8,797
--------
9,361
--------
BULGARIA (3.3%)
SOVEREIGN (3.3%)
(v)880 Republic of Bulgaria, Discount Bond,
Series A, (Floating Rate)
7.063%, 7/28/24 ............................ 698
(v)(n)900 Republic of Bulgaria,
PDI Bond, (Floating Rate),
7.063%, 7/28/11 ............................ 714
--------
1,412
--------
COLOMBIA (5.4%)
CORPORATE (0.4%)
(n)250 Occidente y Caribe Cellular,
Series B,
0.00%, 3/15/04 ............................. 177
--------
SOVEREIGN (5.0%)
250 Republic of Colombia, Global Bond,
9.75%, 4/23/09 ............................. 197
2,350 Republic of Colombia, Global Bond,
11.75%, 2/25/20 ............................ 1,933
--------
2,130
--------
2,307
--------
ECUADOR (0.7%)
SOVEREIGN (0.7%)
(b)(v)800 Republic of Ecuador, Discount Bond,
(Floating Rate),
6.75%, 2/28/25 ............................. 318
--------
INDONESIA (1.9%)
CORPORATE (1.9%)
160 Indah Kiat International Finance,
Series B,
11.875%, 6/15/02 130
780 Tjiwi Kimia International BV,
Global Bond,
13.25%, 8/1/01 ............................. 686
--------
816
--------
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
---------------------------------------------------------------------------
<S> <C>
IVORY COAST (0.2%)
SOVEREIGN (0.2%)
U.S.$(e)(n)650 Ivory Coast,
Series FLRB,
2.00%, 3/29/18 ............................. $ 104
--------
JORDAN (0.3%)
SOVEREIGN (0.3%)
(e)161 Government of Jordan,
Discount Bond, (Floating Rate),
7.75%, 12/23/23 ............................ 125
--------
MEXICO (16.6%)
CORPORATE (3.0%)
(e)200 Grupo Elektra S.A.,
12.00%, 4/1/08 ............................. 182
(e)250 Nuevo Grupo Iusacell S.A.,
14.25%, 12/1/06 ............................ 261
(e)500 Sanluis Corp. S.A.,
8.875%, 3/18/08 ............................ 458
400 TV Azteca S.A., Series B,
10.50%, 2/15/07 ............................ 358
--------
1,259
--------
SOVEREIGN (13.6%)
600 United Mexican States, Global Bond,
9.50%, 9/15/27 ............................. 608
(e)250 United Mexican States, Global Bond,
7.50%, 3/8/10 .............................. 230
(v)750 United Mexican States, Discount Bond,
Series A, (Floating Rate),
7.313%, 12/31/19 ........................... 737
(v)250 United Mexican States, Discount Bond,
Series B, (Floating Rate)
7.603%, 12/31/19 ........................... 246
(v)2,700 United Mexican States, Discount Bond,
Series D, (Floating Rate),
7.925%, 12/31/19 ........................... 2,653
500 United Mexican States, Par Bond,
Series W-A, 6.25%, 12/31/19 ................ 415
1,100 United Mexican States, Par Bond,
Series W-B, 6.25%, 12/31/19 ................ 914
--------
5,803
--------
7,062
--------
MOROCCO (1.4%)
SOVEREIGN (1.4%)
667 Government of Morocco, Reconstruction &
Consolidation Agreement,
Series A, (Floating Rate),
7.75%, 1/1/09 .............................. 601
--------
NETHERLANDS (1.0%)
CORPORATE (1.0%)
(e)400 Cellco Finance NV,
15.00%, 8/1/05 ............................. 430
--------
PANAMA (0.3%)
SOVEREIGN (0.3%)
U.S.$ (v)2 Republic of Panama, PDI, (Floating Rate),
4.00%, 7/17/16 ............................. $ 2
(n)164 Republic of Panama, PDI, (Floating Rate),
7.063%, 7/17/16 ............................ 135
--------
137
--------
PERU (3.0%)
SOVEREIGN (3.0%)
(n)1,575 Republic of Peru, Front Loaded Interest
Reduction Bond,
(Floating Rate), 3.75%, 3/7/17 ............. 957
(n)450 Republic of Peru, PDI Bond,
(Floating Rate), 4.50%, 3/7/17 ............. 302
--------
1,259
--------
PHILIPPINES (6.7%)
CORPORATE (0.7%)
(e)500 Bayan Telecommunications,
13.50%, 7/15/06 ............................ 293
SOVEREIGN (6.0%)
2,590 Republic of Philippines, Global Bond,
10.625%, 3/16/25 ........................... 2,223
400 Republic of Philippines, Global Bond,
9.875%, 1/15/19 ............................ 328
--------
2,551
--------
2,844
--------
POLAND (1.2%)
CORPORATE (1.2%)
(e)20 PTC International Finance,
11.25%, 12/1/09 ............................ 20
200 PTC International Finance II Poltel,
11.25%, 12/1/09 ............................ 203
(e)300 Netia Holdings II B.V.,
13.125%, 6/15/09 ........................... 282
--------
505
--------
RUSSIA (11.7%)
SOVEREIGN (11.7%)
1,450 Russian Federation, (Registered),
12.75%, 6/24/28 ............................ 1,260
450 Russian Interest Arrears Note, (Floating
Rate), 7.938%, 12/15/15 .................... 140
(b)11,741 Russian Principal Loans, (Floating Rate),
7.938%, 12/15/20 ........................... 3,610
--------
5,010
--------
TURKEY (0.4%)
SOVEREIGN (0.4%)
150 Turkey Linked Structured Note,
0.00%, 8/7/00 .............................. 156
--------
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
---------------------------------------------------------------------------
<S> <C>
VENEZUELA (2.5%)
SOVEREIGN (2.5%)
U.S.$ 600 Government of Venezuela,
9.25%, 9/15/27 ............................. $ 396
550 Government of Venezuela, Series W-A,
6.75%, 3/31/20 ............................. 385
(v)(n)357 Republic of Venezuela, Debt Conversion
Bond, Series DL, (Floating Rate),
7.875%, 12/18/07 ........................... 290
--------
1,071
--------
TOTAL FOREIGN DEBT INSTRUMENTS (COST $39,866) .................... 40,288
--------
NO. OF
RIGHTS
---------------
RIGHTS (0.0%)
MEXICO (0.0%)
(a)5,691,000 United Mexican States, Value Recovery
Rights, expiring 6/30/03 (COST $0) ......... --@
--------
NO. OF
WARRANTS
---------------
WARRANTS (0.0%)
COLUMBIA (0.0%)
(e)(a)5,970 Occidente y Caribe, expiring 3/15/04
(COST $3) .................................. 2
--------
FACE
AMOUNT
(000)
---------------
SHORT-TERM INVESTMENTS (5.9%)
TURKEY (2.0%)
TREASURY BILL (2.0%)
TRL 605,650,000 Turkish Treasury Bill 46.25%, 8/23/00 ........ 863
--------
UNITED STATES (3.9%)
REPURCHASE AGREEMENT (3.9%)
1,649 Chase Securities, Inc., 6.15% dated 6/30/00,
due 7/03/00, to be repurchased at $1,650
collateralized by U.S. Treasury Notes,
4.75% due 11/15/08, valued at $1,687 ....... 1,649
--------
TOTAL SHORT-TERM INVESTMENTS (COST $2,664) ....................... 2,512
--------
<CAPTION>
AMOUNT
(000)
---------------------------------------------------------------------------
TOTAL INVESTMENTS (100.3%) (COST $42,533) ........................ $ 42,802
--------
OTHER ASSETS (10.7%)
Cash ............................................ $ 18
Receivable for Investments Sold ................. 3,596
Interest Receivable ............................. 926
Due from Adviser ................................ 28
Receivable for Portfolio Shares Sold ............ 1 4,569
--------
LIABILITIES (-11.0%)
Payable for Investments Purchased .............. (4,363)
Payable for Portfolio Shares Redeemed .......... (172)
Investment Advisory Fees Payable ............... (85)
Shareholder Reporting Expense Payable .......... (28)
Custodian Fees Payable ......................... (16)
Professional Fees Payable ...................... (12)
Country Tax Expense Payable .................... (12)
Administrative Fees Payable .................... (11)
Unrealized Loss on Foreign Currency Exchange
Contracts ................................... (10)
Other Liabilities .............................. (1) (4,710)
-------- --------
NET ASSETS (100%) ................................................ $ 42,661
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 5,799,556 outstanding $0.001 par value shares
(authorized 500,000,000 shares) ............................. $ 7.36
========
NET ASSETS CONSIST OF:
Paid in Capital .................................................. $ 50,008
Undistributed Net Investment Income .............................. 2,252
Accumulated Net Realized Loss .................................... (9,847)
Unrealized Appreciation on Investments and Foreign Currency
Translations ................................................ 248
--------
NET ASSETS ....................................................... $ 42,661
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
(a) -- Non-income producing security.
(b) -- Security is in default.
(e) -- 144A Security -- certain conditions for public sale may exist.
(n) -- Step Bond -- coupon rate increases in increments to maturity; rate
disclosed is as of June 30, 2000. Maturity date disclosed is the ultimate
maturity date.
(v) -- Security is a Brady Bond, created through the debt restructuring exchange
of commercial bank loans to foreign entities for new fixed income
obligations. These bonds may be collateralized and are actively traded on
the over-the-counter secondary market.
@ -- Value is less than $500
ARP -- Argentine Peso
TRL -- Turkish Lira
PIK -- Payment-in-Kind-- Income may be paid in additional securities or cash at
the discretion of the issuer
PDI -- Past Due Interest
Floating Rate Security -- Interest rate changes on these instruments are based
upon a designated base rate. The rates shown are those in effect at
June 30, 2000.
--------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 2000,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
-------------- ------- ---------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
EUR 628 $ 599 7/5/00 U.S.$ 585 $ 585 $(14)
EUR 78 74 8/7/00 U.S. 74 74 --
U.S.$ 593 593 7/5/00 EUR 626 597 4
------ ------- ----
$1,266 $1,256 $(10)
====== ====== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest $ 2,539
-------
EXPENSES:
Investment Advisory Fees 159
Less: Fees Waived (55)
-------
Net Investment Advisory Fees 104
Administrative Fees 54
Shareholder Reports 41
Custodian Fees 39
Interest Expense 25
Professional Fees 18
Directors' Fees and Expenses 1
Other 1
-------
Net Expenses 283
-------
NET INVESTMENT INCOME 2,256
-------
NET REALIZED GAIN (LOSS) ON:
Investments Sold (net of foreign taxes of $61) 1,657
Foreign Currency Transactions (355)
-------
Net Realized Gain 1,302
-------
CHANGE IN UNREALIZED DEPRECIATION ON:
Investments (1,602)
Foreign Currency Translations (12)
-------
Change in Unrealized Depreciation (1,614)
-------
Net Realized Loss and Change in Unrealized Depreciation (312)
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,944
=======
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED) (000)
(000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 2,256 $ 3,899
Net Realized Gain 1,302 756
Change in Unrealized Depreciation (1,614) 2,710
------- -------
Net Increase in Net Assets Resulting from Operations 1,944 7,365
------- -------
DISTRIBUTIONS
Net Investment Income -- (3,847)
In Excess of Net Investment Income -- (4)
------- -------
Total Distributions -- (3,851)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 56,437 68,819
Distributions Reinvested -- 3,199
Redeemed (47,278) (68,906)
------- -------
Net Increase in Net Assets Resulting from Capital Share Transactions 9,159 3,112
------- -------
Total Increase in Net Assets 11,103 6,626
NET ASSETS:
Beginning of Period 31,558 24,932
------- -------
End of Period (including undistributed \ distributions in excess of net investment income of $42,661 $31,558
$2,252 and $(4) respectively) ======= =======
-----------------------------------------------------------------------------------------------------------------------------
(1)Capital Share Transactions:
Shares Subscribed 7,779 10,196
Shares Issued on Distributions Reinvested 473
Shares Redeemed (6,549) (10,189)
------- -------
Net Increase in Capital Shares Outstanding 1,230 480
======= =======
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS DEBT PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
SIX MONTHS
ENDED
JUNE 30, PERIOD FROM
2000 JUNE 16, 1997*
(UNAUDITED) 1999 1998 TO DECEMBER 31, 1997
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.91 $ 6.10 $ 9.67 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.38 0.97 0.85 0.28
Net Realized and Unrealized Gain (Loss) 0.07 0.80 (3.60) (0.22)
------- ------- ------- -------
Total from Investment Operations 0.45 1.77 (2.75) 0.06
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.96) (0.82) (0.27)
In Excess of Net Investment Income -- (0.00)+ -- --
Net Realized Gain -- -- -- (0.02)
In Excess of Net Realized Gain -- -- -- (0.10)
------- ------- ------- -------
Total Distributions -- (0.96) (0.82) (0.39)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 7.36 $ 6.91 $ 6.10 $ 9.67
======= ======= ======= =======
TOTAL RETURN 6.51% 29.37% (28.38)% 0.76%
======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $42,661 $31,558 $24,932 $26,378
Ratio of Expenses to Average Net Assets 1.42% ** 1.43% 1.52% 1.35%**
Ratio of Expenses to Average Net Assets Excluding
Interest Expense and Foreign Tax Expense 1.30% ** 1.30% 1.30% 1.30%**
Ratio of Net Investment Income to Average Net
Assets 11.31% ** 13.79% 10.94% 8.10%**
Portfolio Turnover Rate 290% 396% 449% 173%
--------------
Effect of Voluntary Expense Limitation During the
Period:
Per Share Benefit to Net Investment Income $ 0.01 $ 0.03 $ 0.04 $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.70% ** 1.78% 2.05% 2.06%**
Net Investment Income to Average Net Assets 11.03% ** 13.43% 10.41% 7.39%**
--------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen separate active,
diversified and non-diversified portfolios (individually referred to as a
"Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Emerging Markets Debt
Portfolio. The Portfolio seeks high total return by investing primarily in fixed
income securities of government and government related issuers, and, to a lesser
extent, of corporate issuers, located in emerging market countries.
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 take into account
institutional size trading in similar groups of securities, security quality,
maturity, coupon and other security characteristics 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 under procedures approved 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
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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.
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.
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: The
Portfolio may make forward commitments to purchase or sell securities. Payment
and delivery for securities which have been purchased or sold on a forward
commitment basis can take place up to 120 days after the date of the
transaction. Additionally, the 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 portfolio's records. Purchasing
securities on a forward commitment or when-issued or delayed-delivery basis
may involve a risk that the market price at the time of delivery may be lower
than the agreed upon purchase price, in which case there could be an unrealized
loss at the time of delivery.
7. LOAN AGREEMENTS: The Portfolio may invest in fixed and floating rate loans
("Loans") arranged through private negotiations between an issuer of sovereign
debt obligations and one or more financial institutions ("Lenders") deemed to be
creditworthy by the investment adviser. The Portfolio's investments in Loans may
be in the form of participations in Loans ("Participations") or assignments of
all or a portion of Loans ("Assignments") from third parties. The Portfolio's
investment in Participations typically results in the Portfolio having a
contractual relationship with only the Lender and not with the borrower. The
Portfolio has the right to receive payments of principal, interest and any fees
to which it is entitled only upon receipt by the Lender of the payments from the
borrower. The Portfolio generally has no right to enforce compliance by the
borrower with the terms of the loan agreement. As a result, the Portfolio may be
subject to the credit risk of both the borrower and the Lender that is selling
the Participation. When the Portfolio
10
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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. 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 and the timing of the deductibility of
certain foreign taxes.
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.
B. ADVISER: Morgan Stanley Asset Management ("MSAM"), 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>
FROM
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
--------- ------- ---------- ----------
<S> <C> <C> <C>
Emerging Markets Debt 0.80% 0.75% 0.70%
</TABLE>
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio, if
necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 1.30%.
C. ADMINISTRATOR: MSAM (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, 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. CREDIT FACILITY: The Fund, along with an affiliated open-end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the Agreement,
the Funds are provided with a revolving credit facility (the "Facility")
allowing the Funds to borrow, subject to the limitations set forth in each
Fund's registration statement, amounts that, in the aggregate for the Funds,
will not exceed $235 million. The Funds pay a commitment fee on the unused
portion of the Facility at an annual rate of 0.09%. Fees incurred in connection
with the arrangement of the Facility totaled approximately $225,000. The
commitment fee and the arrangement fee are allocated to the Funds based on an
estimate of the potential amount available to each Fund under their respective
limitations. Such allocated costs are further allocated to the Portfolios based
on their net assets. Amounts drawn down on the Facility bear interest at the
annual rate equal to the then prevailing Federal Funds rate plus 0.50% which is
borne by the respective borrowing Portfolio. For the six months ended June 30,
2000, there were no amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, cost and unrealized appreciation (depreciation) for
U.S. Federal income tax purposes of the investments of the Portfolio were:
11
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
NET
COST APPRECIATION DEPRECIATION APPRECIATION
(000) (000) (000) (000)
----------- ------------ ------------ ------------
<S> <C> <C> <C>
$42,533 $1,295 ($1,026) $269
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $116,712,000 and $105,526,000,
respectively. There were no purchases and sales of U.S. Government securities
for the six months ended June 30, 2000.
At December 31, 1999, the Portfolio had available capital loss carryforwards to
offset future net capital gains, to the extent provided by regulations, through
December 31, 2006 and December 31, 2007 of approximately $8,714,000 and
$1,503,000, respectively. To the extent that capital loss carryforwards are used
to offset any future net capital gains realized during the carryforward period
as provided by U.S. tax regulations, no capital gains tax liability will be
incurred by the Portfolio for gains realized and not distributed. To the extent
that capital gains are so offset, such gains will not be distributed to
shareholders.
For the year ended December 31, 1999, the Portfolio deferred to January 1, 2000,
for U.S. Federal income tax purposes, post-October currency losses of $1,000 and
post-October capital losses of $129,000.
At June 30, 2000, the net assets of the Portfolio were substantially comprised
of foreign securities and currency. Changes in currency exchange rates will
affect the U.S. dollar value of and investment income from such securities.
Further, at certain times the Portfolio's investments are concentrated in a
limited number of countries and regions. This concentration may further increase
the risk of the Portfolio.
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.
From time to time, the 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 the Portfolio.
12
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
--------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE THE UNIVERSAL INSTITUTIONAL 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. FOR
ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT www.mdsw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000, PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNDERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG LLP
AS ITS NEW INDEPENDENT ACCOUNTANTS.
13
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
----------------------------------------------------------------------------
<TABLE>
<S> <C>
Brazil (8.7%)
Chile (0.2%)
China (3.7%)
Czech Republic (0.4%)
Egypt (1.0%)
Greece (2.2%)
Hong Kong (4.3%)
Hungary (0.7%)
India (6.6%)
Indonesia (0.6%)
Israel (8.5%)
South Korea (21.0%)
Malaysia (2.0%)
Mexico (9.4%)
Poland (1.0%)
Russia (3.4%)
South Africa (3.9%)
Taiwan (13.2%)
Thailand (1.2%)
Turkey (4.1%)
Other (3.9%)
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY COUNTRY NET ASSETS
-------- ------- ----------
<S> <C> <C>
Samsung Electronics Co. South Korea 7.5%
Korea Telecom, Ltd. South Korea 4.3
Telmex Class L, ADR Mexico 4.0
Taiwan Semiconductor Manufacturing
Co., Ltd. Taiwan 3.3
China Telecom Ltd. Hong Kong 2.9
</TABLE>
TOP FIVE SECTORS
<TABLE>
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
------ ----- ----------
<S> <C> <C>
Information Technology $96,396 35.3%
Telecommunications Service 81,954 30.0
Finance 24,262 8.9
Consumer Discretionary 17,943 6.6
Energy 12,731 4.6
</TABLE>
PERFORMANCE COMPARED TO MSCI
EMERGING MARKETS FREE INDEX(1) AND IFC
GLOBAL TOTAL RETURN COMPOSITE INDEX(2)
--------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(3)
--------------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION(4)
----- ----- ------------------
<S> <C> <C> <C>
PORTFOLIO -5.25% 34.24% 9.01%
MSCI INDEX(1) -7.99 9.47 0.03
IFC INDEX(2) -6.82 9.60 0.08
</TABLE>
1. The Morgan Stanley Capital International (MSCI) Emerging Markets Free Index
is a market capitalization weighted index composed of companies that are
representative of the market structure of the developing countries in Latin
America, Asia, Eastern Europe, the Middle East and Africa.
2. The IFC Global Total Return Composite Index is an unmanaged index of common
stocks and includes developing countries in Latin America, East and South
Asia, Europe, the Middle East and Africa.
3. 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.
4. Commenced operations on October 1, 1996.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
The Emerging Markets Equity Portfolio seeks long-term capital appreciation by
investing primarily in common and preferred stocks, convertible securities,
rights and warrants to purchase common stocks, sponsored or unsponsored ADRs and
other equity securities of emerging market country issuers.
For the six months ended June 30, 2000, the Portfolio had a total return of
-5.25% compared to -7.99% for the Morgan Stanley Capital International (MSCI)
Emerging Markets Free Index (the "MSCI Index") and -6.82% for the IFC Global
Total Return Composite Index (the"IFC Index"). For the one year period ended
June 30, 2000, the Portfolio had a total return of 34.24% compared to 9.47% for
the MSCI Index and 9.60% for the IFC Index. For the period from inception on
October 1, 1996 through June 30, 2000, the Portfolio had an average annual total
return of 9.01% compared with 0.03% for the MSCI Index and 0.08% for the IFC
Index.
Outperformance relative to the MSCI Index resulted from our country selection,
particularly our overweight positions in China (country index total return was
+0.9% in U.S. dollars), Israel (+26.5%), South Korea (-2.9%), and Taiwan (-2.7%)
coupled with our underweight stance in Greece (-25.7%), the Philippines
(-35.9%), South Africa (-15.3%), and Thailand (-34.6%). Strong stock selection
in Brazil, Greece, Mexico and Taiwan also helped performance. Our overweight
position in Egypt (-23.3%) and our underweight stance in Venezuela (+19.0%)
weakened performance. Stock selection in China, India, Israel, Russia, South
Africa and South Korea also detracted from performance.
[SIDENOTE]
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION
TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED IN THIS OVERVIEW ARE FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
[/SIDENOTE]
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
Many first quarter gains in emerging markets were given back during the second
quarter of 2000, as positive macroeconomic and political developments within the
emerging markets countries were overshadowed by the sharp NASDAQ declines in
April, volatility in developed markets, and heightened investor skittishness
regarding U.S. interest rates. However, towards the end of June 2000, most
emerging markets rebounded as economic numbers pointed to a soft landing for the
U.S. economy, thus allaying investor fears of sharply tighter U.S. interest
rates; and promising signs of economic recovery appeared from various emerging
countries.
The Latin American region fell 3.8% during the first half of 2000. Latin
American markets advanced during the beginning of the year as investors rewarded
continued signs of macroeconomic improvements in the region and steps towards
increasing fiscal responsibility. However, Latin American markets declined
overall during the second quarter, amidst the backdrop of poor performance and
massive volatility in the developed markets. Technology stocks were particularly
hit, declining in sympathy with some of the NASDAQ's sharp falls during the
second quarter of 2000. Latin American markets fell as the region's positive
economic fundamentals were overshadowed by investor concerns over higher U.S.
interest rates and market volatility. However, the markets rebounded towards
quarter end as good U.S. economic numbers allayed investor concerns surrounding
inflation and necessary interest rate hikes. Notable events during these past
six months included Telefonica de Espana's (TEF) tender offers for its Latin
American telecommunications services subsidiaries and changes within the Mexican
banking sector. We are encouraged by signs of economic recovery and we believe
corporate restructuring and the possibility for lower real interest rates should
lead to improved earnings for many Latin companies.
Equities in Brazil were relatively flat during the first half of 2000, as
positive economic fundamentals and the country's commitment to adopt greater
fiscal discipline and to meet IMF targets were eclipsed by investor skittishness
and the volatile performance of technology and telecommunication stocks. During
the second quarter, Brazil's performance on the fiscal primary surplus,
inflation, and industrial production figures surpassed expectations. The
government demonstrated perseverance towards fiscal constraint and improving
corporate governance, as evidenced by Congress' passage of the Minimum Wage Bill
and Lower House approval of a corporate legislation bill. Investor sentiment
during the second quarter was aggravated by a Supreme Court case on retroactive
monetary readjustment to workers' accounts, with a potential fiscal cost to the
government of U.S.$30 billion. Investor sentiment was also weighed down by the
sharp declines in NASDAQ, but market confidence was restored in June as investor
concerns regarding sharp U.S. interest rate hikes were allayed and Brazil
continued to reveal positive economic developments. The Central Bank proved
aggressive in June, surprising the market by lowering the benchmark Selic rate
by 100 basis points to 17.5%. It also lowered reserve requirements while
adopting an easing bias for its monetary stance.
Mexican equities (-6.0%) were weighed down by investor fears of higher U.S.
interest rates and a U.S. economic slowdown (more than 80% of Mexico's exports
are to the U.S.) and uncertainty regarding the presidential election on July 2.
Equities rallied during June as concerns regarding higher U.S. rates were
allayed and sentiment focused on continued signs of a robust domestic economic
recovery. Recent highlights include the approved takeover of Mexican bank GF
Bancomer by Spain's Banco Bilbao Vizcaya Argentaria (BBVA), which we believe may
foster an expansion of bank credit, spearheading further GDP growth. Strong U.S.
economic performance and high oil prices have also benefited Mexico, as the U.S.
is the largest market for Mexican exports and oil is one of Mexico's largest
exports. The Mexican peso was increasingly volatile during the second quarter
and lost ground prior to the presidential elections on July 2. Although we are
cautiously monitoring pressures on the peso, we believe a weaker peso may help
Mexico's trade balance, which remains vulnerable when oil exports are excluded.
We anticipate equities should fare well following a more certain scenario post
the elections, which should restore investor confidence. We are likely to add to
equities in Brazil and Mexico, notably to media, telecommunication and
conglomerate industries, as we believe equities in these markets shall continue
to be supported by positive economic trends coupled with attractive valuations
and companies with great earnings growth potential.
Asian equities fell 9.7% during the first half of 2000, weighed down by investor
skittishness induced by the NASDAQ volatility, by heightened political tensions
within Indonesia and between China and Taiwan, and by concerns over financial
reforms in South Korea. Asian markets rebounded towards quarter-end, as market
sentiment was buoyed by reduced fears regarding U.S. interest rate hikes and
investors focused once again on trends in improving macroeconomic fundamentals
coupled with strong earnings stories throughout the region. We are maintaining
and adding to our overweight stance in Asia,
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
as we are encouraged by signs of strong economic recovery, robust
exports and global outsourcing opportunities that enhance prospects for the
region.
Equities in Taiwan (-2.7%) advanced at the beginning of the year, yet were
later pulled down in sympathy with the NASDAQ sell-off and by the renewal of
mainland China military posturing in the Taiwan strait. Equities failed to
rebound in June due to a lack of interest by retail investors, who have
already priced in most of the good May sales figures. Voters elected
Democratic Progressive Party candidate Chen Shui-bian as their new president
on March 19, ending more than half a century of Nationalist (KMT) rule. We
believe Chen's victory should be positive for the market over the
longer-term, and recent conciliatory remarks directed at China have helped to
reduce political uncertainty in the near-term. We believe Taiwan's strong
economic fundamentals coupled with attractive valuations, strong earnings
growth potential and world-class technology companies continue to make this
an exciting market. Taiwan's weight in the MSCI indices increased from 50% to
65% of market capitalization effective after the close of May 31, potentially
yielding increased inflows in the future. We are modestly overweight in
Taiwan and we have favored companies that we believe represent exciting
opportunities leveraged to trends in technology and outsourcing.
Our largest country overweight position is South Korea (-2.9%), where we
believe equities should continue to benefit from upward revisions of GDP
growth forecasts, a strong current account surplus, and market sentiment
buoyed by the government's prudent handling and restructuring of troubled
chaebols and investment trusts. South Korean equities were weighed down as
investors were wary of financial reforms and potential problems at investment
trust companies. However, South Korea led the Asian equities in June, as
upward revisions of GDP growth forecasts, a strong current account surplus
figure for May, and a historic summit meeting with North Korea boosted
sentiment. During the first half of 2000, we increased our exposure to South
Korean banks, as we believe they should be supported by strong economic
growth, a benign interest rate environment and improving market confidence.
Chinese equities advanced 0.9%, buoyed by better-than-expected first quarter
GDP growth and promising economic activity based on a surge in overseas
demand, industrial production and direct investment. We are adding to our
overweight stance in China, which we believe will be supported by domestic
demand recovery, including robust growth in retail sales and positive CPI
after a period of deflation. On May 31st, MSCI revised the construction of
the MSCI China Free Index to better represent the investment opportunities
available to foreign investors, which significantly increased the market
capitalization of the Index. Consequently, China's weight in the Index
increased considerably.
Equities in India fell 3.3% over the past six months, yet were boosted toward
the latter half by the strong performance of technology, media and
telecommunication stocks. Although we continue to believe India's market
should fare well over the longer term, with robust economic growth forecast
for 6.5%-7.0% this year, we are somewhat disappointed by the government's
follow-through with privatization plans. Within India, the portfolio is
focused on well-managed data processing and reproduction companies such as
Infosys, which provides managed software solutions to clients worldwide,
specifically targeting the distribution, banking, telecommunications, and
manufacturing sectors.
Emerging Europe and the Middle East (EEMEA) declined 6.0%, although posting
mixed returns. We maintain our underweight stance in Greek equities, which
declined 25.7% as the market has already discounted most of the good news
surrounding European Monetary Union convergence. We believe telecommunication
services providers are attractively valued and reduced our underweight in
Greek equities during the quarter via this sector, by adding to OTE. Israeli
equities advanced 26.5%, supported by a positive macroeconomic environment,
strong corporate earnings results and tax reforms. We took advantage of
strong performance to trim our overweight position in various Israeli
technology-related companies, given the combination of rich valuations and a
more cautious outlook on U.S. interest rates and the market overall. Within
Israel, which remains our largest overweight in the EEMEA region, we are
attracted to companies with core competencies in communications, software and
semiconductor equipment, possessing strong management and with great earnings
growth potential.
Russian equities fell 5.6%, despite strong oil prices and continued signs of
economic strength, such as a stable Ruble, increasing foreign reserves, and
robust GDP growth, as sentiment has been tempered by the hostilities in
Chechnya and the need for substantive economic reform. We added to oil stocks
Lukoil and Surgutneftegaz as we believe Russian equities are attractively
valued and that oil stocks should benefit in the near-term from the strength
of oil prices. Turkish equities declined
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
10.2%, as a higher-than-expected current account deficit and political
uncertainty surrounding corruption allegations against key officials dampened
market sentiment. We may add to our modest overweight stance in Turkey as we
anticipate equities should appreciate once political tensions subside. We are
cautiously watching inflation figures for signs of improving trends but are
encouraged by the currency's stability, improving industrial production and
fiscal surplus figures that indicate the economy is turning around. Encouraged
by Turkey's progress with its reform program, we added to Yapi Kredi Bank and
telecommunications equipment supplier Netas Telecom. The Czech Republic (+6.2%),
Hungary (-7.8%) and Poland (+1.5%) have faced subdued investor interest given a
somewhat disappointing macroeconomic environment in the near-term. We are
underweight these markets.
South African equities declined 15.3%, weighed down by disappointing inflation
and first quarter GDP figures, and investor wariness fueled by the tensions in
trading partner Zimbabwe. A better-than-expected trade surplus in May and recent
Rand strength helped equities perform well towards the end of the second
quarter. We continue to underweight South Africa, as lackluster economic growth
has been exacerbated by rising oil prices and education and health care costs
adversely affecting inflation as well as by capital flight.
July 2000
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (96.2%)
BRAZIL (8.7%)
(a)5,546,059 Celular Crt .......................................................... $ 2,429
21,263,436 CEMIG (Preferred) .................................................... 371
10,717 CEMIG ADR ............................................................ 185
56,102 Companhia Vale do Rio Doce (Preferred), Class A ...................... 1,583
283,700 Coteminas ............................................................ 17
(d)(e)2,700 Coteminas ADR ........................................................ 8
3,901,750 CRT (Preferred) ...................................................... 1,320
17,433 CVRD ADR ............................................................. 492
49,324,000 Embratel Participacoes S.A. (Preferred) .............................. 1,179
81,040 Embratel Participacoes S.A. ADR ...................................... 1,915
(a)(d)(e)2,311,000 Lojas Arapua (Preferred) ............................................. --@
(a,d,e)1,305 Lojas Arapua (Preferred) ADR ......................................... --@
46,402 Petrobras (Preferred) ................................................ 1,402
15,495 Petroleo Brasileiro S.A. ADR ......................................... 468
84,545,736 Tele Celular Sul Participacoes S.A. (Preferred) ...................... 408
14,181 Tele Celular Sul Participacoes S.A. ADR .............................. 642
81,806,853 Tele Centro Sul Participacoes S.A. (Preferred) ....................... 1,184
12,751 Tele Centro Sul Participacoes S.A. ADR ............................... 932
30,813,936 Tele Nordeste Celular Participacoes S.A. (Preferred) ................. 114
6,775 Tele Nordeste Celular Participacoes S.A. ADR ......................... 469
21,728,242 Tele Norte Leste Participacoes S.A. (Preferred) ...................... 509
56,193 Tele Norte Leste Participacoes S.A. ADR .............................. 1,328
1,000 Telecomunicacoes Brasileiras S.A. ADR ................................ 97
72,510,036 Telemig Celular Participacoes S.A. (Preferred) ....................... 261
6,036 Telemig Celular Participacoes S.A. ADR ............................... 432
54,021,321 Telesp Celular Participacoes S.A. (Preferred) ........................ 976
50,415 Telesp Celular Participacoes S.A. ADR ................................ 2,262
78,805 Unibanco (Preferred) GDR ............................................. 2,266
(a)24,500 Votorantim Celulose e Papel S.A. ..................................... 450
-------
23,699
-------
CHILE (0.2%)
(a)25,900 Compania de Telecomunicaciones de Chile S.A. ADR ..................... 469
-------
CHINA (3.7%)
(a)220 AsiaInfo Holdings, Inc. .............................................. 10
691,000 China Merchants Holdings International Co., Ltd. .................... 474
(a)1,366,000 China Unicom Ltd. .................................................... 2,900
(a)10,600 China Unicom Ltd. ADR ................................................ 225
793,000 Cosco Pacific Ltd. ................................................... 626
2,605,000 Great Wall Technology Co., Ltd. ...................................... 1,804
(a)1,202,000 Nanjing Panda Electronics Co., Ltd. .................................. 432
(a)11,514,000 PetroChina Co., Ltd. ................................................. 2,393
(a)3,400 PetroChina Co., Ltd. ADR ............................................. 71
(a)2,748,000 TCL International Holdings, Ltd. ..................................... 1,005
18,783 Yanzhou Coal Mining Co. ADR .......................................... 188
766,500 Zhenhai Refining and Chemical Co., Ltd., Class H ..................... 119
-------
10,247
-------
COLOMBIA (0.0%)
(a)2,661 Bancolumbia S.A. (Preferred) 2
-------
CZECH REPUBLIC (0.4%)
(a)42,901 SPT Telcom a.s. ...................................................... 720
(a)16,743 SPT Telecom a.s. GDR ................................................. 273
-------
993
-------
EGYPT (1.0%)
(a)12,482 Al-Ahram Beverages Co. GDR ........................................... 215
(a)6,474 Eastern Tobacco ...................................................... 141
3,225 Egypt Gas Co. ........................................................ 146
(a)64,716 Egyptian Co. ......................................................... 2,106
-------
2,608
-------
GREECE (2.2%)
146,730 Hellenic Telecommunication Organization S.A. ......................... 3,577
208,860 Hellenic Telecommunication Organization S.A. ADR ..................... 2,546
-------
6,123
-------
HONG KONG (4.3%)
91,000 Asia Satellite Telecommunications Holdings Ltd. ...................... 311
(a)555,000 China Telecom Ltd. (Hong Kong) ....................................... 4,895
(a)17,800 China Telecom Ltd. (Hong Kong) ADR ................................... 3,165
186,000 Citic Pacific Ltd. ................................................... 974
(a)758,000 Founder Holdings Ltd. ................................................ 338
218,000 Guangdong Kelon Electrical Holdings Co., Ltd. ........................ 118
1,147,000 Legend Holdings Ltd. ................................................. 1,111
(a)953,000 Phoenix Satellite Television Holdings Ltd. ........................... 133
(a)2,300 SINA.com ............................................................. 59
(a)560,000 Timeless Software Ltd. ............................................... 253
180,000 Yue Yuen Industrial Holdings ......................................... 399
-------
11,756
-------
HUNGARY (0.7%)
36,506 Magyar Tavkozlesi Rt. ADR ............................................ 1,257
89,566 Matav Rt. ............................................................ 623
-------
1,880
-------
INDIA (6.6%)
12,300 Aptech Ltd. .......................................................... 233
146,800 Bharat Heavy Electricals Ltd. ........................................ 439
70,500 BSES Ltd. ............................................................ 388
111,664 Container Corp. of India Ltd. ........................................ 430
14,350 Dabur India Ltd. ..................................................... 210
86,300 Gujarat Ambuja Cements Ltd. .......................................... 377
10,000 Gujarat Ambuja Cements Ltd. GDR ...................................... 43
(a)13,850 HCL Technologies Ltd. ................................................ 400
</TABLE>
The accompanying notes are an intregral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------------------------------------------
<S> <C>
INDIA (CONT.)
18,595 Hero Honda Motors Ltd. ............................................... $ 411
129,000 Hindustan Lever Ltd. ................................................. 819
64,690 Housing Development Finance Corp., Ltd. .............................. 810
(d)(a)58,026 India Info.com Private Ltd. .......................................... 250
126,500 Indo Gulf Corp., Ltd. ................................................ 120
(a)31,090 Infosys Technology Ltd. .............................................. 5,792
24,472 Larsen & Toubro Ltd. ................................................. 135
28,941 Lupin Laboratories Ltd. .............................................. 127
(a)195,500 Mahanagar Telephone Nigam Ltd. ....................................... 939
29,600 Mahanagar Telephone Nigam Ltd. GDR ................................... 272
(c)35,500 Morgan Stanley Dean Witter India Investment Fund ..................... 426
(a)15,000 NIIT Ltd. ............................................................ 743
105,400 Reliance Industries Ltd. ............................................. 805
5,500 Reliance Industries Ltd. GDR ......................................... 115
(a)27,450 Satyam Computer Services Ltd. ........................................ 1,833
12,750 Sterlite Industries (India) Ltd. ..................................... 238
(e)15,750 Strides Arcolab Ltd. ................................................. 87
107,000 Tata Engineering & Locomotive Co., Ltd. .............................. 295
47,000 Tata Tea Ltd. ........................................................ 349
13,050 Videsh Sanchar Nigam Ltd. ............................................ 354
(a)66,950 Zee Telefilms Ltd. ................................................... 672
-------
18,112
-------
INDONESIA (0.6%)
955,900 Indah Kiat Pulp & Paper Corp. ........................................ 194
(a)591,616 PT Gudang Garam ...................................................... 956
(a)275,500 PT Semen Fresik ...................................................... 250
42,605 Telekomunikasi Indonesia ADR ......................................... 296
-------
1,696
-------
ISRAEL (8.5%)
(a)23,386 Aladdin Knowledge Systems ............................................ 370
(a)10,256 Amdocs Ltd. .......................................................... 787
76,790 BATM Advanced Communications Ltd. .................................... 670
(a)10,710 BreezeCom Ltd. ....................................................... 466
(a)16,319 Check Point Software Technologies Ltd. ............................... 3,456
(a)8,947 Comverse Technology, Inc. ............................................ 832
(a)21,012 DSP Group, Inc. ...................................................... 1,177
165,307 ECI Telecom Ltd. ..................................................... 5,910
1 Elbit Systems Ltd. ................................................... --@
(a)82,951 Galileo Technology Ltd. .............................................. 1,783
(a)24,018 Gilat Satellite Networks Ltd. ........................................ 1,666
(a)8,238 M-Systems Flash Disk Pointer Ltd. .................................... 642
(a)4,076 NICE System Ltd. ..................................................... 317
(a)6,420 NICE Systems Ltd. ADR ................................................ 496
(a)31,879 Optibase Ltd. ........................................................ 560
(a)19,396 Orckit Communications Ltd. ........................................... 584
(a)12,166 RADWARE Ltd. ......................................................... 322
(a)23,366 Tecnomatix Technologies Ltd. ......................................... 318
6,260 Teva Pharmaceutical Industries Ltd. ADR .............................. 347
(a)41,452 TTI Team Telecom International Ltd. .................................. 1,492
(a)9,630 VCON Telecommunications Ltd. ......................................... 102
(a)14,303 Zoran Corp ........................................................... 943
-------
23,240
-------
MALAYSIA (2.0%)
102,200 British American Tobacco (Malaysia) Bhd .............................. 834
97,000 Commerce Asset Holding Bhd ........................................... 281
(a)192,000 Digi.com Berhad ...................................................... 351
248,200 Malayan Banking Bhd .................................................. 1,006
53,000 Malaysian Pacific Industries Bhd ..................................... 544
(a)537,000 Public Bank Berhad ................................................... 494
(a)147,000 Resorts World Bhd .................................................... 402
310,000 Telekom Malaysia Bhd ................................................. 1,069
155,000 Tenaga Nasional Bhd .................................................. 506
-------
5,487
-------
MEXICO (9.4%)
216,722 Alfa, S.A. de C.V., Class A .......................................... 497
215,917 Cemex CPO S.A. ....................................................... 1,012
50,798 Cemex CPO S.A. ADR ................................................... 1,187
300,721 Cifra S.A. de C.V. ................................................... 706
156,098 Cifra S.A., Class C .................................................. 360
(a)24,010 Fomento Economico Mexicano, S.A. de C.V. ADR ......................... 1,034
(a)310,841 Fomento Exonomico Mexicano, S.A. de C.V.-UBD ......................... 1,327
(a)239,914 Grupo Carso S.A. de C.V., Class A1 ................................... 851
(a)376,586 Grupo Financiero Banamex Accival, S.A. de C.V. ....................... 1,607
(e)(a)18,695 Grupo Financiero Bancomer ADS ........................................ 190
(a)1,424,022 Grupo Financiero Bancomer, S.A. de C.V., O Shares .................... 723
(a)16,200 Grupo Mexico S.A., Class B ........................................... 46
45,800 Grupo Modelo S.A. de C.V., Class C ................................... 103
(a)10,325 Grupo Sanborns S.A., Class B1 ........................................ 17
(a)64,715 Grupo Televisa S.A. GDR .............................................. 4,461
186,043 Kimberly-Clark Corp., Class A ........................................ 529
(a)28,000 Organizacion Soriana S.A. de C.V. .................................... 111
189,199 Telmex Class L, ADR .................................................. 10,808
2,100 Vitro S.A. ADR ....................................................... 7
(a)8,694 Wal-Mart de Mexico S.A. de C.V. ...................................... 204
-------
25,780
-------
POLAND (1.0%)
(a)29,501 Elektrim ............................................................. 339
3,770 Polski Koncern Naftowy GDR ........................................... 36
(a)325,368 Telekomunikacja Polska S.A. GDR ...................................... 2,247
-------
2,622
-------
RUSSIA (3.4%)
57,319 Lukoil Holding ADR ................................................... 2,930
(a)(d)985,428 Mustcom .............................................................. 205
12,600 OAO Lukoil Holding ADR ............................................... 254
15,900 RAO Unified Energy Systems GDR ....................................... 183
27,750 Rostelecom ADR ....................................................... 378
(a)267,612 Surgutneftegaz ADR ................................................... 3,566
</TABLE>
The accompanying notes are an intregral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------------------------------------------
<S> <C>
RUSSIA (CONT.)
(a)142,394 Unified Energy Systems GDR ........................................... $ 1,638
(a)7,110 Vimpel-Communications SP ADR ......................................... 157
-------
9,311
-------
SOUTH AFRICA (3.9%)
35,858 Anglo American plc ................................................... 1,034
688,534 B.O.E. Corp. Ltd., Class N ........................................... 1
103,717 Bidvest Group Ltd. ................................................... 716
(a)226,493 BoE Ltd. ............................................................. 129
3,338 De Beers ADR ......................................................... 81
18,720 De Beers Centenary AG ................................................ 456
126,883 Dimension Data Holdings Ltd. ......................................... 1,051
75,256 Ellerine Holdings Ltd. ............................................... 323
6,664 Impala Platinum Holdings Ltd. ........................................ 248
18,350 Liberty Life Association of Africa Ltd. .............................. 175
346,560 M-Cell Ltd. .......................................................... 1,680
(a)7,414 MIH Ltd. ............................................................. 222
(a)(c)1,865 Morgan Stanley Dean Witter Africa Investment Fund, Inc. .............. 15
30,467 Naspers Ltd. ......................................................... 254
42,424 Nedcor Ltd. .......................................................... 892
(a)538,070 New Africa Investments Ltd., Class N ................................. 135
141,795 Rembrandt Group Ltd. ................................................. 1,340
(a)1 RMB Holdings Ltd. .................................................... --@
(a)41,070 Sappi Ltd. ........................................................... 309
222,183 Sasol Ltd. ........................................................... 1,492
-------
10,553
-------
SOUTH KOREA (21.0%)
11,800 Cheil Communications, Inc. ........................................... 1,540
10,570 CJ39 Shopping Corp. .................................................. 346
(a)48,070 Communication Network Interface, Inc. ................................ 265
162 Daou Technology, Inc. ................................................ 2
(a)1,762 Dreamline Corp. ...................................................... 48
34,170 H & CB ............................................................... 800
20,190 Hana Bank ............................................................ 126
(a)181,670 Hanvit Bank .......................................................... 464
81,700 Hanvit Bank GDR ...................................................... 408
(a)60,212 Humax Co., Ltd. ...................................................... 834
72,460 Hyundai Electronics Industries Co. ................................... 1,430
511 Hyundai Securities Co. ............................................... 5
63,107 Kookmin Bank ......................................................... 804
47,300 Korea Electric Power Corp. ........................................... 1,468
(a)45,436 Korea Electric Power Corp. ADR ....................................... 838
34,620 Korea Technology Banking ............................................. 373
95,170 Korea Telecom Corp. .................................................. 8,382
(a)70,760 Korea Telecom Corp., SP ADR .......................................... 3,423
(a)8,840 Korea Telecom Freetel ................................................ 589
43,970 L.G. Securities Co. .................................................. 572
(a)20,030 LG Electronics, Inc. ................................................. 560
7,850 LG Home Shopping, Inc. ............................................... 746
3,170 LG Information & Communication Ltd. .................................. 178
(a)2,480 Locus Corp. .......................................................... 201
20,121 Pantech Co., Ltd. .................................................... 155
(d)3,142 Pohang Iron & Steel Co., Ltd. ........................................ 275
38,556 Samsung Electro-Mechanics Co. ........................................ 2,417
62,251 Samsung Electronics Co. .............................................. 20,601
35,370 Samsung Securities Co., Ltd. ......................................... 777
57,240 Shinhan Bank ......................................................... 539
(a)22,707 SK Telecom Co. Ltd. ADR .............................................. 825
(a)19,800 SK Telecom Co., Ltd. ................................................. 6,481
62,971 Telson Electronics Co. Ltd. .......................................... 669
10,990 Tong Yang Confectionery Corp. ........................................ 239
-------
57,380
-------
TAIWAN (13.2%)
(a)456,000 Accton Technology Corp. .............................................. 1,017
541,517 Acer Peripherals, Inc. ............................................... 1,533
(a)299,836 Advanced Semiconductor Engineering, Inc. ............................. 917
54,300 Advantech Co., Ltd. .................................................. 288
(a)63,000 Ambit Microsystems Corp .............................................. 625
(a)20,300 Test Ltd. ............................................................ 598
276,872 Asustek Computer, Inc. ............................................... 2,289
(a)448,600 Chinatrust Commercial Bank ........................................... 390
94,000 Compal Electronics, Inc. ............................................. 231
426,600 D-Link Corp. ......................................................... 1,000
(a)239,000 Delta Electronic Industrial .......................................... 1,132
(a)262,000 Dialer and Business .................................................. 495
(a)605,370 Far Eastern Textile Ltd. ............................................. 753
(a)6,400 Far Eastern Textile Ltd. GDR ......................................... 80
(a)17,000 Faraday Technology Corp. ............................................. 188
(a)6,700 GigaMedia Ltd. ....................................................... 81
(a)275,920 Hon Hai Precision Industry ........................................... 2,496
(a)18,600 Hon Hai Precision Industry GDR ....................................... 446
440,200 International Commercial Bank of China ............................... 372
(a)285,630 Macronix International Co., Ltd. ..................................... 716
(a)67,000 Microelectronics Technology, Inc. .................................... 222
(a)269,000 President Chain Store Corp. .......................................... 1,007
(a)86,000 Pro Mos Technologies, Inc. ........................................... 348
(a)27,320 Ritek Corp. .......................................................... 109
(a)43,015 Ritek Corp. GDR ...................................................... 344
(a)398,334 Siliconware Precision Industries Co. ................................. 895
239,728 Taishin International Bank ........................................... 154
(a)1,888,212 Taiwan Semiconductor Manufacturing Co. Ltd. .......................... 8,972
(a)1,980,400 United Microelectronics Corp., Ltd. .................................. 5,511
268,200 Universal Scientific Industrial Co. .................................. 655
(a)593,920 Winbond Electronics Corp. ............................................ 1,720
(a)215,000 Wyse Technology Taiwan Ltd. .......................................... 385
(a)37,000 Zinwell Corp. ........................................................ 183
-------
36,152
-------
THAILAND (1.2%)
(a)105,900 Advanced Info Service PCL (Foreign) .................................. 1,319
(d)71,900 BEC World PCL (Foreign) .............................................. 429
94,646 Delta Electronics (Thailand) PCL (Foreign) ........................... 667
83,100 Shinawatra Computer Co. PCL (Foreign) ................................ 437
</TABLE>
The accompanying notes are an intregral part of the financial statements.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------------------------------------------
<S> <C>
THAILAND (CONT.)
(a)308,800 Thai Farmers Bank PCL (Foreign) ...................................... $ 260
(a)25,600 Total Access Communication PCL ....................................... 103
-------
3,215
-------
TURKEY (4.1%)
(a)1,451,000 Alcatel Teletas Telekomunikasyon Endustri ve Ticaret A.S. ............ 316
(a)48,756,400 Dogan Sirketler Grubu Holdings A.S. .................................. 1,179
(a)29,519,000 Dogan Yayin Holdings ................................................. 499
15,857,636 Ege Biracilik ........................................................ 1,035
(a)2,456,800 Erciyas Biracilik .................................................... 115
3,530,000 Netas Northern Electric Telekomunikasyon A.S. ........................ 393
(a)90,756,000 Turkiye Garanti Bankasi A.S. ADR ..................................... 1,097
(a)6,806,356 Vestel Elektronik Sanayi Ve Ticaret A.S. ............................. 2,057
(a)397,078,315 Yapi ve Kredi Bankasi A.S. ........................................... 4,416
(a)3,500 Yapi ve Kredi Bankasi GDR ............................................ 35
-------
11,142
-------
OTHER (0.1%)
9,800 Downey Financial Corp. ............................................... 284
-------
TOTAL FOREIGN SECURITIES (96.2%) (COST $252,893) ................................................ 262,751
-------
FACE
AMOUNT
(000)
-----
SHORT-TERM INVESTMENT (4.6%)
REPURCHASE AGREEMENT (4.6%)
12,609 Chase Securities, Inc., 6.15%, dated 6/30/00, due 7/3/00,
to be repurchased at $12,615 collateralized by U.S. Treasury
Notes, 4.75%, due 11/15/08, valued at $12,874 (COST $12,609) 12,609
-------
FOREIGN CURRENCY (0.4%)
BRL 31 Brazilian Real ....................................................... 17
GBP 124 British Pound ........................................................ 188
IDR 78,194 Indonesian Rupiah .................................................... 9
TWD 16,540 Taiwan Dollar ........................................................ 539
HUF 89 Hungarian Forint ..................................................... --@
INR 372 Indian Rupee ......................................................... 8
MYR 944 Malaysian Ringgit .................................................... 248
MXP 12 Mexican Peso ......................................................... 1
KWN 2,423 South Korean Won ..................................................... 2
ZAR 599 South African Rand ................................................... 89
THB 194 Thai Baht ............................................................ 5
-------
TOTAL FOREIGN CURRENCY (0.4%) (COST $1,104) ..................................................... 1,106
-------
TOTAL INVESTMENTS (101.2%) (COST $266,606) ...................................................... $276,466
--------
OTHER ASSETS (0.9%)
Receivable for Investments Sold .................................................. $ 1,266
Receivable for Portfolio Shares Sold ............................................. 452
Dividends Receivable ............................................................. 413
Deferred Organization Costs ...................................................... 129
Due from Adviser ................................................................. 119
Interest Receivable .............................................................. 2
Other Assets ..................................................................... 2 2,383
---------
LIABILITIES (-2.1%)
Payable for Investments Purchased ................................................ (3,026)
Payable for Portfolio Shares Redeemed ............................................ (1,027)
Investment Advisory Fees Payable ................................................. (799)
Bank Overdraft ................................................................... (326)
Custodian Fees Payable ........................................................... (211)
Shareholder Reporting Fees Payable ............................................... (106)
Administrative Fees Payable ...................................................... (80)
Professional Fees Payable ........................................................ (34)
Deferred Foreign Taxes Payable ................................................... (2)
Other Liabilities ................................................................ (2) (5,613)
--------- --------
NET ASSETS (100%) .............................................................................. $273,236
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 20,723,998 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ........................................................ $ 13.18
========
NET ASSETS CONSIST OF:
Paid in Capital ................................................................................. $239,033
Distributions in Excess of Net Investment Income ................................................ (792)
Accumulated Net Realized Gain ................................................................... 25,148
Unrealized Appreciation on Investments, Foreign Currency
Translations (Net of deferred foreign taxes of $19,847) ....................................... 9,847
--------
NET ASSETS ...................................................................................... $273,236
========
-------------------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing security
(c) -- Fund is advised by affiliate.
(d) -- Security valued at fair value -- See note A-1 to financial
statements.
(e) -- 144A Security -- certain conditions for public sale may exist.
@ -- Value is less than $500.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
PCL -- Public Company Limited
The accompanying notes are an intregral part of the financial statements.
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 2000,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN NET UNREALIZED
TO DELIVER VALUE SETTLEMENT EXCHANGE FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
---------- ----- ---------- ------------ ----- --------------
<S> <C> <C> <C> <C> <C>
U.S.$ 9 $ 9 7/5/00 IDR78,194 $ 9 $ --
U.S.$ 6 6 7/6/00 IDR52,295 6 --
U.S.$ 9 9 7/7/00 IDR80,197 9 --
U.S.$ 5 5 7/3/00 THB 194 5 --
U.S.$ 33 33 7/5/00 THB 1,289 33 --
HKD 216 28 7/3/00 U.S.$ 28 28 --
THB 882 22 7/3/00 U.S.$ 23 22 --
---- ---- --------
$112 $112 $ --
==== ==== ========
</TABLE>
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
MARKET
VALUE % OF NET
SECTOR (000) ASSETS
------ -------- --------
<S> <C> <C>
Consumer Discretionary $ 17,943 6.6%
Consumer Staples 8,173 3.0
Finance 24,263 8.9
Health Care 771 0.3
Industrials 5,002 1.8
Information Technology 96,396 35.3
Materials 9,796 3.6
Telecommunication
Services 81,954 30.0
Energy 12,731 4.6
Utilities 5,722 2.1
-------- ----
Total Foreign Securities $262,751 96.2%
======== ====
</TABLE>
The accompanying notes are an intregral part of the financial statements.
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 1,164
Interest 420
Less: Foreign Taxes Withheld (45)
--------
Total Income 1,539
--------
EXPENSES:
Investment Advisory Fees 1,575
Less: Fees Waived (213)
--------
Net Investment Advisory Fees 1,362
Administrative Fees 326
Custodian Fees 326
Shareholder Reports 82
Professional Fees 78
Amortization of Organizational Costs 51
Foreign Tax Expense 40
Directors' Fees and Expenses 2
Other 4
--------
Net Expenses 2,271
--------
NET INVESTMENT LOSS (732)
--------
NET REALIZED GAIN (LOSS) ON:
Investments Sold 23,332
Foreign Currency Transactions (211)
--------
Net Realized Gain 23,121
--------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (Net of deferred foreign taxes of $1 on unrealized appreciation) (40,544)
Foreign Currency Translations 7
--------
Change in Unrealized Appreciation/Depreciation (40,537)
--------
NET REALIZED LOSS AND CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION (17,416)
--------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(18,148)
========
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
(000) (000)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $ (732) $ (304)
Net Realized Gain 23,121 11,904
Change in Unrealized Appreciation/Depreciation (40,537) 55,754
-------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations (18,148) 67,354
-------- --------
DISTRIBUTIONS
In Excess of Net Investment Income -- (20)
-------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 205,147 161,280
Distributions Reinvested -- 20
Redeemed (100,887) (77,823)
-------- --------
Net Increase in Net Assets Resulting from Capital Share Transactions 104,260 83,477
-------- --------
Total Increase in Net Assets 86,112 150,811
NET ASSETS:
Beginning of Period 187,124 36,313
-------- --------
End of Period (including distributions in excess of net investment income of ($792) and ($60), $273,236 $187,124
respectively) ======== ========
-----------------------------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 14,498 16,291
Shares Issued on Distributions Reinvested 0 2
Shares Redeemed (7,225) (7,948)
-------- --------
Net Increase in Capital Shares Outstanding 7,273 8,345
======== ========
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an intregral part of the financial statements.
10
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
SIX MONTHS PERIOD FROM
ENDED OCTOBER 1, 1996*
JUNE 30, 2000 TO DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.91 $ 7.11 $ 9.45 $ 9.78 $ 10.00
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.03) (0.01) 0.06 0.04 0.01
Net Realized and Unrealized Gain (Loss) (0.70) 6.81 (2.36) -- (0.21)
-------- -------- ------- ------- -------
Total from Investment Operations (0.73) 6.80 (2.30) 0.04 (0.20)
-------- -------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.00)+ (0.04) (0.07) (0.02)
Net Realized Gain -- -- -- (0.02) --
In Excess of Net Realized Gain -- -- -- (0.28) --
-------- -------- ------- ------- -------
Total Distributions -- -- (0.04) (0.37) (0.02)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 13.18 $ 13.91 $ 7.11 $ 9.45 $ 9.78
======== ======== ======= ======= =======
TOTAL RETURN (5.25)% 95.68% (24.34)% 0.52% (2.03)%
======== ======== ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $273,236 $187,124 $36,313 $34,098 $11,789
Ratio of Expenses to Average Net Assets 1.79%** 1.79% 1.95% 1.80% 1.79%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense and Foreign
Tax Expense 1.75%** 1.75% 1.75% 1.75% 1.75%**
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.58)%** (0.37)% 0.83% 0.47% 0.32%**
Portfolio Turnover Rate 48% 113% 100% 87% 9%
--------------
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income $ 0.01 $ 0.05 $ 0.11 $ 0.17 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.96%** 2.62% 3.45% 4.12% 6.17%**
Net Investment Loss to Average Net
Assets (0.74)%** (1.21)% (0.66)% (1.84)% (4.06)%**
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ Amount is less than $0.01 per share
The accompanying notes are an intregral part of the financial statements.
11
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30,2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen separate active,
diversified and non-diversified portfolios (individually referred to as a
"Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Emerging Markets Equity
Portfolio. The Portfolio seeks long-term capital appreciation by investing
primarily in common and preferred stocks, convertible securities, rights and
warrants to purchase common stocks, sponsored or unsponsored ADRs and other
equity securities of emerging market country issuers.
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 under procedure approved 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 certain of the 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
12
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30,2000
(UNAUDITED)
period. Accordingly, realized and unrealized foreign currency gains (losses) due
to security transactions are included in the reported net realized and
unrealized gains (losses) on investment transactions and balances. However,
pursuant to U.S. Federal income tax regulations, gains and losses from certain
foreign currency transactions and the foreign currency portion of gains and
losses realized on sales and maturities of foreign denominated debt securities
are treated as ordinary income for U.S. Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from foreign currency exchange contracts,
disposition of foreign currencies, currency gains or losses realized between the
trade and settlement dates on securities transactions, and the difference
between the amount of investment income and foreign 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.
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Portfolio 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. SWAP AGREEMENTS: The Portfolio 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
13
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30,2000
(UNAUDITED)
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.
Risks also arise from potential losses from adverse market movements, and such
losses could exceed the related amounts shown in the Statement of Net Assets.
7. ORGANIZATION COSTS: The organization costs of the Fund are being amortized on
a straight line basis over a period of five years beginning with the
commencement of operations. Morgan Stanley Asset Management has agreed that in
the event any of its initial shares which constituted the Fund at inception are
redeemed prior to the amortization of such costs, the proceeds on redemption
will be reduced by the pro-rata portion of any unamortized organization costs in
the same proportion as the number of shares redeemed bears to the initial shares
held at time of redemption.
8. 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. 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 Asset Management ("MSAM"), 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
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
--------- ------- ---------- ----------
<S> <C> <C> <C>
Emerging Markets Equity 1.25% 1.20% 1.15%
</TABLE>
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio, if
necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 1.75%.
C. ADMINISTRATOR: MSAM (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. CREDIT FACILITY: The Fund, along with an affiliated open-end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the Agreement,
the Funds are provided with a revolving credit facility (the
14
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30,2000
(UNAUDITED)
"Facility") allowing the Funds to borrow, subject to the limitations set forth
in each Fund's registration statement, amounts that, in the aggregate for the
Funds, will not exceed $235 million. The Funds pay a commitment fee on the
unused portion of the Facility at an annual rate of 0.09%. Fees incurred in
connection with the arrangement of the Facility totaled approximately $225,000.
The commitment fee and the arrangement fee are allocated to the Funds based on
an estimate of the potential amount available to each Fund under their
respective limitations. Such allocated costs are further allocated to the
Portfolios based on their net assets. Amounts drawn down on the Facility bear
interest at the annual rate equal to the then prevailing Federal Funds rate plus
0.50% which is borne by the respective borrowing Portfolio. For the six months
ended June 30, 2000, there were no amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, 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>
$366,606 $30,398 ($20,541) $9,848
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $222,597,000 and $113,958,000,
respectively. There were no purchases and sales of U.S. Government securities
for the six months ended June 30, 2000. During the six months ended June 30,
2000, the Portfolio incurred $25,994 of brokerage commissions to Morgan Stanley
& Co. Incorporated, an affiliated broker dealer.
For the year ended December 31, 1999, the Portfolio deferred to January 1, 2000,
for U.S. Federal income tax purposes, post-October currency losses of $54,000.
At June 30, 2000, the net assets of the Portfolio 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.
15
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
--------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE THE UNIVERSAL INSTITUTIONAL 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. FOR
ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT www.mdsw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000 PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG LLP
AS ITS NEW INDEPENDENT ACCOUNTANTS.
16
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EQUITY GROWTH PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EQUITY GROWTH PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Other (2.7%)
Utilities (0.2%)
Telecommunications Services (4.6%)
Information Technology (35.0%)
Industrials (16.6%)
Health Care (14.5%)
Financial (7.0%)
Consumer Staples (4.5%)
Consumer Discretionary (14.9%)
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY SECTOR NET ASSETS
--------- -------- -----------
<S> <C> <C>
Tyco International Ltd. Industrials 6.0%
Pfizer, Inc. Health Care 5.7%
General Electric Co. Industrials 4.4%
Intel Corp. Information Technology 4.3%
Cisco Systems, Inc. Information Technology 4.3%
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500
INDEX(1)
-----------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION(3)
---- ----- ------------------
<S> <C> <C> <C>
PORTFOLIO ..... 6.40% 28.61% 27.81%
INDEX ......... -0.42 7.25 23.29
</TABLE>
1. The S&P 500 Index is comprised of 500 large-cap U.S. companies with market
capitalization of $1 billion or more. These 500 companies are a
representative sample of some 100 industries chosen mainly for market size,
liquidity and industry group representation.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
3. Commenced operations on January 2, 1997.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested.
The Equity Growth Portfolio seeks long-term capital appreciation by investing
primarily in equity securities of large capitalization U.S. and, to a limited
extent, foreign companies that exhibit strong or accelerating earnings growth.
For the six months ended June 30, 2000, the Portfolio had a total return of
6.40% compared to -0.42% for the S&P 500 Index (the "Index"). For the one year
period ended June 30, 2000, the Portfolio had a total return of 28.61% compared
to 7.25% for the Index. For the period from inception on January 2, 1997 through
June 30, 2000, the Portfolio had an average annual total return of 27.81%
compared to 23.29% for the Index.
The market's relatively flat first half return masked significant volatility,
particularly in February (S&P declined 8%), March (up 10%) and April (down 3%).
Volatility was heightened, in our view, by Federal Reserve interest rate
increases, a more uncertain corporate earnings outlook and heightened investor
attention to valuation.
Growth continued to outperform value during the first half of the year. As was
the case in 1999, a handful of Large Cap Stocks had the most positive effect on
market results. Two stocks, Cisco and Intel, contributed over 100% of the S&P
500's return. At the end of the first quarter investors rotated from favoring
new economy stocks to old economy stocks. Many growth favorites, including
Microsoft, Lucent, Yahoo! and America Online declined.
Value dominated growth in the markets through April and May, and technology
stocks were most severely affected in the downturn. June was a great month for
growth stocks, as the Russell 1000 Growth recovered 7% of the return lost in the
first two months of the second quarter of 2000. The June recovery in growth was
led by technology and health care, two of our best performing sectors
year-to-date.
Our top positions continue to reflect a mix of classic growth stocks such as
Cisco Systems, General Electric, Pfizer, Microsoft, Intel, and Home Depot as
well as less well known growth names such as Tyco International and United
Technologies.
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 PORTFOLIOS 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.
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EQUITY GROWTH PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
We remain pleased with the success of our bottom-up stock picking approach. Over
80% of the Portfolio's outperformance relative to the S&P 500 was driven by
stock-picking versus sector allocation. We maintained a market weight in
technology, however, stock selection in this sector accounted for over 40% of
the Portfolio's total outperformance for the first half of 2000. Over 85% of
that relative outperformance was attributable to successful stock picking within
the group. The absence of a large overweight bet in technology helped our
relative performance versus many other large capitalization growth funds that
carried an overweight in the sector from year-end. The Portfolio's positions in
such "old economy" names as Tyco, Pfizer and Warner Lambert helped us sustain
strong performance during this period.
Major contributors to the strong performance results year-to-date were Intel,
Warner Lambert, Tyco International, Cisco, and Pfizer. We were especially
pleased with the performance of Tyco given the major downward move sustained by
that stock in the fourth quarter of 1999. Major detractors to performance were
Clear Channel, Motorola, Procter & Gamble, Home Depot and Microsoft.
Tyco's continued strong business fundamentals and excitement regarding the
announced value-enhancing subsidiary-IPO of TyCom, the company's undersea fiber-
optic cable business, and the close of the SEC inquiry, drove appreciation of
22% for the period. This more than offset the stock's fourth quarter decline. We
continue to believe in the company's ability to meet or exceed consensus
earnings expectations and, this, coupled with additional strategic moves (such
as the potential subsidiary- IPO of M/A-Com, the leading manufacturer of Gallium
Arsenide semiconductor substrate used in wireless communication devices and the
acquisition of Mallinckrodt in the health services segment) should drive
additional outperformance in future quarters.
We made a strategic decision to continue to add to our already overweight
position in health care from late in the first quarter. This was based on our
belief that the group's consistent earnings growth will be increasingly valuable
to investors as overall S&P 500 earnings growth moderates from unsustainably
high levels. The decision proved prudent, as health care was our second best
performing sector for the period. Large positions in American Home Products,
Pfizer/Warner Lambert and Johnson & Johnson drove strong performance.
Although large-cap pharmaceutical stocks dramatically outperformed the market,
Pfizer outperformed its peers. The acquisition of Warner Lambert was formally
completed in mid-June, but integration planning was already well underway and we
believe cost-cutting targets will be accomplished earlier than expected and
could be more significant than expected. Prescription volume growth for most of
the company's major drugs remains robust, particularly for Lipitor, Celebrex,
Neurontin, Viagra, Zyrtec, and Norvasc. Consensus earnings expectations do not
fully reflect the faster than expected cost- cutting or the growth in sales
volumes, in our view. A supposed lack of pipeline depth is a frequent criticism
of skeptics, but we believe Pregabalin (more potent, more tolerable follow-on to
Neurontin; likely launch in 2001), Valdocoxib (arthritis and pain; launch in
2001), and inhaled insulin (diabetes; launch in 2002-03) all have tremendous
market potential. With no major patent expirations until 2006, the sector's
fastest projected earnings growth rate over the next several years, a strong
potential for additional co-marketing deals with other drug companies and for
non-core asset divestitures once pooling accounting restrictions are lifted in
two years, and the sectors lowest price-to-earnings-to-growth ratio, we believe
Pfizer remains a compelling investment and is a core holding in our portfolio.
Consumer cyclicals, one of our weakest performing sectors year-to-date, resulted
from the down turn of the retail sector during the second quarter of 2000. Our
investments in Home Depot, down 22% and Costco, down 37%, were our largest
detractors from performance is this sector.
Home Depot, the leading home improvement retailer, was among several retail
stocks punished by the market despite no change in its fundamentals. Although
the company met Wall Street consensus numbers, many sell side analysts became
concerned about a potential earnings shortfall. Issues such as labor and
infrastructure expenses growing faster than the company anticipated, as well as
rising interest rates, slower housing turnover, and the rising cost of gas,
created pressure in the stock, as well as the sector. Further due diligence led
us to the conclusion that this was an overreaction to short term issues, in fact
we viewed this as a buying opportunity.
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EQUITY GROWTH PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
With the Fed expected to be in the seventh inning stretch on interest rate hikes
and the surge of growth stocks late in the second quarter of 2000, we are
extremely optimistic about the long-term prospect for large capitalization
growth stocks going forward. Signs of a soft landing, as well as strong
fundamentals and compelling business opportunities create a favorable
environment for growth.
July 2000
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EQUITY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
(000)
-------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (97.3%)
CONSUMER DISCRETIONARY (14.9%)
HOTELS RESTAURANTS & LEISURE (0.2%)
(a)10,100 Brinker International, Inc. .................... $ 295
-----------
MEDIA (9.1%)
(a)25,800 AMFM, Inc. .................................... 1,780
(a)101,900 AT&T Corp.-Liberty Media Group, Class A ....... 2,471
(a)30,100 Clear Channel Communications, Inc. ............ 2,258
(a)800 Comcast Corp., Class A ........................ 31
(a)38,200 Comcast Corp., Class A (Special) .............. 1,547
(a)29,600 Mediaone Group, Inc. .......................... 1,968
9,900 Omnicom Group, Inc. ........................... 882
48,600 Time Warner, Inc. ............................. 3,694
(a)12,200 TV Guide, Inc. ................................ 418
(a)22,165 Viacom, Inc. .................................. 1,511
-----------
16,560
-----------
MULTILINE RETAIL (1.7%)
(a)23,000 Costco Co., Inc. .............................. 759
40,400 Wal-Mart Stores, Inc. ......................... 2,328
-----------
3,087
-----------
SPECIALTY RETAIL (3.9%)
101,400 Home Depot, Inc. .............................. 5,064
45,700 Intimate Brands, Inc. ......................... 903
24,900 Limited, Inc. ................................. 538
9,400 Tiffany & Co. ................................. 634
-----------
7,139
-----------
TOTAL CONSUMER DISCRETIONARY ............................... 27,081
-----------
CONSUMER STAPLES (4.5%)
BEVERAGES (2.0%)
23,900 Anheuser-Busch Co., Inc ....................... 1,785
40,200 PepsiCo, Inc. ................................. 1,786
-----------
3,571
-----------
FOOD & DRUG RETAILING (0.7%)
(a)26,600 Safeway, Inc. ................................. 1,200
-----------
FOOD PRODUCTS (0.5%)
8,100 Keebler Foods Co. ............................. 301
9,200 Quaker Oats Co. ............................... 691
-----------
992
-----------
HOUSEHOLD PRODUCTS (0.5%)
17,200 Procter & Gamble Co. .......................... 985
-----------
TOBACCO (0.8%)
53,400 Phillip Morris Cos., Inc. ..................... 1,419
-----------
TOTAL CONSUMER STAPLES ..................................... 8,167
-----------
FINANCIAL (7.0%)
BANKS (2.3%)
62,800 Bank of New York Co., Inc. .................... 2,920
36,400 Fleet Boston Financial Corp. .................. 1,238
-----------
4,158
-----------
FINANCIAL (DIVERSIFIED)(3.6%)
39,200 American Express Co. .......................... 2,043
52,500 Citigroup, Inc. ............................... 3,163
26,400 Federal National Mortgage Association ......... $ 1,378
-----------
6,584
-----------
INSURANCE (1.1%)
16,500 American International Group, Inc. ............ 1,939
-----------
TOTAL FINANCIAL ............................................ 12,681
-----------
HEALTH CARE (14.5%)
BIOTECHNOLOGY (0.9%)
(a)11,400 Amgen, Inc. ................................... 801
(a)1,600 Genentech, Inc. ............................... 275
(a)7,300 Medimmune, Inc. ............................... 540
-----------
1,616
-----------
HEALTH CARE EQUIPMENT & SUPPLIES (0.3%)
9,200 PE Corp.-PE Biosystems Group .................. 606
-----------
HEALTH CARE PROVIDERS & SERVICES (0.4%)
(a)20,300 HCA - The Healthcare Co. ...................... 617
-----------
PHARMACEUTICALS (12.9%)
14,900 Abbott Laboratories ........................... 664
45,200 American Home Product Corp. ................... 2,655
22,400 Bristol-Myers Squibb Co. ...................... 1,305
7,900 Eli Lilly & Co. ............................... 789
27,100 Johnson & Johnson ............................. 2,761
25,000 Merck & Co., Inc. ............................. 1,916
214,550 Pfizer, Inc. .................................. 10,298
44,518 Pharmacia Corp. ............................... 2,301
12,200 Schering-Plough Corp. ......................... 616
(a)4,200 Tularik, Inc. ................................. 124
-----------
23,429
-----------
TOTAL HEALTH CARE .......................................... 26,268
-----------
INDUSTRIALS (16.6%)
AEROSPACE & DEFENSE (5.2%)
44,000 General Dynamics Corp. ........................ 2,299
120,700 United Technologies Corp. ..................... 7,106
-----------
9,405
-----------
COMMERCIAL SERVICES & SUPPLIES (0.1%)
(a)1,500 VeriSign, Inc. ................................ 265
-----------
ELECTRICAL EQUIPMENT (0.1%)
(a)1,900 Capstone Turbine Corp. ........................ 85
-----------
INDUSTRIAL CONGLOMERATES (11.2%)
152,300 General Electric Co. .......................... 8,072
26,100 Textron, Inc. ................................. 1,418
230,000 Tyco International Ltd. ....................... 10,896
-----------
20,386
-----------
TOTAL INDUSTRIALS .......................................... 30,141
-----------
INFORMATION TECHNOLOGY (35.0%)
COMMUNICATION EQUIPMENT (14.2%)
(a)43,400 American Tower Corp., Class A ................. 1,809
(a)6,600 Ciena Corp. ................................... 1,100
(a)122,400 Cisco Systems, Inc. ........................... 7,780
5,700 Corning, Inc. ................................. 1,538
(a)4,000 Exfo Electro Optical Engineering, Inc. ........ 176
(a)7,400 General Motors Corp., Class H ................. 649
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EQUITY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
SHARES VALUE
(000)
-------------------------------------------------------------------------
<S> <C>
COMMUNICATION EQUIPMENT (CONT.)
(a)19,700 JDS Uniphase Corp. ............................ $ 2,362
(a)6,900 Juniper Networks, Inc. ........................ 1,004
30,700 Lucent Technologies, Inc. ..................... 1,819
80,800 Motorola, Inc. ................................ 2,348
63,800 Nortel Networks Corp. ......................... 4,354
(a)11,200 Pinnacle Holdings, Inc. ....................... 605
(a)8,200 Spectrasite Holdings, Inc. .................... 233
(a)3,000 Stratos Lightwave, Inc. ....................... 84
-----------
25,861
-----------
COMPUTERS & PERIPHERALS (4.1%)
(a)15,400 EMC Corp. ..................................... 1,185
9,300 Hewlett-Packard Co. ........................... 1,161
15,000 International Business Machines Corp. ......... 1,643
(a)8,500 Seagate Technology, Inc. ...................... 468
(a)5,000 StorageNetworks, Inc. ......................... 451
(a)27,300 Sun Microsystems, Inc. ........................ 2,483
-----------
7,391
-----------
INTERNET SOFTWARE & SERVICES (0.5%)
(a)18,600 Genuity, Inc. ................................. 170
(a)5,300 Yahoo!, Inc. .................................. 657
-----------
827
-----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS (11.3%)
(a)4,700 Analog Devices, Inc. .......................... 357
(a)39,100 Applied Materials, Inc. ....................... 3,543
(a)11,100 ASM Lithography Holding N.V. ................. 490
(a)4,400 Broadcom Corp., Class A ....................... 963
(a)8,400 Infineon Technologies AG ADR .................. 666
58,300 Intel Corp. ................................... 7,794
(a)14,800 Intersil Holding Corp. ........................ 800
(a)32,600 Maxim Intergrated Products, Inc. .............. 2,215,
(a)2,000 PMC-Sierra, Inc. .............................. 355
47,600 Texas Instruments, Inc. 3,270
-----------
20,453
-----------
SOFTWARE (4.9%)
(a)4,900 Inktomi Corp. ................................. 580
(a)63,600 Microsoft Corp. ............................... 5,088
(a)38,600 Oracle Corp. .................................. 3,245
-----------
8,913
-----------
TOTAL INFORMATION TECHNOLOGY ............................... 63,445
-----------
TELECOMMUNICATION SERVICES (4.6%)
DIVERSIFIED TELECOMMUNICATION SERVICES (3.4%)
400 AT&T Corp. .................................... 13
8,700 BellSouth Corp. ............................... 371
(a)16,657 Global Crossing Ltd. .......................... 438
41,600 GTE Corp. ..................................... 2,590
(a)4,900 NEXTLINK Communications, Inc. ................. 186
20,300 Sprint Corp. .................................. 1,035
(a)35,100 Worldcom, Inc. 1,610
-----------
6,243
-----------
WIRELESS TELECOMMUNICATION SERVICES (1.2%)
(a)14,800 AT&T Wireless Group ........................... 412
(a)29,600 Crown Castle International Corp. .............. 1,080
(a)10,600 Nextel Communications, Inc., Class A .......... 649
-----------
2,141
-----------
TOTAL TELECOMMUNICATION SERVICES ........................... 8,384
-----------
UTILITIES (0.2%)
ELECTRIC UTILITIES (0.2%)
11,800 Montana Power Co. ............................. 417
-----------
TOTAL COMMON STOCKS (COST $144,600) ........................ 176,584
-----------
FACE
AMOUNT
(000)
------
SHORT-TERM INVESTMENT (2.9%)
REPURCHASE AGREEMENT (2.9%)
$ 5,268 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/3/00, to be repurchased at $5,271,
collateralized by U.S. Treasury Notes,
4.75%, due 11/15/08, valued at $5,381
(COST $5,268) ............................... 5,268
-----------
TOTAL INVESTMENTS (100.2%) (COST $149,868) ................. 181,852
-----------
OTHER ASSETS (0.8%)
Receivable for Portfolio Shares Sold ........... $ 726
Receivable for Investments Sold ................ 495
Dividends Receivable ........................... 94
Due from Adviser ............................... 62
Interest Receivable ............................ 1
Other Assets ................................... 1 1,379
-------
LIABILITIES (-1.0%)
Payable for Investments Purchased ............... (1,263)
Investment Advisory Fees Payable ............... (226)
Shareholder Reporting Expense Payable .......... (77)
Payable for Portfolio Shares Redeemed .......... (58)
Administrative Fees Payable .................... (38)
Custodian Fees Payable ......................... (28)
Professional Fees Payable ...................... (24)
Other Liabilities ............................... (3) (1,717)
-------- ----------
NET ASSETS (100%) .......................................... $181,514
===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 8,399,403 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ................ $ 21.61
===========
NET ASSETS CONSIST OF:
Paid in Capital ....................................... $ 138,688
Distributions in Excess of Net Investment Income ...... (106)
Accumulated Net Realized Gain ......................... 10,948
Unrealized Appreciation on Investments ................ 31,984
-----------
NET ASSETS ................................................. $ 181,514
===========
--------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing security
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EQUITY GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 474
Interest 103
---------
Total Income 577
EXPENSES: ---------
Investment Advisory Fees 438
Less: Fees Waived (107)
---------
Net Investment Advisory Fees 331
Administrative Fees 204
Shareholder Reports 52
Professional Fees 47
Custodian Fees 38
Directors' Fees and Expenses 3
Other 6
---------
Net Expenses 681
---------
NET INVESTMENT LOSS (104)
NET REALIZED GAIN ON: ---------
Investments Sold 7,108
---------
CHANGE IN UNREALIZED APPRECIATION ON:
Investments 3,303
---------
Net Realized Gain and Change in Unrealized Appreciation 10,411
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $10,307
=========
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED) (000)
(000)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $ (104) $ (89)
Net Realized Gain 7,108 10,216
Change in Unrealized Appreciation 3,303 21,026
-------- ---------
Net Increase in Net Assets Resulting from Operations 10,307 31,153
DISTRIBUTIONS -------- ---------
Net Investment Income -- (76)
In Excess of Net Investment Income -- (1)
Net Realized Gain -- (4,145)
-------- ---------
Total Distributions -- (4,222)
CAPITAL SHARE TRANSACTIONS (1): -------- ---------
Subscribed 49,367 65,519
Distributions Reinvested -- 4,222
Redeemed (16,735) (14,312)
-------- ---------
Net Increase in Net Assets Resulting from Capital Share Transactions 32,632 55,429
-------- ---------
Total Increase in Net Assets 42,939 82,360
NET ASSETS: -------- ---------
Beginning of Period 138,575 56,215
End of Period (including distributions in excess of net investment -------- ---------
income of $(106) and $(2), respectively) $181,514 $138,575
======== =========
----------------------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 2,375 3,718
Shares Issued on Distributions Reinvested -- 222
Shares Redeemed (799) (839)
-------- ---------
Net Increase in Capital Shares Outstanding 1,576 3,101
======== =========
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EQUITY GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 JANUARY 2, 1997* TO
(UNAUDITED) 1999 1998 DECEMBER 31, 1997
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD
$ 20.31 $ 15.10 $ 12.74 $ 10.00
-------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.01) (0.02) 0.02 0.02
Net Realized and Unrealized Gain 1.31 5.93 2.43 3.27
-------- -------- -------- ---------
Total from Investment Operations 1.30 5.91 2.45 3.29
-------- -------- -------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.02) -- (0.02)
In Excess of Net Investment Income -- (0.00)+ -- --
Net Realized Gain -- (0.68) (0.09) (0.53)
-------- -------- ---------
Total Distributions -- (0.70) (0.09) (0.55)
-------- -------- -------- ---------
NET ASSET VALUE, END OF PERIOD $ 21.61 $ 20.31 $ 15.10 $ 12.74
======== ======== ======== =========
TOTAL RETURN 6.40% 39.45% 19.29% 33.05%
======== ======== ======== =========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $181,514 $138,575 $ 56,215 $ 12,419
Ratio of Expenses to Average Net Assets 0.85%** 0.85% 0.85% 0.85%**
Ratio of Net Investment Income (Loss) to (0.13)%** (0.11)% 0.28% 0.41%**
Average Net Assets
Portfolio Turnover Rate 37% 87% 149% 172%
---------------
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment $ 0.01 $ 0.05 $ 0.04 $ 0.07
Income
Ratios Before Expense Limitation:
Expenses to Average Net Assets 0.99%** 1.11% 1.31% 2.05%**
Net Investment Loss to Average Net (0.26)%** (0.37)% (0.18)% (0.80)%**
Assets
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ Amount is less than $0.01
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen separate active,
diversified and non-diversified portfolios (individually referred to as a
"Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Equity Growth Portfolio at
June 30, 2000. The Portfolio seeks long-term capital appreciation by investing
primarily in equity securities of U.S. and to a limited extent, foreign
companies that exhibit strong or accelerating earnings growth.
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, under procedures approved 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 they
invest. 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. 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
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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 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.
B. ADVISER: Morgan Stanley Asset Management ("MSAM"), 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
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
--------- -------- ---------- ----------
<S> <C> <C> <C>
Equity Growth 0.55% 0.50% 0.45%
</TABLE>
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio, if
necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 0.85%.
C. ADMINISTRATOR: MSAM (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. CREDIT FACILITY: The Fund, along with an affiliated open- end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the Agreement,
the Funds are provided with a revolving credit facility (the "Facility")
allowing the Funds to borrow, subject to the limitations set forth in each
Fund's registration statement, amounts that, in the aggregate for the Funds,
will not exceed $235 million. The Funds pay a commitment fee on the unused
portion of the Facility at an annual rate of 0.09%. Fees incurred in connection
with the arrangement of the Facility totaled approximately $225,000. The
commitment fee and the arrangement fee are allocated to the Funds based on an
estimate of the potential amount available to each Fund under their respective
limitations. Such allocated costs are further allocated to the Portfolios based
on their net assets. Amounts drawn down on the Facility bear interest at the
annual rate equal to the then prevailing Federal Funds rate plus 0.50% which is
borne by the respective borrowing Portfolio. For the six months ended June 30,
2000, there were no amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, 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>
$149,868 $35,612 $(3,628) $31,984
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $97,132,000 and $58,151,000,
respectively. There were no purchases and sales of U.S. Government securities
for the six months ended June 30, 2000.
From time to time, the 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.
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
--------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED
BY THE PROSPECTUS OF THE THE UNIVERSAL INSTITUTIONAL 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. FOR ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE
INVESTMENTS COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT
www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000 PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT
ACCOUNTANTS OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE
FINANCIAL STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO
ADVERSE OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED
AS TO UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH
ITS AUDITS FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000,
THERE HAVE BEEN NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY
MATTER OF ACCOUNTING PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE,
OR AUDITING SCOPE OR PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE
SATISFACTION OF PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE
REFERENCE THERETO IN THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS.
THE FUND, WITH THE APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE
ENGAGED ERNST & YOUNG LLP AS ITS NEW INDEPENDENT ACCOUNTANTS.
10
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
FIXED INCOME PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
FIXED INCOME PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
Yankee Bonds (3.5%)
Utilities (0.3%)
U.S. Treasury Securities (6.6%)
Transportation (0.6%)
Telephones (3.2%)
Industrials (10.4%)
Finance (10.1%)
Energy (0.7%)
Commercial Mortgages (0.5%)
Collateralized Mortgage Obligations-Agency Collateral Series (13.1%)
Asset Backed Corporates (14.9%)
Agency Fixed Rate Mortgages (54.6%)
Other (-18.5%)
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY TYPE NET ASSETS
-------- --------------------------- ----------
<S> <C> <C>
Federal National Mortgage Association Agency Fixed Rate Mortgages 30.9%
Government National Mortgage Association Agency Fixed Rate Mortgages 13.6
Federal National Mortgage Association Collateralized Mortgage Obligations-
Agency Collateral Series 12.2
Federal Home Loan Mortgage Corporation Agency Fixed Rate Mortgages 10.1
U.S. Treasury Note U.S. Treasury Securities 6.6
</TABLE>
PERFORMANCE COMPARED TO THE SALOMON
BROAD INVESTMENT GRADE INDEX(1)
--------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION(3)
---- ---- ------------------
<S> <C> <C> <C>
PORTFOLIO 3.28% 3.64% 5.49%
INDEX 3.93 4.50 6.21
</TABLE>
1. The Salomon Broad Investment Grade Index is a fixed income market
capitalization-weighted index, including U.S. Treasury, agency,
government-sponsored mortgage and investment grade (BBB-/Baa3 or better)
corporate securities with maturities of one year or longer.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
3. Commenced operations on January 2, 1997.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested.
The Fixed Income Portfolio seeks an above-average total return over a market
cycle of three to five years by investing primarily in a diversified portfolio
of U.S. Government and Agencies securities, corporate bonds, mortgage-backed
securities, foreign bonds and other fixed income securities. The Portfolio's
average weighted maturity will ordinarily exceed five years.
For the six months ended June 30, 2000, the Portfolio had a total return of
3.28% compared to 3.93% for the Salomon Broad Investment Grade Index (the
"Index"). For the one year ended June 30, 2000, the Portfolio had a total return
of 3.64% compared to 4.50% for the Index. For the period from inception on
January 2, 1997 through June 30, 2000, the Portfolio had an average annual total
return of 5.49% compared to 6.21% for the Index.
Our active management of the Portfolio's interest rate risk position had a
favorable effect on relative performance, although this was more than offset by
the unfavorable effects of the systematic widening of yield spreads on the
Portfolio's above-benchmark corporate and mortgage positions for most of this
period.
There was a sharp contrast between the first and second quarters of 2000
for the U.S. economy. The first quarter was characterized by a series of strong
economic statistics and a continuation of the boom in private demand, bringing
real GDP growth to the 6% area on an annualized basis. As such growth is well
above the Federal Reserve's target level, the central bank responded by a
further tightening of monetary policy via a series of additional increases in
short-term interest rates. The second quarter, however, brought with it some
early signs of an economic slowdown, the most notable of which was the weak May
employment report issued in early June. It would appear, therefore, that the
cumulative effects of the
[SIDENOTE]
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED
ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE
OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS
CHANGE.
[/SIDENOTE]
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
FIXED INCOME PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
Fed's year-long string of tightening moves helped trigger this slowdown,
although other factors, such as recent declines in equity prices and the
relatively high cost of capital for private sector borrowers, have conspired to
help to slow the economy, as well.
The first half of the year was also notable because of the dramatic volatility
in yield spreads in the non-Treasury sectors. In the first quarter, the U.S.
Treasury formally initiated a program to use a portion of the federal budget
surplus to buyback outstanding Treasury debt issues. At the same time, the bond
market was growing increasingly concerned that the Fed's continued pursuit of an
aggressive tightening campaign would eventually produce a "hard landing" for the
U.S. economy. Together, these factors led to strong demand for Treasury
securities, and, consequently, a dramatic widening of the yield spreads for
corporate, mortgage, agency, and asset-backed securities for most of this year.
In fact, yield spreads in all of these sectors reached record or near-record
levels by late May.
The situation changed markedly in June, however, as the aforementioned signs of
moderating economic growth lessened the probability of further aggressive Fed
tightening moves and reduced the risk of the eventual "hard landing" for the
economy. The result was a strong rally in corporate and other non-Treasury
sectors and a significant decline in yield spreads relative to Treasuries during
June. While the U.S. Treasury continues to implement its debt buyback program,
value investors have started to pay more attention to the return potential of
the non-Treasury sectors' high yield premiums, which represent extremely
attractive value relative to history and to their underlying fundamentals. This
is evidenced, for example, by the strong performance of corporate bonds during
June despite a significant increase in new issuance.
Still, the recovery of yield spreads during June was not enough to offset the
unfavorable effects of the systematic widening of yield spreads during most of
this period, thereby explaining virtually all of the Portfolio's under
performance. While we are disappointed in the recent performance of the
Portfolio, we are comforted in knowing that the relative "losses" are the result
of marking our securities to market, and are not due to any permanent impairment
in the securities' underlying cash flows. In fact, the timing and quality of the
cash flows associated with the Portfolio's non-Treasury holdings have been as
good as, or better than, expected. As disciplined value investors, we recognize
that a well-diversified, high-quality strategy emphasizing opportunities in the
non-Treasury areas including corporates, mortgage agencies and interest rate
swaps will generate a significant amount of extra yield than either Treasury
securities or the Salomon Broad Index, and we expect this yield premium to be a
key component of our relative performance as we go forward. To the extent that
yield spreads narrow further -as they did during June, for example -this would
"front load" some of the benefit in the form of relative price gains and
enhanced performance versus Treasuries and the Index. Thus, we remain very
comfortable with our current strategies in the corporate, mortgage and other
non-Treasury sectors while underweighting lower-yielding Treasury securities.
Moreover, with a weighted average credit quality of AAA and very little relative
mortgage prepayment risk versus the benchmark, we believe the Portfolio has a
very attractive risk profile in relation to its significant yield advantage.
Our management of interest-rate risk added value through the first half of this
year. Disciplined adherence to our key value measures -- real interest rates and
the difference between actual and implied inflation -- allowed us opportunities
to actively manage the Portfolio's interest-rate sensitivity (IRS), resulting in
several changes to the IRS position. The key strategic moves involved an initial
extension of the Portfolio's IRS position relative to the benchmark in early
January just prior to a rally in Treasury securities, and a subsequent reduction
in this position as Treasury yields declined and our key value measures
diminished. We ended the quarter with only a small long position versus the
benchmark. Our key value measures remained in positive territory at the end of
June, thereby justifying this modest above-benchmark IRS position. We continued
to favor cash flows in the 10-year area relative to the benchmark, as this area
appeared to represent the best relative value along the yield curve.
In summary, we want our clients to know that we share a sense of disappointment
in our recent performance. At the same time, however, we hope shareholders
recognize and appreciate our disciplined adherence to our time-tested, value
approach toward fixed income investing, and share our strong conviction that the
tremendous value inherent in the Portfolio's current strategy should eventually
lead us back to the high grounds of superior relative performance.
July 2000
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
FIXED INCOME PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
----------------------------------------------------------------------------------------------------------------------------
<S> <C>
FIXED INCOME SECURITIES (118.5%)
AGENCY FIXED RATE MORTGAGES (54.6%)
BA Mortgage Securities, Inc., Series
$ 28 97-1 A2 (Floating Rate) 7.11%, 07/25/2026 $ 28
Federal Home Loan Mortgage Corporation
Conventional Pools:
135 10.00%, 10/01/2010 - 12/01/2019 144
30 10.50%, 01/01/2010 - 05/01/2019 32
159 11.50%, 10/01/2015 - 05/01/2019 176
64 1710-D (Floating Rate) 7.138%, 06/15/2020 64
Gold Pools:
92 9.50%, 12/01/2022 97
85 10.00%, 06/01/2017 91
July TBA:
50 8.00%, 07/01/2030 50
8,000 6.50%, 07/01/2030 7,549
Federal National Mortgage Association
Conventional Pools:
78 97-70 FA REMIC (Floating Rate) 7.106%, 07/18/2020 78
97 98-22 FA REMIC (Floating Rate) 7.049%, 04/18/2028 97
15,125 6.00%, 07/01/2029 13,838
4,348 6.00%, 04/01/2027 - 04/01/2029 3,982
200 7.50%, 06/01/2030 197
57 9.00%, 01/15/2025 59
48 9.50%, 11/01/2021 51
250 10.00%, 09/01/2010 - 05/01/2022 267
10 10.50%, 01/01/2016 11
659 11.00%, 03/01/2019 - 11/01/2020 725
33 11.50%, 11/01/2019 36
17 12.00%, 11/01/2011 - 09/01/2012 19
15 13.00%, 10/01/2015 17
July TBA:
4,500 6.50%, 07/01/2030 4,242
1,475 7.00%, 07/01/2030 1,424
Government National Mortgage Association
Adjustable Rate Mortgages:
312 6.00%, 08/20/2027 312
173 6.125%, 12/20/2025 173
183 6.125%, 10/20/2027 - 11/20/2027 183
298 6.375%, 03/20/2025 - 06/20/2025 299
217 6.625%, 07/20/2027 217
170 6.625%, 09/20/2027 170
315 6.875%, 04/20/2025 - 06/20/2025 316
July TBA:
6,300 7.00%, 07/01/2030 6,121
Various Pools:
1,775 1.35%, 11/16/2029 61
197 7.00%, 03/20/2025 - 07/20/2025 198
236 9.00%, 11/15/2017 247
527 9.50%, 10/15/2016 560
351 9.50%, 11/15/2017 373
1,109 10.00%, 11/15/2009 - 08/15/2021 1,188
297 10.50%, 09/15/2017 - 06/15/2022 322
156 11.00%, 12/15/2009 - 04/15/2020 172
28 11.50%, 02/15/2013 - 09/15/2015 31
50 12.00%, 12/15/2012 - 12/15/2014 56
--------
44,273
--------
ASSET BACKED CORPORATE (14.9%)
Arcadia Automobile Receivables Trust, Series
41 97-D A3 6.20%, 05/15/2003 41
64 98-A A3 5.90%, 11/15/2002 64
Associates Automobile Receivables Trust Series 00-1 A3
400 7.15%, 06/15/2003 400
Banc One Home Equity Trust, Series 99-1 Class A1
82 6.06%, 01/25/2012 81
BankBoston Home Equity Loan Trust,
43 Series 98-2 A1 6.28%, 11/25/2010 43
BMW Vehicle Owner Trust
213 6.16%, 12/25/2001 212
Centex Home Equity, Series
136 99-2 A 1 5.91%, 04/25/2019 134
66 A 1 6.07%, 03/25/2018 66
Chevy Chase Auto Receivables Trust, Series
19 97-4 A 6.25%, 06/15/2004 19
Conseco Hel, Series 200 B, Class AF1
383 6.94%, 11/15/2014 381
Daimler Benz Auto Grantor Trust, Series
8 97-A A 6.05%, 03/31/2005 8
2 98-A A2 5.23%, 12/20/2001 2
Daimler-Benz Vehicle Trust
700 5.16%, 12/20/2007 693
EQCC Home Equity Loan Trust
299 6.548%, 04/25/2010 296
EQCC Home Equity Loan Trust, Series
135 99-2 A1F 6.05%, 01/25/2010 133
108 99-1 A1F 5.77%, 03/20/2029 107
First Security Auto Grantor Trust, Series
63 1998-A A 5.97%, 04/15/2004 63
145 97-B A 6.10%, 04/15/2003 145
First Security Auto Owner Trust, Series 99-2 A2
54 5.492%, 04/15/2002 54
First Security, Series 00-A2
575 7.20%, 05/13/2003 575
Ford Auto Owner Trust
415 5.77%, 11/15/2001 414
Ford Credit Auto Owner Trust
313 5.85%, 10/15/2001 312
804 6.20%, 04/15/2002 801
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
FIXED INCOME PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
----------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSET BACKED CORPORATE (CONT.)
Ford Credit Auto Owner Trust Series:
$ 800 00-A A3 6.82%, 06/17/2002 $ 799
248 99-B A3 5.47%, 09/15/2001 247
Green Tree Financial Corp., Series
28 98-E HI A1 5.907%, 12/15/2024 28
180 99-1 A1 5.60%, 03/01/2030 178
56 99-A A1 5.59%, 02/15/2013 56
Green Tree Financial Corp., Series 99-3 A2
254 5.51%, 02/01/2031 252
Green Tree Home Equity Loan Trust, Series
64 98-A A2 6.04%, 06/15/2029 64
186 99-C A1 5.99%, 07/15/2030 185
Green Tree Lease Finance, Series
45 97-1 A3 6.17%, 09/20/2005 45
Harley-Davidson Eaglemark Motocycle
241 6.22%, 02/15/2004 240
Harley-Davidson Eaglemark Motorcycle Trust, Series
38 98-3 A1 5.41%, 03/15/2003 38
100 99-1 A1 5.25%, 07/15/2003 100
Honda Auto Receivables Grantor Trust, Series
38 97-A A 5.85%, 02/15/2003 37
57 97-B A 5.95%, 05/15/2003 57
Honda Auto Receivables Owner Trust, Series 99-1 A2
39 5.186%, 06/16/2001 39
Household Home Equity Loan
228 6.83%, 12/20/2016 227
IMC Home Equity Loan Trust, Series
1 98-1 A2 6.31%, 12/20/2012 1
IndyMac Home Equity Loan, Series
32 98-A A1 5.724%, 09/25/2020 32
MBNA Master CC, Series 00-E
285 7.80%, 10/15/2012 294
MMCA Automobile Trust
283 6.30%, 06/15/2002 282
Narot, Series 00-A A2
425 6.73%, 05/15/2002 424
Navistar Financial Corp. Owner Trust Series 99-A A2
148 5.55%, 02/15/2002 147
New Holland Equipment Receivables Trust
(e)347 6.39%, 10/15/2002 345
Nissan Auto Receivables Grantor Trust
210 5.45%, 04/15/2004 207
310 6.12%, 09/15/2003 309
Nissan Auto Receivables Grantor Trust, Series
71 97-A A 6.15%, 02/15/2003 71
475 00-B A2 7.15%, 12/15/2002 475
Option One Mortgage Loan Trust, Series
120 99 2 A1 5.88%, 05/25/2029 118
Peco, Series 00-A, A3
400 7.625%, 03/01/2010 402
Premier Auto Trust
177 5.28%, 11/08/2001 176
Premier Auto Trust, Series 99-3 A2
306 5.82%, 02/08/2002 304
Toyota Auto Receivables Owner Trust
384 5.80%, 12/17/2001 382
UCFC Home Equity Loan, Series 98-C A1 (Floating Rate)
21 6.771%, 12/15/2012 21
USAA Auto Loan Grantor Trust, Series
275 97-1 A 6.07%, 05/15/2004 273
WFS Financial Owner Trust
209 5.833%, 04/20/2002 209
--------
12,108
--------
COLLATERALIZED MORTGAGE OBLIGATIONS-AGENCY
COLLATERAL SERIES (13.1%)
Federal Home Loan Mortgage Corporation
67 1381 SB Inv Fl IO REMIC 9.658%, 10/15/2007 13
231 1983-IB IO 8.00%, 08/15/2027 68
Federal National Mortgage Association
3,770 6.25%, 05/15/2029 3,390
2,100 6.75%, 09/15/2029 2,009
4,150 7.125%, 01/15/2030 4,180
50 8.00%, 07/25/2009 50
240 186 IO 8.00%, 08/01/2027 72
352 191 IO 8.00%, 01/01/2028 105
131 281 2 IO 9.00%, 11/01/2026 37
274 291 2 IO 8.00%, 11/01/2027 81
6 96-14 PC PO 0.00%, 12/25/2023 4
Fannie Mae 1999 42 SA
2,386 3.20%, 10/25/2028 87
Fannie Mae Strip 296 2
419 8.00%, 04/01/2024 123
Government National Mortgage Association
850 97-13 SB IO 1.313%, 09/16/2027 47
1,480 99-44 2.75%, 12/16/2029 67
2,711 00-9 SH IO 2.35%, 02/16/2030 142
1,000 1.313%, 09/16/2027 55
1,350 1.95%, 08/16/2029 71
--------
10,601
--------
COMMERCIAL MORTGAGES (0.5%)
American Southwest Financial Securities Corp.,
62 Series 93-2 A1 7.30%, 01/18/2009 61
Asset Securitization Corp., Series
242 97-D5 PS1 IO 1.413%, 02/14/2041 19
Conseco Finance Securitizations Corp., Series
347 00-1 A1 6.84%, 05/01/2031 345
--------
425
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
FIXED INCOME PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
----------------------------------------------------------------------------------------------------------------------------
<S> <C>
ENERGY (0.7%)
CMS Energy Corp.
$ 230 7.50%, 01/15/2009 $ 206
Conoco, Inc.
445 6.95%, 04/15/2029 406
--------
612
--------
FINANCE (10.1%)
American General Corp.
260 6.625%, 02/15/2029 219
Anthem Insurance Cos., Inc., Series A
(e)170 9.00%, 04/01/2027 142
Banc One Corp.
185 7.625%, 10/15/2026 172
115 8.00%, 04/29/2027 111
BankAmerica Corp.
75 6.25%, 04/01/2008 68
BT Preferred Capital Trust, Series II
140 7.875%, 02/25/2027 121
Chase Manhattan Corp
215 7.00%, 11/15/2009 203
Citicorp, Series F
115 6.375%, 11/15/2008 106
Citigroup, Inc.
280 6.625%, 01/15/2028 243
Deutsche Telekom International Finance
195 8.00%, 06/15/2010 197
EOP Operating LP
100 6.763%, 06/15/2007 92
235 7.50%, 04/19/2029 203
Equitable Cos., Inc.
150 6.50%, 04/01/2008 138
Equitable Life Assurance Society of the U.S.,
(e)250 Series 1A 6.95%, 12/01/2005 242
Erac USA Finance Co.
(e)155 8.25%, 05/01/2005 156
Farmers Exchange Capital
(e)465 7.05%, 07/15/2028 377
Ford Motor Credit Co.
335 7.375%, 10/28/2009 325
General Electric Cap Corp.
365 7.375%, 01/19/2010 368
General Motors Acceptance Corp.
330 7.75%, 01/19/2010 328
Goldman Sachs Group, L.P.
(e)230 6.50%, 02/25/2009 208
GS Escrow Corp.
300 7.125%, 08/01/2005 269
Hartford Financial Services Group
80 7.90%, 06/15/2010 80
Hartford Life, Inc.
155 7.65%, 06/15/2027 147
Household Finance Co.
170 7.875%, 03/01/2007 169
Household Finance Corp.
230 5.875%, 02/01/2009 200
John Hancock Surplus Note
(e)260 7.375%, 02/15/2024 241
Lehman Brothers Holdings, Inc.
215 8.25%, 06/15/2007 215
Merrill Lynch & Co., Inc.
145 6.50%, 07/15/2018 122
Nationsbank Corp.
210 6.80%, 03/15/2028 180
Nationwide Mutual Life Insurance Co.
(e)150 7.50%, 02/15/2024 128
New England Mutual
(e)280 7.875%, 02/15/2024 269
PNC Funding Corp.
(e)160 6.125%, 02/15/2009 142
260 7.50%, 11/01/2009 252
Prime Property Funding, II
(e)95 7.00%, 08/15/2004 91
Prudential Insurance Co.
(e)450 8.30%, 07/01/2025 455
State Street Corp.
170 7.65%, 06/15/2010 170
Suntrust Banks
135 7.75%, 05/01/2010 134
Washington Mutual Capital
115 8.375%, 06/01/2027 104
Washington Mutual, Inc.
150 8.206%, 02/01/2027 133
130 8.25%, 04/01/2010 129
Wells Fargo & Co.
320 7.55%, 06/21/2010 316
World Financial Properties
(e)231 6.91%, 09/01/2013 216
--------
8,181
--------
INDUSTRIALS (10.4%)
Adelphia Communications
45 7.875%, 05/01/2009 38
185 9.375%, 11/15/2009 171
Albertson's, Inc.
280 7.45%, 08/01/2029 260
Columbia/HCA Healthcare Corp.
80 7.19%, 11/15/2015 65
75 7.50%, 12/15/2023 59
70 7.58%, 09/15/2025 56
190 7.69%, 06/15/2025 155
50 8.70%, 02/10/2010 48
25 9.00%, 12/15/2014 24
Continental Airlines, Series
65 97-1 A 7.461%, 04/01/2015 63
CSC Holdings, Inc.
120 7.25%, 07/15/2008 111
200 7.875%, 12/15/2007 193
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
FIXED INCOME PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INDUSTRIALS (CONT.)
DaimlerChrysler
$ 235 8.00%, 06/15/2010 $ 239
Delphi Automotive Sysytems
240 7.125%, 05/01/2029 206
Dow Chemical Co.
370 7.375%, 11/01/2029 361
DR Structured Finance, Series
68 93-K1 A1 6.66%, 08/15/2010 57
10 94-K2 A2 9.35%, 08/15/2019 9
Federated Department Stores, Inc.
285 6.90%, 04/01/2029 238
40 7.00%, 02/15/2028 34
Florida Windstorm
(e)230 7.125%, 02/25/2019 211
Ford Motor Co.
285 6.625%, 10/01/2028 241
Honeywell International
95 7.50%, 03/01/2010 95
Host Marriott L.P.
205 8.375%, 02/15/2006 192
IBM Corp.
195 6.50%, 01/15/2028 176
International Game Technology
150 8.375%, 05/15/2009 143
Kmart Funding Corp., Series F
260 8.80%, 07/01/2010 240
Kroger Co.
395 8.00%, 09/15/2029 377
Lenfest Communications, Inc.
135 7.625%, 02/15/2008 133
155 8.375%, 11/01/2005 160
Lockheed Martin Co.
305 8.50%, 12/01/2029 311
Lowe's Companies, Inc.
175 6.50%, 03/15/2029 142
145 6.875%, 02/15/2028 124
Lucent Technologies, Inc.
250 6.45%, 03/15/2029 221
May Department Stores Co.
125 6.70%, 09/15/2028 106
Monsanto Co.
355 6.60%, 12/01/2028 314
Motorola, Inc.
110 6.50%, 11/15/2028 96
News America, Inc.
120 7.28%, 06/30/2028 104
115 7.30%, 04/30/2028 100
30 7.75%, 02/01/2024 27
160 8.875%, 04/26/2023 164
Oxymar
(e)100 7.50%, 02/15/2016 76
Phillips Petroleum
90 8.75%, 05/25/2010 95
Raytheon Co.
(e)195 8.20%, 03/01/2006 198
(e)105 8.30%, 03/01/2010 107
Rockwell International Corp.
100 6.70%, 01/15/2028 88
Saks, Inc.
115 7.375%, 02/15/2019 86
Scotia Pacific Co., LLC
165 7.71%, 01/20/2014 116
Sun Microsystems, Inc.
150 7.65%, 08/15/2009 150
Tenet Healthcare Corp.
100 8.00%, 01/15/2005 97
90 Series B 7.625%, 06/01/2008 83
Time Warner, Inc.
110 6.625%, 05/15/2029 92
95 7.25%, 09/01/2008 92
TRW, Inc.
210 8.75%, 05/15/2006 214
US Airways Pass Thru Series 00-1 G
145 8.11%, 02/20/2017 145
USA Waste Services
205 7.00%, 07/15/2028 163
Wal Mart Stores
450 7.55%, 02/15/2030 461
Waste Management, Inc.
90 7.375%, 05/15/2029 75
--------
8,402
--------
TELEPHONES (3.2%)
AT&T Corp.
325 6.50%, 03/15/2029 273
BellSouth Telecommunications
460 6.375%, 06/01/2028 384
Comcast Cable Communications, Inc.
55 8.375%, 05/01/2007 57
Global Crossing Holding Ltd.
215 9.125%, 11/15/2006 206
GTE Corp.
320 6.94%, 04/15/2028 283
Intermedia Communications, Inc.,
(n)20 0.00%, 05/15/2006 18
100 Series B 8.50%, 01/15/2008 92
135 Series B 8.60%, 06/01/2008 125
MCI Worldcom, Inc.
495 6.95%, 08/15/2028 439
Nextel Communications, Inc.
(n)240 0.00%, 09/15/2007 188
(e)70 9.375%, 11/15/2009 67
Qwest Communications International, Inc., Series B
(n)250 0.00%, 02/01/2008 197
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
FIXED INCOME PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
----------------------------------------------------------------------------------------------------------------------------
<S> <C>
TELEPHONES (CONT.)
U.S. West Cap Funding, Inc.
$ (e)240 6.875%, 08/15/2001 $ 238
--------
2,567
--------
TRANSPORTATION (0.6%)
Burlington North
245 6.875%, 12/01/2027 212
Continental Airlines, Series
120 98-1 A 6.648%, 09/15/2017 111
112 99-1 A 6.545%, 08/02/2020 101
Union Pacific Resources Corp., Series E
75 6.79%, 11/09/2007 70
--------
494
--------
U.S. TREASURY SECURITIES (6.6%)
U.S. Treasury Bond
(j)350 8.75%, 08/15/2020 450
U.S. Treasury Note
1,000 6.25%, 01/31/2002 997
3,750 7.50%, 02/15/2005 3,930
--------
5,377
--------
UTILITIES (0.3%)
PSEG Energy Holdings
(e)220 9.125%, 02/10/2004 222
--------
YANKEE (3.5%)
Abbey National plc
240 7.95%, 10/26/2029 238
Ahold Finance USA, Inc.
240 6.875%, 05/01/2029 202
Glencore Nickel Property Ltd.
125 9.00%, 12/01/2014 106
Grupo Minero Mexicano S.A. de CV, Series A
125 8.25%, 04/01/2008 101
Hutchinson Whampoa Financial, Series B
(e)200 7.45%, 08/01/2017 176
Hyundai Semiconductor
(e)210 8.625%, 05/15/2007 175
Multicanal S.A.
75 13.125%, 04/15/2009 73
50 Series C 10.50%, 04/15/2018 40
Oil Purchase Co. II
(e)151 10.73%, 01/31/2004 142
Petrozuata Finance, Inc.
(e)115 8.22%, 04/01/2017 89
Ras Laffan Liquefied Natural Gas Co.
(e)230 8.294%, 03/15/2014 215
Republic of Columbia
180 8.70%, 02/15/2016 117
140 11.75%, 02/25/2020 116
Republic of Philippines
280 10.625%, 03/16/2025 243
United Mexican States Par Bond
500 6.25%, 12/31/2019 415
Vodafone Airtouch plc
(e)60 7.625%, 02/15/2005 60
(e)375 7.875%, 02/15/2030 369
--------
2,877
--------
TOTAL FIXED INCOME SECURITIES (COST $97,577) 96,139
--------
SHORT-TERM INVESTMENT (21.3%)
REPURCHASE AGREEMENT (21.3%)
17,242 Chase Securities, Inc., 6.15%, dated 6/30/00, due
7/3/00, to be repurchased at $17,251, collateralized by U.S.
Treasury Notes, 5.50%, due 5/15/09, valued at $17,613 (COST
$17,242) 17,242
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
FIXED INCOME PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
AMOUNT
(000)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (139.8%) (COST $114,819) $113,381
--------
OTHER ASSETS (2.2%)
Interest Receivable $ 1,175
Receivable for Investments Sold 512
Receivable for Daily Variation on Futures Contracts 32
Unrealized Gain on Swap Agreements 26
Due from Adviser 18
Receivable for Portfolio Shares Sold 8
Other Assets 1 1,772
--------
LIABILITIES (-42.0%)
Payable for Investments Purchased (33,850)
Investment Advisory Fees Payable (77)
Professional Fees Payable (23)
Shareholder Reporting Expense Payable (19)
Administrative Fees Payable (16)
Payable for Portfolio Shares Redeemed (15)
Bank Overdraft (3)
Payable for Daily Variation Margin on Futures Contracts (2)
Custodian Fees Payable (2)
Director's Fees and Expenses Payable (1)
Other Liabilities (34) (34,042)
-------- --------
NET ASSETS (100%) $ 81,111
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 7,816,867 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $ 10.38
========
NET ASSETS CONSIST OF:
Paid in Capital $ 82,184
Undistributed Net Investment Income 2,501
Accumulated Net Realized Loss (1,700)
Unrealized Depreciation on Investments, Futures Contracts and Swaps (1,874)
--------
NET ASSETS $ 81,111
========
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
A significant portion of the Portfolio's securities are segregated for use
should the Portfolio's adviser elect to take delivery of TBA securities.
(e) -- 144A Security -- certain conditions for public sale may exist.
(j) -- This security was pledged to cover margin requirements for futures
contracts.
(n) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 2000. Maturity date disclosed is the
ultimate maturity date.
IO -- Interest Only
PO -- Principal Only
REMIC -- Real Estate Mortgage Investment Conduit
TBA -- Security is subject to delayed delivery. See Note A4 to Financial
Statements.
Floating Rate Security -- Interest rate changes on these instruments are
based on changes in designated base rate. The rates shown are those
in effect on June 30, 2000.
------------------------------------------------------------------------------
FUTURES CONTRACTS:
At June 30, 2000, the following futures contracts were open:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER NOTIONAL APPRECIATION
OF VALUE EXPIRATION (DEPRECIATION)
CONTRACT (000) DATE (000)
-------- ------- ---------- -------------
<S> <C> <C> <C> <C>
LONG:
U.S. Treasury 2
Year Note 20 U.S.$3,956 Sept-2000 U.S.$ 11
U.S. Treasury 5
Year Note 15 1,450 Sept-2000 35
U.S. Treasury
Long Bond 180 17,015 Sept-2000 (507)
SHORT:
U.S. Treasury 10
Year Note 16 1,575 Sept-2000 --
---------
U.S.$(461)
=========
</TABLE>
------------------------------------------------------------------------------
SWAP AGREEMENTS:
At June 30, 2000, the following swap agreements were open with the listed
counterparty:
<TABLE>
<CAPTION>
UNREALIZED
NOTIONAL APPRECIATION
VALUE (DEPRECIATION)
(000) MATURITY PAY RECEIVE (000)
-------- -------- --- ------- --------------
<S> <C> <C> <C> <C> <C>
GOLDMAN SACHS:
$ 1,200 3/02/2030 3-mo.LIBOR 7.36% $13
650 3/03/2030 3-mo.LIBOR 7.34% 6
550 3/09/2030 3-mo.LIBOR 7.31% 2
900 3/24/2010 3-mo.LIBOR 7.25% --
SALOMON BROTHERS:
2,250 3/24/2010 3-mo.LIBOR 7.29% 6
1,500 2/10/2030 3-mo.LIBOR 7.26% (3)
700 3/13/2030 3-mo.LIBOR 7.27% 1
650 3/10/2030 3-mo.LIBOR 7.29% 1
---
$26
===
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest $2,764
------
EXPENSES:
Investment Advisory Fees 150
Less: Fees Waived (45)
------
Net Investment Advisory Fees 105
Administrative Fees 96
Shareholder Reports 28
Professional Fees 21
Custodian Fees 7
Directors' Fees and Expenses 1
Other 5
------
Net Expenses 263
------
NET INVESTMENT INCOME 2,501
------
NET REALIZED GAIN (LOSS) ON:
Investments Sold (610)
Futures Contracts 221
------
Net Realized Loss (389)
------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 747
Futures and Swaps (377)
------
Change in Unrealized Appreciation 370
------
Net Realized Gain and Change in Unrealized Appreciation (19)
------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,482
======
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
(000) (000)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 2,501 $ 3,299
Net Realized Loss (389) (1,449)
Change in Unrealized Appreciation/Depreciation 370 (2,603)
------- -------
Net Increase (Decrease) in Net Assets Resulting from Operations 2,482 (753)
------- -------
DISTRIBUTIONS
Net Investment Income -- (3,146)
In Excess of Net Realized Gain -- (8)
------- -------
Total Distributions -- (3,154)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 13,434 32,395
Distributions Reinvested -- 3,154
Redeemed (4,670) (5,133)
------- -------
Net Increase in Net Assets Resulting from Capital Share Transactions 8,764 30,416
------- -------
Total Increase in Net Assets 11,246 26,509
NET ASSETS:
Beginning of Period 69,865 43,356
------- -------
End of Period (including undistributed net investment
income of $2,501 and $0, respectively) $81,111 $69,865
======= =======
-------------------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 1,329 3,072
Shares Issued on Distributions Reinvested -- 312
Shares Redeemed (461) (486)
------- -------
Net Increase in Capital Shares Outstanding 868 2,898
======= =======
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
FIXED INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 JANUARY 2, 1997*
(UNAUDITED) 1999 1998 TO DECEMBER 31, 1997
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.05 $10.70 $10.41 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.32 0.50 0.37 0.46
Net Realized and Unrealized Gain (Loss) 0.01 (0.67) 0.45 0.53
------ ------ ------ ------
Total from Investment Operations 0.33 (0.17) 0.82 0.99
------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income -- (0.48) (0.36) (0.45)
In Excess of Net Investment Income -- -- (0.01) --
Net Realized Gain -- -- (0.11) (0.13)
In Excess of Net Realized Gain -- (0.00)+ (0.05) --
------ ------ ------ ------
Total Distributions -- (0.48) (0.53) (0.58)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.38 $10.05 $10.70 $10.41
====== ====== ====== ======
TOTAL RETURN 3.28% (1.63)% 7.90% 9.93%
====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $81,111 $69,865 $43,356 $12,760
Ratio of Expenses to Average Net Assets 0.70%** 0.70% 0.70% 0.70%**
Ratio of Net Investment Income to Average
Net Assets 6.62%** 6.06% 5.37% 5.66%**
Portfolio Turnover Rate 37% 100% 117% 185%
--------------------------
Effect of Voluntary Expense Limitation During the
Period:
Per Share Benefit to Net Investment Income $0.01 $0.02 $0.02 $0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 0.82%** 0.96% 1.04% 1.71%**
Net Investment Income to Average Net Assets 6.50%** 5.80% 5.03% 4.65%**
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
+ Amount is less than $0.01
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen
separate active, diversified and non-diversified portfolios (individually
referred to as a "Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Fixed Income Portfolio.
The Portfolio seeks an above-average total return over a market cycle of
three to five years by investing primarily in a diversified portfolio of U.S.
Government and Agencies securities, corporate bonds, mortgage-backed
securities, foreign bonds and other fixed income securities. The Portfolio's
average weighted maturity will ordinarily exceed five years and will usually
be between five and fifteen years.
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. 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
Portfolio's records. Purchasing securities on a forward commitment or when-
11
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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.
Purchasing investments on a when issued or delayed delivery basis may be
considered a form of leverage which may increase the impact that gains or
losses may have on the Portfolio.
5. 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.
6. SWAP AGREEMENTS: The Portfolio 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.
Risks also arise from potential losses from adverse market movements, and
such losses could exceed the related amounts shown in the Statement of Net
Assets.
7. 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
12
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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.
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.
B. ADVISER: Miller Anderson & Sherrerd LLP ("MAS"), 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
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
--------- ------- ---------- ----------
<S> <C> <C> <C>
Fixed Income .............. 0.40% 0.35% 0.30%
</TABLE>
MAS has agreed to reduce fees payable to it and to reimburse the Portfolio,
if necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 0.70%.
C. ADMINISTRATOR: Morgan Stanley Asset Management. (the "Administrator"),
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. 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. CREDIT FACILITY: The Fund, along with an affiliated open-end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the
Agreement, the Funds are provided with a revolving credit facility (the
"Facility") allowing the Funds to borrow, subject to the limitations set
forth in each Fund's registration statement, amounts that, in the aggregate
for the Funds, will not exceed $235 million. The Funds pay a commitment fee
on the unused portion of the Facility at an annual rate of 0.09%. Fees
incurred in connection with the arrangement of the Facility totaled
approximately $225,000. The commitment fee and the arrangement fee are
allocated to the Funds based on an estimate of the potential amount available
to each Fund under their respective limitations. Such allocated costs are
further allocated to the Portfolios based on their net assets. Amounts drawn
down on the Facility bear interest at the annual rate equal to the then
prevailing Federal Funds rate plus 0.50% which is borne by the respective
borrowing Portfolio. For the six monts ended June 30, 2000, there were no
amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, 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 DEPRECIATION
(000) (000) (000) (000)
----- ------------ ------------ ------------
<S> <C> <C> <C>
$114,819 $492 $(1,930) $(1,438)
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $54,012,000 and $33,794,000,
respectively.
At December 31, 1999, the Portfolio had available capital loss carryforwards
to offset future net capital gains, to the extent provided by regulations,
through December 31, 2007 of approximately $1,298,000. To the extent that
capital loss carryforwards are used to offset any future net capital gains
realized during the carryforward period as provided by U.S. tax regulations,
no capital gains tax liability will be incurred by the Portfolio for gains
realized and not distributed. To the extent that capital gains are so offset,
such gains will not be distributed to shareholders.
Net capital and currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Portfolio's
next taxable year. For the year ended December 31, 1999, the Portfolio
intends to defer January 1, 2000 for U.S. Federal income tax purposes,
post-October capital losses of $96,000.
From time to time, the 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.
13
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
--------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE UNIVERSAL INSTITUTIONAL 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. FOR
ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000 PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG LLP
AS ITS NEW INDEPENDENT ACCOUNTANTS.
14
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------
<TABLE>
<S> <C>
Australia (1.8%)
Belgium (0.5%)
Canada (2.0%)
Denmark (0.5%)
Hong Kong (1.0%)
France (7.3%)
Germany (3.4%)
Ireland (1.5%)
Italy (2.0%)
Japan (12.6%)
Netherlands (5.0%)
Singapore (0.3%)
Spain (2.4%)
Sweden (1.1%)
Switzerland (5.0%)
United Kingdom (16.2%)
United States (29.7%)
Other (7.7%)
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY COUNTRY NET ASSETS
-------- ------- ----------
<S> <C> <C>
Nippon Telephone & Telegraph Corp. Japan 2.8%
Philip Morris Cos., Inc. United States 2.2
Total Fina S.A., Class B France 2.1
Chase Manhattan Corp. United States 1.9
Albertson's, Inc. United States 1.8
</TABLE>
TOP FIVE SECTORS
<TABLE>
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
------ ----- -----------
<S> <C> <C>
Consumer Staples $9,532 18.4%
Financials 6,803 13.1
Telecommunication Services 6,671 12.9
Consumer Discretionary 6,533 12.6
Materials 4,940 9.6
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN
STANLEY CAPITAL INTERNATIONAL (MSCI)
WORLD INDEX(1)
------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION(3)
----- ----- ------------------
<S> <C> <C> <C>
PORTFOLIO 3.73% 4.17% 11.69%
INDEX -2.56 12.19 17.69
</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.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
3. Commenced operations on January 2, 1997
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
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, 2000, the Portfolio had a total return of
3.73% compared to -2.56% for the Morgan Stanley Capital International (MSCI)
World Index (the "Index"). For the one year period ended June 30, 2000, the
Portfolio had a total return of 4.17% compared to 12.19% for the Index. For the
period from inception on January 2, 1997 through June 30, 2000, the Portfolio
had an average annual total return of 11.69% compared to 17.69% for the Index.
Strong stock selection in selected consumer discretionary was a positive,
indicating that enthusiasm for content and advertising stocks continued to boost
that segment of the market. The Portfolio was rewarded for its significant
overweight in consumer staples - one of the best performing sectors during the
last six months. Philip Morris produced a comfortable 20%, as legal risks in the
tobacco industry appear to have peaked. Nestle, Danone and Reckitt Benckiser
were strong consumer stocks in Europe. Stock selection in energy was strong, as
Total Fina Elf, Burmah Castrol and Royal Dutch benefited from the surging price
of crude.
Our overweight and stock selection in interest rate sensitive financials was a
negative during the first half of 2000. Our overweight to materials detracted
from performance, as stocks such as Alcoa, Georgia Pacific and Boise Cascade
reacted to a slowing U.S. economy. Despite investor's significant rotation from
'new economy' to 'old economy' stocks in the market, our underweight to
technology during the first half
[SIDENOTE]
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED
AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR
A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL
INVESTING.
[/SIDENOTE]
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
of 2000 proved to be a drag on performance. It is worth noting, however, that
our underweight to technology finally paid-off during the second quarter.
Disappointing earnings and lofty valuations plagued the sector, as
heavyweights such as Microsoft and Cisco actually detracted performance from
the Index.
The Portfolio is well positioned, given the ongoing valuation extremes in the
(zero-weighted) mega-cap 'growth' component of the Index. The Portfolio's price
to cash flow ratio is 9 times, compared to 17 times in the Index, yet we believe
its balance sheet quality and free cash flow generation remain superior to the
Index.
July 2000
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (92.2%)
AUSTRALIA (1.8%)
148,530 CSR Ltd. ............................................. $ 411
73,050 Westpac Banking Corp., Ltd. .......................... 526
-------
937
-------
BELGIUM (0.5%)
4,580 Delhaize-Le Lion Freres .............................. 274
-------
CANADA (2.0%)
(a)7,580 Potash Corp. of Saskatchewan, Inc. ................... 415
(a)7,699 Telus Corp (Non Voting) .............................. 205
15,897 Telus Corp. .......................................... 425
-------
1,045
-------
DENMARK (0.5%)
7,170 Danisco A.S. ......................................... 239
-------
FRANCE (7.3%)
(a)6,460 Alcatel .............................................. 423
11,540 Aventis S.A. ......................................... 842
(a)4,100 Groupe Danone ........................................ 544
3,440 Lafarge .............................................. 267
5,230 Michelin (C.G.D.E.), Class B (Registered) ............ 168
8,690 Pernod Ricard ........................................ 472
6,960 Total Fina S.A., Class B ............................. 1,066
-------
3,782
-------
GERMANY (3.3%)
13,029 BASF AG .............................................. 528
13,210 Bayer AG ............................................. 505
9,650 VEBA AG .............................................. 465
4,640 Volkswagen AG ........................................ 179
-------
1,677
-------
HONG KONG (1.0%)
152,500 Hong Kong Electric Holdings Ltd. ..................... 491
-------
IRELAND (1.5%)
3,920 Bank of Ireland ...................................... 24
53,990 Bank of Ireland plc .................................. 340
72,371 Green Property plc ................................... 425
-------
789
-------
ITALY (2.0%)
48,080 ENI S.p.A. ........................................... 278
117,090 Telecom Italia S.P.A. Di Risp ........................ 776
-------
1,054
-------
JAPAN (12.6%)
12,000 Daiichi Pharmaceutical Co., Ltd. ................... 304
17,000 Fuji Photo Film Ltd. ............................... 695
4,000 Fujitsu Ltd. ....................................... 138
53,000 Hitachi Ltd. ....................................... 764
11,000 Matsushita Electric Industrial Co., Ltd. ........... 285
36,000 Mitsubishi Electric Corp. .......................... 389
34,000 Mitsui Co. ......................................... 260
110 Nippon Telegraph & Telephone Corp. ................. 1,461
8,000 Pioneer Electronic Corp. ........................... 311
13,000 Sankyo Co., Ltd. ................................... 293
22,000 Sumitomo Bank ...................................... 270
44,000 Sumitomo Marine & Fire Insurance Co. ............... 256
132,000 Tokyo Gas Co. ...................................... 371
36,000 Toppan Printing Co., Ltd. .......................... 381
30,000 Toshiba Corp. ...................................... 338
-------
6,516
-------
NETHERLANDS (5.0%)
9,390 Akzo Nobel N.V. .................................... 399
7,762 ING Groep N.V. ..................................... 524
(a)18,878 Philips Electronics N.V. ........................... 889
12,300 Royal Dutch Petroleum Co. .......................... 757
-------
2,569
-------
PORTUGAL (0.0%)
186 Cimpor-Cementos de Portugal ........................ 3
-------
SINGAPORE (0.3%)
23,000 United Overseas Bank ............................... 150
-------
SPAIN (2.4%)
30,920 Iberdrola .......................................... 398
(a)39,010 Telefonica S.A. .................................... 837
-------
1,235
-------
SWEDEN (1.1%)
77,610 Nordbanken Holding AB .............................. 585
-------
SWITZERLAND (5.0%)
210 Cie Financiere Richemont AG, Class A ............... 565
327 Holderbank Financiere Glarus AG, Class B (Bearer) .. 401
473 Nestle (Registered) ................................ 946
980 Swisscom AG (Registered) ........................... 339
(a)2,210 UBS AG (Registered) ................................ 323
-------
2,574
-------
UNITED KINGDOM (16.2%)
150,500 Allied Domecq plc .................................. 797
12,300 AstraZeneca Group plc .............................. 574
81,556 Blue Circle Industries plc ......................... 526
80,600 British Aerospace plc .............................. 502
33,600 British Airport Authority plc ...................... 269
41,400 British Telecommunications plc ..................... 535
16,225 Burmach Castrol plc ................................ 409
123,400 Cadbury Schweppes plc .............................. 810
60,006 Diageo plc ......................................... 538
13,600 Granada Group plc .................................. 136
37,500 Great Universal Stores plc ......................... 241
52,000 Imperial Tobacco Group plc ......................... 498
89,000 J. Sainsbury plc ................................... 404
67,900 Matthews (Bernard) plc ............................. 145
47,943 Reckitt & Colman plc ............................... 537
76,972 Royal & Sun Alliance Insurance Group plc ........... 499
5,700 Scottish Hydro-Electric plc ........................ 52
43,700 Vodafone Group plc ................................. 177
49,876 WPP Group plc ...................................... 728
-------
8,377
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------------
<S> <C>
UNITED STATES (29.7%)
28,511 Albertson's, Inc. .................................. $ 948
25,100 Alcoa, Inc. ........................................ 728
2,600 American Home Products Corp. ....................... 153
9,565 B. F. Goodrich Co. ................................. 326
(a)13,510 BJ's Wholesale Club, Inc. .......................... 446
18,850 Boise Cascade Corp. ................................ 488
10,950 Borg-Warner Automotive, Inc. ....................... 385
4,200 Bristol-Myers Squibb Co. ........................... 245
(a)24,000 Cadiz, Inc. ........................................ 192
21,631 Chase Manhattan Corp. .............................. 996
13,060 COMSAT Corp. ....................................... 307
2,890 Deere & Co. ........................................ 107
5,300 First Data Corp. ................................... 263
21,230 Fort James Corp. ................................... 491
12,120 General Dynamics Corp. ............................. 633
(a)15,200 GenRad, Inc. ....................................... 137
10,240 Georgia Pacific Corp. .............................. 269
13,870 GTE Corp. .......................................... 863
2,260 Honeywell International, Inc. ...................... 76
8,960 Houghton Mifflin Co. ............................... 418
10,340 MBIA, Inc. ......................................... 498
21,490 Mellon Financial Corp. ............................. 783
(a)12,800 Metlife, Inc. ...................................... 270
(a)14,380 NCR Corp. .......................................... 560
6,500 New York Times Co., Class A ........................ 257
9,161 Pharmacia Corp. .................................... 473
42,640 Philip Morris Cos., Inc. ........................... 1,133
5,500 Rockwell International Corp. ....................... 173
17,280 SBC Communications, Inc. .......................... 747
18,890 Sears Roebuck & Co. ................................ 616
15,710 Tupperware Corp. ................................... 346
17,320 U. S. Bancorp ...................................... 333
18,310 Unicom Corp. ....................................... 708
-------
15,368
-------
TOTAL COMMON STOCKS (COST $46,699).............................. 47,665
-------
PREFERRED STOCK (0.1%)
GERMANY (0.1%)
2,230 Volkswagen AG (COST $80)............................ 53
-------
TOTAL FOREIGN & U.S. SECURITIES (92.3%) (COST $46,779).......... 47,718
-------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------------------ ------
<S> <C> <C>
SHORT-TERM INVESTMENT (8.2%)
REPURCHASE AGREEMENT (8.2%)
4,243 Chase Securities, Inc. 6.15% dated 6/30/00, due
7/3/00, to be repurchased at $4,245,
collateralized by U.S Treasury Notes, 4.75%,
due 11/15/08, valued at $4,334 (COST $4,243) ..... $ 4,243
---------
FOREIGN CURRENCY (0.1%)
EUR 12 Euro ............................................... 11
JPY 942 Japanese Yen ....................................... 9
---------
TOTAL FOREIGN CURRENCY (COST $20) ............................ 20
---------
TOTAL INVESTMENTS (100.6%) (COST $51,042) .......................... $ 51,981
---------
OTHER ASSETS (1.0%)
Cash ........................................ $ 2
Receivable for Portfolio Shares Sold ........ 168
Dividends Receivable ........................ 162
Receivable for Investments Sold ............. 104
Due from Adviser ............................ 32
Net Unrealized Gain on Foreign Currency
Exchange Contracts ........................ 31
Foreign Withholding Tax Reclaim Receivable .. 27
Interest Receivable ......................... 1 527
----
LIABILITIES (-1.6%)
Payable for Investments Purchased ........... (609)
Investment Advisory Fees Payable ............ (96)
Shareholder Reporting Expense Payable ....... (42)
Custodian Fees Payable ...................... (19)
Administrative Fees Payable ................. (16)
Payable for Portfolio Shares Redeemed ....... (14)
Professional Fees Payable ................... (14) (810)
----- --------
NET ASSETS (100%) ............................... .................. $ 51,698
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 3,868,331 outstanding $0.001
par value shares (authorized 500,000,000 shares) ............... $ 3.36
========
NET ASSETS CONSIST OF:
Paid in Capital .................................................... $ 47,638
Undistributed Net Investment Income ................................ 304
Accumulated Net Realized Gain ...................................... 2,766
Unrealized Appreciation on Investments and Foreign
Currency Translations ........................................... 990
--------
NET ASSETS ......................................................... $ 51,698
========
</TABLE>
-------------------------------------------------------------------------------
(a) -- Non-income producing security
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
-------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency exchange contract open at June 30, 2000, the
Portfolio is obligated to deliver foreign currency in exchange for U.S. dollars
as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN
(000) (000) DATE (000) (000) (000)
---------- ------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
EUR 2,200 $ 2,100 7/12/00 U.S.$ 2,131 $ 2,131 $ 31
======= ======= ====
</TABLE>
-----------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
MARKET
VALUE % OF NET
SECTOR (000) ASSETS
------ ------- --------
<S> <C> <C>
Consumer Staples $ 9,532 18.4%
Financials 6,803 13.1
Telecommunication Services 6,671 12.9
Consumer Discretionary 6,533 12.6
Materials 4,940 9.6
Industrials 3,464 6.7
Health Care 2,884 5.6
Energy 2,510 4.9
Information Technology 2,361 4.6
Utilities 2,020 3.9
-------- ----
Total Foreign & U.S. Securities $ 47,718 92.3%
======== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
-----------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 581
Interest 94
Less: Foreign Taxes Withheld (48)
--------
Total Income 627
--------
EXPENSES:
Investment Advisory Fees 190
Less: Fees Waived (77)
--------
Net Investment Advisory Fees 113
Administrative Fees 66
Shareholder Reports 39
Custodian Fees 30
Professional Fees 25
Directors' Fees and Expenses 1
Other 2
--------
Net Expenses 276
--------
NET INVESTMENT INCOME 351
--------
NET REALIZED GAIN ON:
Investments Sold 1,736
Foreign Currency Transactions 398
--------
Net Realized Gain 2,134
--------
CHANGE IN UNREALIZED DEPRECIATION ON:
Investments (559)
Foreign Currency Translations (174)
--------
Change in Unrealized Depreciation (733)
--------
Net Realized Gain and Change in Unrealized
Appreciation/Depreciation 1,401
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,752
========
</TABLE>
-------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED) (000)
(000)
----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 351 $ 510
Net Realized Gain 2,134 2,704
Change in Unrealized Depreciation (733) (1,407)
------- --------
Net Increase in Net Assets Resulting from Operations 1,752 1,807
------- --------
DISTRIBUTIONS
Net Investment Income -- (528)
In Excess of Net Investment Income -- (47)
Net Realized Gain -- (2,231)
------- --------
Total Distributions -- (2,806)
------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 14,178 19,379
Distributions Reinvested -- 2,806
Redeemed (13,123) (15,848)
------- --------
Net Increase in Net Assets Resulting from Capital
Share Transactions 1,055 6,337
------- --------
Total Increase in Net Assets 2,807 5,338
NET ASSETS:
Beginning of Period 48,891 43,553
------- --------
End of Period (including undistributed/distributions
in excess of net investment income of $304
and ($47), respectively) $ 51,698 $ 48,891
======== ========
----------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 1,102 1,460
Shares Issued on Distributions Reinvested -- 223
Shares Redeemed (1,031) (1,200)
------- --------
Net Increase in Capital Shares Outstanding 71 483
======= ========
-----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 JANUARY 2, 1997*
(UNAUDITED) 1999 1998 TO DECEMBER 31, 1997
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.88 $ 13.14 $ 11.74 $ 10.00
-------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.09 0.14 0.10 0.08
Net Realized and Unrealized Gain 0.39 0.38 1.48 1.92
-------- ------- ------- ---------
Total from Investment Operations 0.48 0.52 1.58 2.00
-------- ------- ------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.14) (0.09) (0.08)
In Excess of Net Investment Income -- (0.02) -- --
Net Realized Gain -- (0.62) (0.09) (0.18)
-------- ------- ------- ---------
Total Distributions -- (0.78) (0.18) (0.26)
-------- ------- ------- ---------
NET ASSET VALUE, END OF PERIOD $ 13.36 $12.88 $13.14 $11.74
======== ======= ======= =========
TOTAL RETURN 3.73% 4.10% 13.47% 20.04%
======== ======= ======= =========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $ 51,698 $48,891 $43,553 $14,707
Ratio of Expenses to Average Net Assets 1.15%** 1.15% 1.15% 1.15%**
Ratio of Net Investment Income (Loss) to
Average Net Assets 1.49%** 1.10% 1.03% 1.24%**
Portfolio Turnover Rate 42% 40% 22% 20%
-------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income $0.02 $0.04 $0.04 $0.09
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.49%** 1.48% 1.63% 2.43%**
Net Investment Income (Loss) to Average
Net Assets 1.15%** 0.77% 0.56% (0.04)%**
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen
separate active, diversified and non-diversified portfolios (individually
referred to as a "Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Global Equity Portfolio.
The 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.
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. 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 under procedures approved 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.
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) on investments 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>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(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 as unrealized gains (losses) on Foreign Currency
Translations 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.
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolio 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.
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 Asset Management ("MSAM"), 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
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
--------- ------- ---------- ----------
<S> <C> <C> <C>
Global Equity ............. 0.80% 0.75% 0.70%
</TABLE>
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio, if
necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 1.15%.
C. ADMINISTRATOR: MSAM (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. CREDIT FACILITY: The Fund, along with an affiliated open-end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the
Agreement, the Funds are provided with a revolving credit facility (the
"Facility") allowing the Funds to borrow, subject to the limitations set
forth in each Fund's registration statement, amounts that, in the aggregate
for the Funds, will not exceed $235 million. The Funds pay a commitment fee
on the unused portion of the Facility at an annual rate of 0.09%. Fees
incurred in connection with the arrangement of the Facility totaled
approximately $225,000. The commitment fee and the arrangement fee are
allocated to the Funds based on an estimate of the potential amount available
to each Fund under their respective limitations. Such allocated costs are
further allocated to the Portfolios based on their net assets. Amounts drawn
down on the Facility bear interest at the annual rate equal to the then
prevailing Federal Funds rate plus 0.50% which is borne by the respective
borrowing Portfolio. For the six months ended June 30, 2000, there were no
amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, cost and gross unrealized appreciation and
(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>
$51,042 $5,022 ($4,083) $939
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $20,366,000 and $18,410,000,
respectively. There were no purchases and sales of U.S. Government securities
for the six months ended June 30, 2000. During the six months ended June 30,
2000, the portfolio incurred $6,132 of brokerage commissions to Morgan Stanley &
Co. Incorporated, an affiliated broker dealer.
At June 30, 2000, 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, the 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.
10
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
-------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED
BY THE PROSPECTUS OF THE THE UNIVERSAL INSTITUTIONAL 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. FOR ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE
INVESTMENTS COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT
www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000 PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT
ACCOUNTANTS OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE
FINANCIAL STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO
ADVERSE OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED
AS TO UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH
ITS AUDITS FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000,
THERE HAVE BEEN NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY
MATTER OF ACCOUNTING PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE,
OR AUDITING SCOPE OR PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE
SATISFACTION OF PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE
REFERENCE THERETO IN THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS.
THE FUND, WITH THE APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE
ENGAGED ERNST & YOUNG LLP AS ITS NEW INDEPENDENT ACCOUNTANTS.
11
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
HIGH YIELD PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
HIGH YIELD PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-----------------------------------------------------------
<TABLE>
<S> <C>
Automotive (1.9%)
Cable (12.6%)
Chemicals (2.7%)
Communications (29.6%)
Energy (1.4%)
Financial (0.9%)
Food & Beverage (1.0%)
Gaming (7.0%)
Healthcare (6.1%)
Hotels & Lodging (2.6%)
Industrials (2.0%)
Media (5.5%)
Metals (2.3%)
Paper (3.2%)
Real Estate (2.8%)
Retail (4.6%)
Services (2.4%)
Supermarkets (0.7%)
Technology (0.6%)
Telephone Services (0.2%)
Transportation (0.1%)
Utilities (3.1%)
Other (6.7%)
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
ISSUE INDUSTRY NET ASSETS
----- -------- ----------
<S> <C> <C>
Nextel Communications, Inc.
0.00%, 9/15/07 Communications 2.3%
Winstar Communications, Inc.
0.00%, 4/15/10 Communications 1.8%
International Game Technology
8.375%, 5/15/09 Gaming 1.7%
HMH Properties, Series A
7.875%, 8/1/05 Hotel & Lodging 1.5%
Intermedia Communications, Inc.
Series B, 0.00%, 7/15/07 Communications 1.5%
</TABLE>
PERFORMANCE COMPARED TO THE CS FIRST
BOSTON HIGH YIELD INDEX AND SALOMON
HIGH-YIELD MARKET INDEX
--------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(3)
-------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION(4)
------ ---- ------------------
<S> <C> <C> <C>
PORTFOLIO...... -1.76% 1.87% 6.65%
CS FIRST
BOSTON HIGH
YIELD INDEX(1)... -0.83 -0.40 4.45
SALOMON
HIGH-YIELD
MARKET
INDEX(2)....... -1.41 -1.44 4.86
</TABLE>
1. The CS First Boston High Yield Index is an unmanaged index of high yield
corporate bonds.
2. The Salomon High-Yield Market Index includes public, non-convertible
corporate bond issues with at least one year remaining to maturity and $50
million in par amount outstanding which carry a below investment grade
quality rating from either Standard & Poor's or Moody's rating services.
3. 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.
4. Commenced operations on January 2, 1997.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
In accordance with SEC regulations, Portfolio performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested.
The objective of the High Yield Portfolio is to achieve above-average total
return over a market cycle of three to five years by investing primarily in a
diversified portfolio of high yield, fixed income securities. High yield
securities are rated below investment grade and are commonly referred to as
"junk bonds". The Portfolio's average weighted maturity will ordinarily
exceed five years.
For the six months ended June 30, 2000, the Portfolio had a total return of
-1.76% compared to -0.83% for the CS First Boston High Yield Index ("the
Index") and -1.41% for the Salomon High-Yield Market Index. For the one year
ended June 30, 2000, the Portfolio had a total return of 1.87% compared to
-0.40% for the Index and -1.44% for the Salomon High-Yield Market Index. For
the period from inception on January 2, 1997 through June 30, 2000, the
Portfolio had an average annual total return of 6.65% compared to 4.45% for
the Index and 4.86% for the Salomon High-Yield Market Index.
The high yield market under-performed higher quality bonds in the first half
of 2000. Stock market volatility and several rate hikes by the Federal
Reserve caused investors to move money into higher quality fixed income
assets. Furthermore, there continued to be large outflows from high yield
mutual funds early in the second quarter of 2000 as individual investors
continued to invest heavily in high-tech equity funds. This outflow of funds,
almost $4 billion in the first five months of this year, has caused high
yield mutual funds to sell securities and create a poor technical situation
in the market. Fortunately, the situation improved in June as almost $1
billion was added to high yield mutual funds, the largest gain in some time.
The spread on the Index widened by 155 basis points in the first six months
of this year to 728 basis points over treasuries.
[SIDENOTE]
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. INVESTING IN
HIGH YIELD SECURITIES OTHERWISE KNOWN AS "JUNK BONDS" IS SPECULATIVE AND
INCLUDES GREATER RISK OF LOSS OF PRINCIPAL AND INTEREST. THE PERFORMANCE
RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YIELDS WILL
FLUCTUATE AS MARKET CONDITIONS CHANGE.
[/SIDENOTE]
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
HIGH YIELD PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
An overweight position in the telecommunications sectors was the biggest drag
on performance as these sectors performed poorly due to the NASDAQ
volatility. Higher exposure than the Index to non-U.S. issues was another
negative factor that impacted our results.
Our higher quality than the Index Portfolio benefited our returns as BB-
rated securities outperformed lower rated bonds during the second quarter.
Our overweight allocation to the gaming sector also increased returns as this
sector was one of the best performing sectors in the U.S. high yield market.
In terms of portfolio activity, we participated in several new deals as
issuers had to price their deals very cheaply to get investors attention. We
increased our exposure slightly in the cable and telecom sectors where we
found good value. We lowered our target weighting in Columbia/HCA and
eliminated positions in several issuers during the first half of the year,
including Metromedia Fiber, Sequa, Voicestream, Snyder Oil and Algoma Steel.
We are optimistic about attaining better returns in the high yield market
over the coming months. The high yield market continues to trade at spread
levels only surpassed during the last U.S. recession in the early 1990's.
This has occurred at the same time that the global economies continue to
expand and the default rate has stabilized. Evidence is starting to appear
that the Federal Reserve might be able to stop or slow down the restrictive
stance that they have had for over the past year. The supply in the new issue
market for high yield has slowed considerably this year with issuance down
over 50% from the same period last year. Stability is what the high yield
market needs: a Federal Reserve on hold, less volatile interest rates and
stock market, continued moderate new issue supply, and less outflows (or
possibly inflows) from high yield mutual funds. We are hopeful that this
stability will emerge soon.
July 2000
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
HIGH YIELD PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------------------------
<S> <C>
FIXED INCOME SECURITIES (91.2%)
AUTOMOTIVE (1.9%)
Hayes Lemmerz International, Inc.
$ 615 8.25%, 12/15/08 .................................... $ 520
Tenneco, Inc., Series B
630 11.625%, 10/15/09 .................................. 559
-------
1,079
-------
CABLE (12.6%)
Adelphia Communications Corp.
950 7.75%, 1/15/09 ..................................... 800
500 9.375%, 11/15/09 ................................... 462
Adelphia Communications Corp., Series B
525 8.375%, 2/1/08 ..................................... 465
Cablevision S.A., Series E,
215 13.75%, 5/1/09 ..................................... 196
Callahan Nordrhein
(e)625 14.00%, 7/15/10 .................................... 625
Charter Communications Holdings
575 10.25%, 1/15/10 .................................... 556
CSC Holdings, Inc.
295 7.25%, 7/15/08 ..................................... 273
400 7.875%, 12/15/07 ................................... 387
Echostar DBS Corp.
625 9.375%, 2/1/09 ..................................... 605
Multicanal S.A.
300 10.50%, 2/1/07 ..................................... 255
200 Series C, 10.50%, 4/15/18 .......................... 159
NTL, Inc.
GBP (n)675 0.00%, 4/1/08 ...................................... 628
Onepoint Communications Corp.
$ 135 14.50%, 6/1/08 ..................................... 68
RCN Corp.
(n)900 0.00%, 10/15/07 .................................... 558
(n)150 Series B, 0.00%, 2/15/08 ........................... 85
Rogers Cablesystems Ltd., Series B,
150 10.125%, 9/1/12 .................................... 152
Telewest plc
GBP (n)650 0.00%, 4/15/09 ..................................... 516
United Pan Europe Communications N.V., Series B,
$ 570 10.875%, 8/1/09 .................................... 500
-------
7,290
-------
CHEMICALS (2.7%)
Huntsman ICI
325 10.125%, 7/1/09 .................................... 326
EUR 250 10.125%, 7/1/09 .................................... 247
ISP Holdings, Inc., Series B,
$ 600 9.00%, 10/15/03 .................................... 558
Lyondell Chemical Co.
450 9.625%, 5/1/07 ..................................... 446
-------
1,577
-------
COMMUNICATIONS (27.1%)
AMSC Acquisition Co., Inc., Series B,
$ 500 12.25%, 4/1/08 ..................................... $ 377
Bayan Telecommunications
(e)550 13.50%, 7/15/06 .................................... 346
Centennial Cellular Operating Co.
430 10.75%, 12/15/08 ................................... 418
CTI Holdings
(n)775 0.00%, 4/15/08 ..................................... 447
Dolphin Telecommunications plc
EUR (n)370 0.00%, 6/1/08 ...................................... 127
$ 575 0.00%, 5/15/09 ..................................... 204
Esprit Telecom Group plc
EUR 307 11.00%, 6/15/08 .................................... 216
Exodus Communications, Inc.
$ (e)435 11.625%, 7/15/10 ................................... 437
Global Crossing Holdings, Ltd.
640 9.625%, 5/15/08 .................................... 622
Globalstar LP/Capital
(e)450 11.375%, 2/15/04 ................................... 128
Globix Corp.
425 12.50%, 2/1/10 ..................................... 353
Grupo Iusacell S.A. de C.V.
485 14.25%, 12/1/06 .................................... 500
GT Group Telecom
(e)(n)650 0.00%, 2/1/10 ...................................... 361
Hermes Europe Railtel
275 10.375%, 1/15/09 ................................... 229
260 11.50%, 8/15/07 .................................... 226
Hyperion Telecommunications, Inc.
(n)555 0.00%, 4/15/03 ..................................... 515
Intermedia Communications, Inc., Series B
(n)1,075 0.00%, 7/15/07 ..................................... 839
(e)100 8.50%, 1/15/08 ..................................... 92
Level 3 Communications
(e)600 0.00%, 3/15/10 ..................................... 327
Maxcom Telecomunicaciones
(e)400 13.75%, 4/1/07 ..................................... 355
Netia Holdings,
(e)350 13.50%, 6/15/09 .................................... 334
Nextel Communications, Inc.
EUR (n)1,700 0.00%, 9/15/07 ..................................... 1,332
(n)450 0.00%, 2/15/08 ..................................... 329
NEXTLINK Communications Co.
(n)660 0.00%, 4/15/08 ..................................... 416
(n)200 0.00%, 6/1/09 ...................................... 125
225 0.00%, 12/1/09 ..................................... 132
140 10.75%, 11/15/08 ................................... 139
Occidente y Caribe Cellular
$ (n)700 0.00%, 3/15/04 ..................................... 493
Primus Telecommunications Group, Inc., Series B
EUR 285 9.875%, 5/15/08 .................................... 221
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
HIGH YIELD PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------------------------
<S> <C>
COMMUNICATIONS (CONT.)
Primus Telecommunications Group, Inc., Series B,
$ 440 11.25%, 1/5/09 $ 359
PSINET, Inc.
170 11.00%, 8/1/09 ..................................... 160
600 Series B, 10.00%, 2/15/05 .......................... 558
PTC International Finance
$ (e)375 11.25%, 12/1/09 .................................... 375
Rhythms NetConnections, Inc.,
EUR (e)275 14.00%, 2/15/10 .................................... 199
870 Series B, 0.00%, 5/15/08 ........................... 357
RSL Communications plc
(n)650 0.00%, 3/1/08 ...................................... 270
(n)384 0.00%, 6/15/08 ..................................... 156
$ 625 9.125%, 3/1/08 ..................................... 406
90 12.00%, 11/1/08 .................................... 67
18 12.25%, 11/15/06 ................................... 14
Tele1 Europe B.V.
EUR (e)135 11.875%, 12/1/09 ................................... 126
$ 385 13.00%, 5/15/09 .................................... 373
Viatel, Inc.
(n)715 0.00%, 4/15/08 ..................................... 329
Wam!Net, Inc.
(n)400 0.00%, 3/1/05 ...................................... 224
Winstar Communications, Inc.
(e)(n)2,230 0.00%, 4/15/10 ..................................... 1,026
-------
15,639
-------
ENERGY (1.4%)
Husky Oil Ltd.
(n)300 8.90%, 8/15/28 ..................................... 285
Vintage Petroleum, Inc.
210 8.625%, 2/1/09 ..................................... 201
340 9.75%, 6/30/09 ..................................... 344
-------
830
-------
FINANCIAL (0.9%)
Golden State Holdings Escrow Corp.
595 7.125%, 8/1/05 ..................................... 534
-------
FOOD & BEVERAGE (1.0%)
Smithfield Foods, Inc.
675 7.625%, 2/15/08 .................................... 601
-------
GAMING (7.0%)
Harrahs Operating Co., Inc.
785 7.875%, 12/15/05 ................................... 739
Horseshoe Gaming Holding
600 8.625%, 5/15/09 .................................... 564
International Game Technology
1,050 8.375%, 5/15/09 .................................... 998
Park Place Entertainment
415 7.875%, 12/15/05 ................................... 389
300 8.50%, 11/15/06 .................................... 295
Station Casinos, Inc.
$ 550 8.875%, 12/1/08 .................................... $ 524
200 9.75%, 4/15/07 ..................................... 200
300 10.125%, 3/15/06 ................................... 303
-------
4,012
-------
HEALTHCARE (6.1%)
Columbia/HCA Healthcare Corp.
450 6.91%, 6/15/05 ..................................... 411
275 7.00%, 7/1/07 ...................................... 245
300 7.15%, 3/30/04 ..................................... 281
250 7.69%, 6/15/25 ..................................... 204
100 8.13%, 8/4/03 ...................................... 97
490 8.85%, 1/1/07 ...................................... 480
Fresenius Medical Capital Trust II
650 7.875%, 2/1/08 ..................................... 592
Sirona Dental Systems
EUR (e)118 9.125%, 7/15/08 .................................... 92
Tenet Healthcare Corp.
$ 840 8.625%, 1/15/07 .................................... 798
375 Series B, 8.125%, 12/1/08 .......................... 343
-------
3,543
-------
HOTEL & LODGING (2.6%)
Hilton Hotels Corp.
660 7.95%, 4/15/07 ..................................... 618
HMH Properties, Series A
925 7.875%, 8/1/05 ..................................... 851
-------
1,469
-------
INDUSTRIALS (2.0%)
Applied Power, Inc.
225 8.75%, 4/1/09 ...................................... 234
Axia, Inc.
350 10.75%, 7/15/08 .................................... 273
Turkcell Iletisim Hizmet
(e)265 12.75%, 8/1/05 ..................................... 274
WMX Technologies
390 7.00%, 10/15/06 .................................... 360
-------
1,141
-------
MEDIA (4.7%)
Chancellor Media Corp.
525 9.00%, 10/1/08 ..................................... 534
600 Series B, 8.125%, 12/15/07 ......................... 603
Outdoor Systems, Inc.
600 8.875%, 6/15/07 .................................... 606
Satelites Mexicanos S.A., Series B,
280 10.125%, 11/1/04 ................................... 185
TV Azteca S.A., Series B,
590 10.50%, 2/15/07 .................................... 522
XM Satellite Radio, Inc.
(e)325 14.00%, 3/15/10 .................................... 284
-------
2,734
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
HIGH YIELD PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------------------------
<S> <C>
METALS (2.3%)
Glencore Nickel Property Ltd.
$ 135 9.00%, 12/1/14 ..................................... $ 114
Murrin Murrin Holdings Ltd.
765 9.375%, 8/31/07 .................................... 666
National Steel Corp., Series D,
550 9.875%, 3/1/09 ..................................... 467
Republic Technology International
(e)315 13.75%, 7/15/09 .................................... 47
-------
1,294
-------
OTHER (1.6%)
Federal Republic of Brazil
430 12.75%, 1/15/20 .................................... 412
Republic of Columbia
305 9.75%, 4/23/09 ..................................... 240
Republic of Philippines
300 10.625%, 3/16/25 ................................... 261
-------
913
-------
PAPER (3.2%)
Indah Kiat Finance Mauritius
950 10.00%, 7/1/07 ..................................... 575
Norampac, Inc.
555 9.50%, 2/1/08 ...................................... 536
Pacifica Papers, Inc.
575 10.00%, 3/15/09 .................................... 567
Pindo Deli Financial Mauritius
300 10.75%, 10/1/07 .................................... 178
-------
1,856
-------
REAL ESTATE (2.8%)
Centex Corp.
400 9.75%, 6/15/05 ..................................... 405
D. R. Horton, Inc.
330 8.00%, 2/1/09 ...................................... 286
Lennar Corp.
(e)335 9.95%, 5/1/10 ...................................... 328
Nortek, Inc.
630 8.875%, 8/1/08 ..................................... 569
-------
1,588
-------
RETAIL (4.2%)
DR Structured Finance, Series:
211 93-K1 A16.66%, 8/15/10 ............................. 177
69 94-K1 A17.60%, 8/15/07 ............................. 63
810 94-K1 A28.375%, 8/15/15 ............................ 663
35 94-K2 A29.35%, 8/15/19 ............................. 31
Grupo Elektra S.A. de C.V.
(e)300 12.00%, 4/1/08 ..................................... 268
HMV Media Group plc
200 10.25%, 5/15/08 .................................... 135
GBP 265 Series B, 10.875%, 5/15/08 ......................... 280
Musicland Group, Inc.
$ 370 9.00%, 6/15/03 ..................................... 337
$ 575 Series B, 9.875%, 3/15/08 .......................... $ 480
-------
2,434
-------
SERVICES (2.4%)
Norcal Waste Systems, Inc.
(n)445 13.50%, 11/15/05 ................................... 463
463
Waste Management, Inc.
700 7.125%, 10/1/07 .................................... 639
125 7.125%, 12/15/17 ................................... 104
215 7.65%, 3/15/11 ..................................... 196
-------
1,402
-------
SUPERMARKETS (0.7%)
Stater Brothers Holdings
435 10.75%, 8/15/06 .................................... 378
-------
TECHNOLOGY (0.6%)
Hyundai Semiconductor
(e)125 8.25%, 5/15/04 ..................................... 111
(e)300 8.625%, 5/15/07 .................................... 251
-------
362
-------
TELEPHONE SERVICES (0.2%)
Tele 1 Europe Holding AB
7 0.00%, 1/1/01 ...................................... 87
-------
TRANSPORTATION (0.1%)
ALPS, Series
64 96-1 DX12.75%, 6/15/06 ............................. 62
-------
UTILITIES (3.1%)
AES Corp.
550 8.50%, 11/1/07 ..................................... 505
CMS Energy Corp.
655 7.50%, 1/15/09 ..................................... 588
Paiton Energy Funding
(e)365 9.34%, 2/15/14 ..................................... 73
Ras Laffan Liquefied Natural Gas Co.
(e)200 8.294%, 3/15/14 .................................... 187
TNP Enterprises, Inc.
(e)45 14.50%, 4/1/11 ..................................... 445
-------
1,798
-------
TOTAL FIXED INCOME SECURITIES (COST $58,250) ...................... 52,623
-------
SHARES
--------
PREFERRED STOCKS (3.6%)
COMMUNICATIONS (2.4%)
3,277 Concentric Network Corp., Series B, PIK,
13.50%.............................................. 325
(a)4,212 Dobson Communications PIK 0.00%..................... 434
508 IXC Communications, Inc., Series B, PIK,
12.50%.............................................. 508
(a)105 Nextel Communications, Inc. 0.00%................... 110
-------
1,377
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
HIGH YIELD PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------------------------------------------------------------------------------
<S> <C>
MEDIA (0.8%)
$ (a)4,722 Paxson Communications Corp., PIK,
13.25%.............................................. $ 453
(a,e)473 Paxson Communications Corp.,
9.75%............................................... 46
-------
499
-------
RETAIL (0.4%)
6,400 Kmart Financing 0.00%................................. 233
-------
TOTAL PREFERRED STOCKS (COST $1,942)............................... 2,109
-------
NO. OF
WARRANTS
---------------
WARRANTS (0.1%)
CABLE (0.0%)
(e)(a)1,350 Onepoint Communications Corp.,
expiring 6/1/08..................................... 2
-------
COMMUNICATIONS (0.1%)
(a,e)200 Globalstar Telecommunications Ltd.,................... 2
(a,e)2,000 Motient Corp. ........................................ 7
(a,e)3,605 Occidente y Caribe Cellular,
expiring 3/15/04.................................... 13
(a,e)10,500 Wam!Net, Inc., expiring 3/1/05........................ 12
-------
34
-------
TOTAL WARRANTS (COST $70) 36
-------
FACE
AMOUNT
(000)
----------------
SHORT-TERM INVESTMENTS (4.4%)
U.S. TREASURY SECURITY (0.2%)
U.S. Treasury Bill
$100 0.00%, 07/27/00....................................... 99
-------
REPURCHASE AGREEMENT (4.2%)
2,425 Chase Securities, Inc., 6.15%, dated
6/30/00, due 7/3/00, to be repurchased at
$2,426, collateralized by U.S. Treasury
Notes, 4.75%, due 11/15/08, valued $2,478............. 2,425
-------
TOTAL SHORT-TERM INVESTMENTS (COST $2,525) 2,524
-------
FOREIGN CURRENCY (0.1%)
GBP 22 British Pound(COST $32)............................... 33
-------
AMOUNT
(000)
-------
TOTAL INVESTMENTS (99.4%) (COST $62,819)............................. $57,325
-------
OTHER ASSETS (2.9%)
Cash....................................................... $ 1
Interest Receivable........................................ 1,207
Receivable for Investments Sold............................ 349
Receivable for Portfolio Shares Sold....................... 116
Due from Adviser........................................... 26
Receivable for Daily Variation on Futures Contracts........ 2
Other Assets.............................................. 1 1,702
-------
LIABILITIES (-2.3%)
Payable for Investments Purchased.......................... (1,060)
Payable for Portfolio Shares Redeemed...................... (140)
Investment Advisory Fees Payable........................... (68)
Professional Fees Payable.................................. (21)
Administrative Fees Payable................................ (12)
Net Unrealized Loss on Foreign Currency Exchange Contracts. (7)
Custodian Fees Payable..................................... (4)
Director's Fees and Expenses Payable....................... (1)
Other Liabilities.......................................... (20) (1,333)
------ -------
NET ASSETS (100%) $57,694
-------
-------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 5,735,823 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................... $10.06
-------
-------
NET ASSETS CONSIST OF:
Paid in Capital...................................................... $60,723
Undistributed Net Investment Income.................................. 3,149
Accumulated Net Realized Loss........................................ (736)
Unrealized Depreciation on Investments, Futures and Foreign Currency. (5,442)
-------
NET ASSETS........................................................... $57,694
-------
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
HIGH YIELD PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 2000,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
----------- ----- ---------- ------------- ------ -----------
<S> <C> <C> <C> <C> <C>
EUR 350 $ 334 7/26/00 U.S.$ 330 $ 330 $(4)
EUR 905 865 7/28/00 U.S.$ 859 859 (6)
EUR 370 354 7/28/00 U.S.$ 350 350 (4)
EUR 650 622 8/10/00 U.S.$ 585 585 (37)
GBP 1,035 1,566 8/03/00 U.S.$ 1,609 1,609 43
GBP 50 76 8/10/00 U.S.$ 77 77 1
U.S.$ 81 81 7/28/00 EUR 85 81 --
U.S.$ 159 159 8/03/00 GBP 105 159 --
------ ------ -----
$4,057 $4,050 $(7)
------ ------ -----
------ ------ -----
</TABLE>
FUTURES CONTRACTS:
At June 30, 2000, the following futures contracts were open:
<TABLE>
<CAPTION>
NOTIONAL UNREALIZED
NUMBER OF AMOUNT EXPIRATION APPRECIATION
CONTRACTS (000) DATE (000)
--------- -------- ---------- ------------
<S> <C> <C> <C> <C>
LONG:
10-year U.S.
Treasury Note 18 U.S. $1,718 Sept 2000 $54
SHORT:
U.K. Gilt 7 U.S. $1,193 Sept 2000 5
---
$59
---
---
</TABLE>
----------------------------------------------------------------------------
(a) --Non-income producing security
(e) --144A Security -- certain conditions for public sale may exist.
(n) --Step Bond -- coupon rate increases in increments to maturity.
Rate disclosed is as of June 30, 2000. Maturity date disclosed is
the ultimate maturity date.
EUR --Euro
GBP --British Pound
PIK --Payment-In-Kind. Income may be paid in additional securities
or in cash at the discretion of the issuer
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
HIGH YIELD PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
--------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest $ 3,311
Dividends 37
-------
Total Income 3,348
-------
EXPENSES:
Investment Advisory Fees 145
Less: Fees Waived (51)
-------
Net Investment Advisory Fees 94
Administrative Fees 74
Shareholder Reports 34
Professional Fees 20
Custodian Fees 6
Directors' Fees and Expenses 1
Other 3
-------
Net Expenses 232
-------
NET INVESTMENT INCOME 3,116
-------
NET REALIZED GAIN (LOSS) ON:
Investments Sold (593)
Foreign Currency Transactions 296
Futures Contracts 20
-------
Net Realized Loss (277)
-------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (3,816)
Foreign Currency Translations (65)
Futures Contracts 19
-------
Change in Unrealized Appreciation/Depreciation (3,862)
-------
NET REALIZED LOSS AND CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION (4,139)
-------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,023)
-------
-------
--------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
(000) (000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 3,116 $ 4,205
Net Realized Loss (277) (64)
Change in Unrealized Appreciation/Depreciation (3,862) (939)
-------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations (1,023) 3,202
-------- --------
DISTRIBUTIONS
Net Investment Income -- (4,492)
-------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 12,736 38,504
Distributions Reinvested -- 4,492
Redeemed (13,859) (14,925)
-------- --------
Net Increase/Decrease in Net Assets Resulting from Capital Share Transactions (1,123) 28,071
-------- --------
Total Increase (Decrease) in Net Assets (2,146) 26,781
NET ASSETS:
Beginning of Period 59,840 33,059
-------- --------
End of Period (including undistributed net investment income of $3,149
and $33, respectively) $ 57,694 $ 59,840
-------- --------
-------- --------
-----------------------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 1,255 3,615
Shares Issued on Distributions Reinvested -- 40
Shares Redeemed (1,364) (1,403)
-------- --------
Net Increase/Decrease in Capital Shares Outstanding (109) 2,652
-------- --------
-------- --------
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
HIGH YIELD PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD FROM
JUNE 30, 2000 ----------------------- JANUARY 2, 1997*
(UNAUDITED) 1999 1998 TO DECEMBER 31, 1997
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.24 $ 10.35 $ 10.59 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.54 0.80 0.63 0.63
Net Realized and Unrealized Gain (Loss) (0.72) (0.07) (0.13) 0.72
------- ------- ------- -------
Total from Investment Operations (0.18) 0.73 0.50 1.35
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.84) (0.62) (0.63)
Net Realized Gain -- -- (0.08) (0.13)
In Excess of Net Realized Gain -- -- (0.04) --
------- ------- ------- -------
Total Distributions -- (0.84) (0.74) (0.76)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.06 $ 10.24 $ 10.35 $ 10.59
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN (1.76)% 7.10% 4.80% 13.53%
------- ------- ------- -------
------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $57,694 $59,840 $33,059 $12,490
Ratio of Expenses to Average Net Assets 0.80%** 0.80% 0.80% 0.81%**
Ratio of Expenses to Average Net Assets Excluding
Interest Expense and Foreign Tax
Expense N/A N/A N/A 0.80%**
Ratio of Net Investment Income (Loss) to Average Net
Assets 10.71%** 8.70% 8.42% 7.41%**
Portfolio Turnover Rate 20% 28% 48% 78%
--------------------------------
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income 0.01 0.03 0.03 $0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 0.98%** 1.11% 1.15% 1.68%**
Net Investment Income to Average Net Assets 10.54%** 8.40% 8.07% 6.53%**
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen separate active,
diversified and non-diversified portfolios (individually referred to as a
"Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the High Yield Portfolio. The
objective of the Portfolio is to achieve above-average total return over a
market cycle of three to five years by investing primarily in a diversified
portfolio of high yield, fixed income securities. High yield securities are
rated below investment grade and are commonly referred to as "junk bonds". The
Portfolio's average weighted maturity will ordinarily exceed five years.
The Fund is intended to be the funding vehicle for variable annuity contracts
and variable life insurance policies 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.
The Portfolio may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on income and/or capital gains earned
or repatriated. Taxes are accrued 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 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
10
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
period. Accordingly, realized and unrealized foreign currency gains (losses)
on investment transactions are included in the reported net realized and
unrealized gains (losses) on investment transactions and balances. However,
pursuant to U.S. Federal income tax regulations, gains and losses from
certain foreign currency transactions and the foreign currency portion of
gains and losses realized on sales and maturities of foreign denominated debt
securities are treated as ordinary income for U.S. Federal income tax
purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from foreign currency exchange contracts,
disposition of foreign currencies, currency gains or losses realized between
the trade and settlement dates on securities transactions, and the difference
between the amount of investment income and foreign 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.
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Portfolio 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. FUTURES: The Portfolio 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.
The Portfolio 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 related 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.
7. 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
11
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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.
B. ADVISER: Miller Anderson & Sherrerd LLP ("MAS"), 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
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
--------- ------- ---------- ----------
<S> <C> <C> <C>
High Yield....... 0.50% 0.45% 0.40%
</TABLE>
MAS has agreed to reduce fees payable to it and to reimburse the Portfolio, if
necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 0.80%.
C. ADMINISTRATOR: Morgan Stanley Asset Management ("MSAM"), a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co., 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. CREDIT FACILITY: The Fund, along with an affiliated open-end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the Agreement,
the Funds are provided with a revolving credit facility (the "Facility")
allowing the Funds to borrow, subject to the limitations set forth in each
Fund's registration statement, amounts that, in the aggregate for the Funds,
will not exceed $235 million. The Funds pay a commitment fee on the unused
portion of the Facility at an annual rate of 0.09%. Fees incurred in connection
with the arrangement of the Facility totaled approximately $225,000. The
commitment fee and the arrangement fee are allocated to the Funds based on an
estimate of the potential amount available to each Fund under their respective
limitations. Such allocated costs are further allocated to the Portfolios based
on their net assets. Amounts drawn down on the Facility bear interest at the
annual rate equal to the then prevailing Federal Funds rate plus 0.50% which is
borne by the respective borrowing Portfolio. For the six months ended June 30,
2000, there were no amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, 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 DEPRECIATION
(000) (000) (000) (000)
-------- ------------ ------------ -------------
<S> <C> <C> <C>
$62,819 $540 $(6,034) $(5,494)
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $13,424,000 and $10,948,000
espectively. There were no purchases and sales of U.S. Government securities
for the year ended June 30, 2000.
Net capital and currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Portfolio's
next taxable year. For the year ended December 31, 1999, the Portfolio
deferred to January 1, 2000 for U.S. Federal income tax purposes,
post-October currency losses $357,000 and post-October currency losses of
$103,000.
At June 30, 2000 the net assets of the Portfolio were partially 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.
At June 30, 2000, a substantial portion of the Portfolio's investments consist
of high yield securities rated below investment grade. Investments in high yield
securities are accompanied by a greater degree of credit risk and the risk tends
to be more sensitive to economic conditions than the higher-rated securities.
These investments are often traded by one market maker who may also be utilized
by the Portfolio to provide pricing information used to value such securities.
The amounts which will be realized upon disposition of the securities may differ
from the value reflected on the
12
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
statement of net assets and the differences could be material.
From time to time, the 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 the
Portfolio.
13
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
--------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE THE UNIVERSAL INSTITUTIONAL 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. FOR
ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000 PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG LLP
AS ITS NEW INDEPENDENT ACCOUNTANTS.
14
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
INTERNATIONAL MAGNUM PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
INTERNATIONAL MAGNUM PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
Other (11.9%)
United Kingdom (22.5%)
Switzerland (5.8%)
Sweden (4.1%)
Spain (2.2%)
Singapore (1.3%)
Portugal (0.4%)
New Zealand (0.1%)
Netherlands (4.6%)
Australia (1.8%)
Denmark (0.1%)
Belgium (0.2%)
Finland (1.3%)
France (8.8%)
Germany (4.4%)
Hong Kong (1.7%)
Italy (2.5%)
Japan (26.3%)
</TABLE>
Of the amount shown above as "Other", a significant portion represents cash
equivalents held as collateral for investments in futures contracts.
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY COUNTRY NET ASSETS
-------- ------- ----------
<S> <C> <C>
Vodafone Group plc United Kingdom 2.4%
Aventis S.A. France 1.8
Nestle S.A. (Registered) Switzerland 1.7
Total Fina S.A., Class B France 1.7
Koninklijke (Royal) Philips Electronics N.V. Netherlands 1.5
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN
STANLEY CAPITAL INTERNATIONAL (MSCI)
EAFE INDEX(1)
------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION(3)
------- ------ ------------------
<S> <C> <C> <C>
PORTFOLIO.... -3.17% 14.40% 10.51%
INDEX........ -4.06 17.16 12.37
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common
stocks in Europe, Australasia and the Far East.
2. Total returns for the Portfolio reflect expenses waived
and reimbursed, if applicable, by the Adviser. Without
such waiver and reimbursement, total returns would be
lower.
3. Commenced operations on January 2, 1997.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
TOP FIVE SECTORS
<TABLE>
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
------ ------- ----------
<S> <C> <C>
Consumer Discretionary $10,954 14.2%
Information Technology 10,208 13.2
Financials 9,973 12.9
Industrials 7,820 10.1
Consumer Staples 7,290 9.5
</TABLE>
The International Magnum Portfolio seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers domiciled in
EAFE countries. The Portfolio invests primarily in countries comprising the
Morgan Stanley Capital International (MSCI) EAFE Index (the "Index"). EAFE
countries include most nations in Western Europe, Australia, New Zealand,
Hong Kong and Singapore. The Portfolio also may invest up to 5% of its assets
in countries not included in the Index.
For the six months ended June 30, 2000, the Portfolio had a total return of
-3.17% compared to -4.06% for the Index. For the one year ended June 30,
2000, the Portfolio had a total return of 14.40% compared to 17.16% for the
Index. From inception on January 2, 1997 through June 30, 2000, the Portfolio
had an average annual total return of 10.51% compared to 12.37% for the Index.
The first half of 2000 proved to be a difficult environment for international
investors as market volatility and inflation concerns hampered equity
returns. The new millennium began with a continuation of the theme seen at
the end of 1999. First quarter 2000 returns were dominated by high-flying
technology and telecommunication stocks which soared to unprecedented levels
and valuations. The tide turned during the middle of March as investors took
profits on fears of an overheating U.S. economy and the consequent interest
rate hikes cooled investor enthusiasm for TMTs and sent these sectors into a
nosedive. This theme continued throughout the entire second quarter. The
beneficiaries of this changing tide were the recently overlooked defensive
sectors. International markets reacted to the volatility evident in the U.S.
market, and the sharp NASDAQ declines in April heightened investor
skittishness regarding U.S. interest rates. However, towards the end of June,
most markets rebounded as economic numbers pointed to a "soft landing" for
the U.S. economy, allaying investor fears of sharply tighter U.S. interest
rates. Despite this difficult environment, the Portfolio outperformed the
Index during the second quarter.
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A
RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY
SPECIFIC PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
INTERNATIONAL MAGNUM PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
Europe was the relative outperformer of all EAFE regions in the first six
months of 2000, falling 3.1% in U.S. dollar terms, but managing to rise 1.6%
in local currency. The U.S. dollar return was negative due primarily to the
depreciation of the Euro throughout most of the period. The currency reached
its high for the year in early January at 1.04 and proceeded to depreciate
almost 15%, hitting a low of 0.89 before managing to climb to 0.95 by the end
of June. The volatility of the European markets in the first half of 2000 was
influenced in part by turbulence in the U.S. technology sector. The first two
months of the year saw markets reaching unprecedented levels driven by
investor mania over telecommunication and technology stocks. A major rotation
in market leadership began by the end of the first quarter of 2000 as the
"new economy" TMTs started to suffer exhaustion from their inexorable rise.
"Old economy" sectors like industrial cyclicals, consumer staples and
utilities benefited from concerns about the potential twin impact of rising
interest rates and negative earnings revisions on parts of the "new economy".
During the second quarter of 2000, formerly beaten-up defensives consumer
staples and health care rebounded to post gains for the year-to-date of 2.6%
and 9.4%, respectively.
European merger activity continued during the first half of 2000, with 40% of
all completed global deals attributed to European firms. The combination of
relatively low interest rates, low cost of capital and a growing acceptance
of takeover tactics which focus on core businesses as a way to build
shareholder value and deliver stronger earnings continue to gain acceptance
in Europe. European CEOs increasingly consider Europe to be a single economic
market and recognize the need to be bigger to effectively compete in this
setting. Particular deals to take note of include Unilever's purchase of U.S.
food giant Bestfoods and France Telecom's acquisition of Orange.
The combination of currency weakness and an uncertain economic environment
made for a difficult investment environment during the first half of 2000 in
Japan. The MSCI Japan Index posted returns of -5.4% in U.S.dollars (-2.2%
local currency) for the six-month period. The first quarter saw investor
confidence wane somewhat in response to the release of the fourth quarter
1999 contractionary GDP numbers, which put Japan back into a technical
recession. The contraction was blamed primarily on the fall in spending in
reaction to Y2K concerns as well as the dwindling impact of the government's
stimulus package from last year. The second quarter, however, saw encouraging
evidence of a meaningful economic recovery beginning to emerge. GDP growth
for the January-March period showed Japan's economy growing at a 10%
annualized rate, and the June Tankan survey of business confidence confirmed
a strong positive trend for the Large Manufacturing Diffusion Index, which
was at its highest level during the last three years. Capital expenditures of
these large manufacturers was announced to increase by over 11.3% in 2000,
centering on IT investments. This is a result of a 10 trillion yen free cash
flow generated by Japanese corporations which are now bearing the fruits of
restructuring. Signs of more robust consumption were also evident by June
2000 as automobile sales jumped 8.5% year-over-year.
Despite this infusion of positive news, the stock market was generally weak
during the second quarter of 2000, and at one point fell to levels last seen
in June 1999. Fears of higher U.S. interest rates and the potential slowdown
of exports, coupled with volatility and sharp declines of the NASDAQ caused
the virtual collapse of leading "New" economy Japanese stocks such as
Softbank, NTT DoCoMo and Hikari Tsushin which were the bell-cows of 1999's
Japanese equity market. Foreign investors, particularly momentum players and
sector funds, became large net sellers. The ill-timed change in 30
constituents of the Nikkei 225 at the peak of NASDAQ volatility further
confused many potential buyers, particularly Japanese individual investors.
The countries of non-Japan Asia were the laggards of international developed
markets, falling 9.3% in U.S. dollar terms (-5.1% in local currency). Despite
generally positive economic conditions, these markets fell due to their
sensitivity to interest rates as the U.S. Fed hiked rates 100 basis points
over the course of six months. The financial sector, which represents nearly
half of the Pacific ex-Japan Index, fell 9.7% from the start of the year and
dominated Asian markets' returns. Indeed, the economies of the region
remained strong in the face of market volatility. Singapore reported strong
May exports data thanks to an increase in regional trade, which saw sales to
Asia including Japan growing 32.6%. Overall export growth of 27.8% year-
over-year outpaced import growth of 24.5%, resulting in a
higher-than-expected trade surplus. Manufacturing growth continued to
increase, buoyed by strong demand for semiconductors, while retail sales
increased in both Hong Kong and Singapore.
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
INTERNATIONAL MAGNUM PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
INVESTMENT STRATEGY & ATTRIBUTION
The Portfolio began the year overweight versus the Index in Japan and Asia
ex-Japan and underweight relative to the Index in Europe. During the first
half of 2000 we reduced exposure to Asia ex-Japan in the face of a difficult
period for those markets and completely eliminated exposure to Korea and
Taiwan. We maintained our overweight to Japan and underweight to Europe while
decreasing the magnitude of both to finish the period with allocations of
64.2% versus 67.2% in Europe, 29.9% vs. 26.9% in Japan, and 5.4% vs. 5.9% in
Asia ex-Japan. Reducing exposure to Asia while simultaneously increasing our
weighting in Europe added to performance on the margin. On balance, our
regional allocation strategies detracted from portfolio performance as Europe
outperformed all other EAFE regions.
As defensive stocks saw a return to favor in Europe during the latter half of
the period, the Portfolio was well positioned to reap the benefits of this
turnaround. Consumer staples companies were the strongest performing sector
in the European market. The Portfolio benefited both from its significant
overweight to and stock selection within Consumer Staples, with food,
beverage and household product's giants such as Nestle (+12%), Reckitt
Benckiser (+20%) and Danone (+19%) being top contributors to performance. Our
overweight in health care was further enhanced by strong stock selection, as
Aventis (+33%) recently surpassed Merck as the largest pharmaceutical company
in the world. Fresenius (+28%), the world's top dialysis products and
services provider, was also a top contributor.
Stock selection in the energy sector was positive as companies benefited from
the surge in oil prices. After riding the wave of rising oil prices, we
reduced the Portfolio's exposure to the energy sector in Europe but continued
to maintain an overweight position in French oil major Total Fina Elf (+18%)
given the extensive restructuring opportunities that remain and the stock's
modest valuation relative to the U.S. majors. We trimmed positions in Royal
Dutch, BG Group and BP Amoco. Finally, we switched the Portfolio's holding in
Repsol into ENI. Although our underweight to Telecoms and Technology hurt
returns in the first quarter of 2000, the Portfolio benefited from this
strategy as these sectors corrected during the latter half of the period.
However, this was not enough to outweigh the results of the first quarter of
2000 as the single largest detractor from portfolio performance was the
European underweight to information technology over the six-month period.
In Japan, stock selection in information technology was the single largest
contributor to performance. NEC (+32.3%) reached a new high due to the strong
DRAM business and its management strategy. Our sector allocation decision,
especially overweighting of Machinery and underweighting of Banks, was a
contributor to performance. We will maintain current holdings in select world
class technology companies, economically sensitive stocks, and deep value
cyclical stocks as we believe these will be the main beneficiaries to
improving business conditions in Japan. Our strategy in Asia ex-Japan was not
as successful as in other regions due to its extreme sensitivity to U.S.
interest rates; consequently, our overweight and stock selection within the
banking sector was a drag on returns.
OUTLOOK
The global economy remains vigorous and growth has begun to shift from the
U.S. to international markets. Revised earnings estimates point to a positive
operating environment in Europe and we expect to selectively add exposure to
this region. A slower U.S. economy implies a weaker dollar relative to the
euro, which should benefit the region in general and European equities in
particular. European fundamentals look quite solid, with the main risk to
European equities appearing to be the potential for a slowdown in the U.S.
economy. EMU domestic demand has been revised upwards to 0.9% for both the
fourth quarter of 1999 and the first quarter of 2000 (from 0.6% and 0.7%,
respectively). There are signs that the recent laggards in core Europe may
soon start catching up to their peers; Germany saw stronger-than-expected
retail sales growth in May with retail sales jumping an impressive 10.3%
year-over-year compared to a year earlier. Broad retail sales, including car
sales, now stand 2.1% higher than their first quarter average. This bodes
well for a rebound in consumer spending in the second quarter of this year,
after a surprising 0.6% quarterly decline in the first quarter of 2000.
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
INTERNATIONAL MAGNUM PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
Since March, the sheer pace of earnings forecast upgrades has been a support
for equities in the face of rising European and U.S. short interest rates and
the bursting of the speculative TMT bubble. Although we are optimistic about
the general environment, we remain cautious as there is the possibility of a
slowdown toward the end of the summer and into the fall. A topping out of
earnings upgrades remains a possibility after experiencing the strength seen
recently. In such an environment, software, technology hardware and luxury
goods would most likely be the most sensitive on the downside, while food,
beverages and other consumer staples would be defensive. The Portfolio would
therefore be well positioned if such a scenario were to develop.
Japan seems to be on the verge of a self-sustaining economic recovery. The
key assumption to our outlook is that the U.S. will have a "soft landing" and
that Japan's economic recovery will become self sustaining during the 2nd
half of 2000. Japan's Government leaders are expected to use the July Summit
in Okinawa as a means of show-casing concrete plans for a self sustaining
recovery and will pledge to continue Mr. Obuchi's plan for a domestic led
recovery. Many Japanese companies are beginning to generate free cash flow
and IT spending as a percent of CAPEX is expected to grow significantly
during the next year. In response to this trend, the Japanese Government has
created a new "Minister of Information Technology" within the ruling cabinet.
Global demand for Japan's digital products is also expected to contribute to
corporate earnings where companies have become highly geared to top line
growth. We expect earnings surprises because of this gearing in earnings.
Finally, we believe a modest rise in interest rates will actually be positive
to spur consumption and accelerate restructuring, an event that the Bank of
Japan has hinted at for several months. We expect our Portfolio will maintain
the current holdings in select world class technology companies, economic
sensitive stocks and deep value cyclicals.
Our outlook for Asia ex-Japan remains somewhat tentative due to the regions'
interest rate sensitivity. Assuming that the U.S. experiences a
"soft-landing" which appears increasingly likely, and rate increases abate,
the region should experience solid performance. Specifically, as we near the
end of the tightening phase, we could see markets trend higher as domestic
fundamentals come to the forefront. Hong Kong looks poised to benefit in the
near-term from the likely boost to banking and property stocks, with
increasing Chinese monetary reflation, (which correlates well with the Hang
Seng Index) working as an additional catalyst. Recent data show increases in
retail sales and export growth in Singapore and Hong Kong, and we expect this
trend to continue. In Australia, we anticipate the demand for equities will
remain robust while little supply is coming through the pipeline, which
should work to push the market higher.
July 2000
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
INTERNATIONAL MAGNUM PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-----------------------------------------------------------------------
<S> <C>
COMMON STOCKS (86.9%)
AUSTRALIA (1.8%)
3,550 AMP Ltd. .................................. $ 36
1,850 Brambles Industries Ltd. .................. 57
8,350 Broken Hill Proprietary Co., Ltd. ......... 98
7,650 Commonwealth Bank of Australia ............ 127
1,600 CSL Ltd. .................................. 32
30,200 Fosters Brewing Group Ltd. ................ 85
4,400 Lend Lease Corp., Ltd. .................... 56
(a)35,300 Macquarie Corporate Telecommunications
Holdings Ltd. ........................... 43
9,680 National Australia Bank Ltd. .............. 161
16,750 News Corp., Ltd. .......................... 230
75,100 Normandy Mining Ltd. ...................... 40
15,400 Qantas Airways Ltd. ....................... 31
6,200 Rio Tinto Ltd. ............................ 102
(a)25,550 Solution 6 Holdings Ltd. .................. 50
26,700 Telstra Corp., Ltd. ....................... 108
15,700 Westpac Banking Corp. ..................... 113
-------
1,369
-------
BELGIUM (0.2%)
(a)4,090 Mobistar S.A. ............................. 136
-------
DENMARK (0.1%)
1,435 Tele Danmark A/S .......................... 96
-------
FINLAND (1.3%)
30 KCI Konecranes International plc .......... 1
(a)17,430 Nokia Oyj ................................. 889
3,759 Sampo Insurance Co., Ltd., Class A ........ 152
-------
1,042
-------
FRANCE (8.8%)
(a)13,120 Alcatel ................................... 860
19,237 Aventis S.A. .............................. 1,403
4,317 Axa ....................................... 679
5,670 Banque Nationale de Paris ................. 545
590 Castorama Dubois Investissement S.A. ...... 146
11,720 CNP Assurances ............................ 399
(a)2,840 Groupe Danone ............................. 376
5,230 Michelin 'B' Regd ......................... 168
4,160 Pernod Ricard ............................. 226
2,750 Sanofi-Synthelabo S.A. .................... 131
5,190 Schneidner S.A. ........................... 361
(a)930 Societe Television Francaise 1 ............ 65
(a)2,150 Thomson Multimedia ........................ 139
8,546 Total Fina S.A., Class B .................. 1,309
-------
6,807
-------
GERMANY (3.2%)
2,590 Adidas-Salomon AG ......................... 142
3,755 BASF AG ................................... 152
1,901 Bayer AG .................................. 73
4,850 Bayerische Motoren Werke (BMW) AG ......... 148
5,431 Bayerische Vereinsbank AG ................. 355
11,118 Deutsche Telekom AG ....................... 640
2,420 SAP AG .................................... 366
2,505 Schering AG ............................... 136
2,140 Siemens AG ................................ 320
1,270 Software AG ............................... 116
-------
2,448
-------
HONG KONG (1.7%)
21,900 Asia Satellite Telecommunications
Holdings Ltd. ............................ 75
49,700 Cable & Wireless Hkt Ltd. ................. 109
27,800 Cathay Pacific Airways Ltd. ............... 52
8,400 Cheung Kong Holdings Ltd. ................. 93
(a)25,600 China Telecom Ltd. (Hong Kong) ............ 226
200 Dao Heng Bank Group Ltd. .................. 1
51,700 Hong Kong & China Gas Co. Ltd. ............ 58
7,000 HSBC Holdings plc ......................... 80
23,870 Hutchison Whampoa Ltd. .................... 300
30,200 Li & Fung Ltd ............................. 151
11,800 SmarTone Telecommunications Holdings Ltd. . 26
11,300 Sun Hung Kai Properties Ltd. .............. 81
4,700 Swire Pacific Ltd., Class A ............... 27
5,800 Television Broadcasts Ltd. ................ 39
-------
1,318
-------
ITALY (2.5%)
15,170 Banca Popolare di Bergamo S.p.A. .......... 280
67,280 ENI S.p.A. ................................ 388
4,915 Marzotto (Gaetano) S.p.A. ................. 40
9,400 Mediaset S.p.A. ........................... 144
17,500 Telecom Italia Mobile S.p.A. .............. 179
(a)47,490 Telecom Italia S.p.A. ..................... 652
48,870 Unicredito Italiano S.p.A. ................ 234
-------
1,917
-------
JAPAN (26.3%)
5,600 Aiwa Co., Ltd. ............................ 90
36,000 Amada Co., Ltd. ........................... 305
7,000 Bank of Tokyo-Mitsubishi Ltd. ............. 85
14,000 Canon, Inc. ............................... 696
28,000 Casio Computer Co., Ltd. .................. 314
19,000 Dai Nippon Printing Co., Ltd. ............. 335
46,000 Daicel Chemical Industries Ltd. ........... 148
30,000 Daifuku Co., Ltd. ......................... 332
24,000 Daikin Industries Ltd. .................... 557
7,200 Familymart Co., Ltd. ...................... 277
7,800 Fuji Machine Manufacturing Co. ............ 409
14,000 Fuji Photo Film Ltd. ...................... 572
16,000 Fujitec Co., Ltd. ......................... 139
24,000 Fujitsu Ltd. .............................. 830
12,000 Furukawa Electric Co. ..................... 250
15,500 Hitachi Credit Corp. ...................... 419
48,000 Hitachi Ltd. .............................. 692
6,000 House Foods Corp. ......................... 93
35,000 Kaneka Corp. .............................. 385
15,000 Kurita Water Industries Ltd. .............. 330
3,800 Kyocera Corp. ............................. 644
12,000 Kyudenko Co., Ltd. ........................ 36
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
INTERNATIONAL MAGNUM PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-----------------------------------------------------------------------
<S> <C>
JAPAN (CONT.)
18,000 Lintec Corp. .............................. $ 187
25,000 Matsushita Electric Industrial Co., Ltd. .. 648
25,000 Minebea Co., Ltd. ......................... 313
54,000 Mitsubishi Chemical Corp. ................. 221
17,000 Mitsubishi Estate Co., Ltd. ............... 200
63,000 Mitsubishi Heavy Industries Ltd. .......... 279
13,000 Mitsubishi Logistics Corp. ................ 118
13,000 Mitsumi Electric Co., Ltd. ................ 478
26,000 NEC Corp. ................................. 816
16,000 Nifco, Inc. ............................... 204
3,900 Nintendo Co., Ltd. ........................ 681
13,000 Nippon Meat Packers, Inc. ................. 190
49 NTT Corp. ................................. 651
(a)59,000 Nissan Motors ............................. 347
7,000 Nissei Sangyo Co., Ltd. ................... 102
8,000 Nissha Printing Co., Ltd. ................. 55
9,000 Ono Pharmaceutical Co., Ltd. .............. 386
29,000 Ricoh Co., Ltd. ........................... 613
7,900 Rinnai Corp. .............................. 176
1,300 Rohm Co., Ltd. ............................ 380
9,000 Ryosan Co., Ltd. .......................... 204
3,000 Sangetsu Co., Ltd. ........................ 49
16,000 Sankyo Co., Ltd. .......................... 361
30,000 Sanwa Shutter Corp. ....................... 97
36,000 Sekisui Chemical Co. ...................... 138
32,000 Sekisui House Co., Ltd. ................... 296
26,000 Shin-Etsu Polymer Co., Ltd. ............... 215
8,200 Sony Corp. ................................ 765
23,000 Suzuki Motor Co., Ltd. .................... 296
5,000 TDK Corp. ................................. 718
8,600 Tokyo Electric Power Co., Inc. ............ 209
61,000 Toshiba Corp. ............................. 688
9,000 Toyota Motor Corp. ........................ 410
40,000 Tsubakimoto Chain Co. ..................... 204
17,000 Yamaha Corp. .............................. 186
9,000 Yamanouchi Pharmaceutical Co. ............. 491
-------
20,310
-------
NETHERLANDS (4.6%)
5,110 ABN AMRO Holding N.V. ..................... 125
8,160 Akzo Nobel N.V. ........................... 346
(a)2,590 ASM Lithography Holding N.V. .............. 111
5,742 Buhrmann NV ............................... 164
5,940 Fortis (NL) N.V. .......................... 173
(a)8,530 Getronics N.V. ............................ 131
2,150 Heineken NV .............................. 131
6,508 ING Groep N.V. ............................ 440
(a)24,150 Koninklijke (Royal) Philips
Electronics N.V. ........................ 1,138
5,200 Koninklijke KPN N.V. ...................... 232
14,550 Laurus N.V. ............................... 174
4,760 Royal Dutch Petroleum Co. ................. 296
(a)4,210 United Pan-Europe Communications N.V. ..... 110
-------
3,571
-------
NEW ZEALAND (0.1%)
11,800 Telecom Corp. of New Zealand Ltd. ......... 41
-------
PORTUGAL (0.4%)
24,850 Banco Comercial Portugues, S.A. (BCP) ..... 129
(a)9,650 Telecel Comunicacoes Pessoais S.A. ........ 147
-------
276
-------
SINGAPORE (1.3%)
(a)7,000 Chartered Semiconductor ................... 61
(a)200 Chartered Semiconductor ADR ............... 18
12,000 City Developments Ltd. .................... 47
13,793 DBS Group Holdings Ltd .................... 177
12,000 Keppel Corp., Ltd. ........................ 26
11,000 Natsteel Electronics Ltd. ................. 34
(a)31,000 Neptune Orient Lines Ltd. ................. 29
8,450 Oversea-Chinese Banking Corp. (Local) ..... 58
6,420 Overseas Union Bank Ltd. .................. 25
10,000 Sembcorp Logistics Ltd. ................... 56
(a)7,000 Singapore Airlines Ltd. (Local) ........... 69
6,000 Singapore Press Holding Ltd. .............. 94
(a)37,000 Singapore Telecommunications Ltd. ......... 54
(a)19,000 ST Assembly Test Services Ltd. ............ 49
9,504 United Overseas Bank Ltd. (Local) ......... 62
12,000 Venture Manufacturing Ltd. ................ 122
-------
981
-------
SPAIN (2.2%)
(a)17,150 Amadeus Global Travel Distribution S.A. ... 195
20,230 Banco Bilbao Vizcaya Argentaria S.A. ...... 302
4,920 Banco Popular Espanol S.A. ................ 152
12,180 Endesa S.A. ............................... 236
(a)2,860 Telefonica Publicidad e Informacion, S.A. . 27
(a)36,290 Telefonica S.A. ........................... 779
-------
1,691
-------
SWEDEN (4.1%)
16,820 Assa Abloy AB ............................. 337
9,100 Autoliv, Inc., Swedish Depositary Receipt . 223
12,595 ForeningsSparbanken AB .................... 184
79,757 Nordbanken Holding AB ..................... 601
11,580 Scandic Hotels AB ......................... 139
20,290 Securitas AB .............................. 430
(a)4,640 Skandia Forsakrings AB .................... 122
10,110 Svedala Industri AB ....................... 192
6,090 Svenska Cellulosa Free B .................. 116
17,000 Svenska Handelsbanken, Class A ............ 246
(a)2,720 Tele1 Europe Holding AB ................... 33
(a)26,840 Ericsson LM AB ............................ 531
-------
3,154
-------
SWITZERLAND (5.8%)
280 Adecco S.A. (Registered) .................. 238
(a)343 Cie Financiere Richemont AG, Class A ...... 923
(a)155 Givaudan .................................. 47
245 Holderbank Financiere Glarus AG,
Class B (Bearer) ........................ 300
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
INTERNATIONAL MAGNUM PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-----------------------------------------------------------------------
<S> <C>
SWITZERLAND (CONT.)
666 Nestle S.A. (Registered) .................. $ 1,331
360 Novartis AG (Registered) .................. 570
30 Roche Holding AG .......................... 292
114 Schindler Holding AG (Registered) ......... 174
(a)4,290 UBS AG .................................... 628
-------
4,503
-------
UNITED KINGDOM (22.5%)
(a)141,050 Allied Domecq plc ......................... 747
15,200 Allied Zurich plc ......................... 180
9,270 AstraZeneca Group plc ..................... 430
8,535 AstraZeneca plc ........................... 398
21,400 BAA plc ................................... 172
15,989 Bank of Scotland .......................... 152
24,400 Barclays plc .............................. 606
25,260 BBA Group plc ............................. 165
54,693 BG Group plc .............................. 353
33,800 Blue Circle Industries plc ................ 218
(a)12,150 BOC Group plc ............................. 175
48,550 BP Amoco plc .............................. 466
30,300 BAE Systems plc ........................... 189
37,400 British American Tobacco plc .............. 250
(a)71,470 British Telecom plc ....................... 923
56,800 Cadbury Schweppes plc ..................... 373
1,850 Capital Radio plc ......................... 43
41,880 Centrica plc .............................. 140
61,483 Diageo plc ................................ 551
(a)55,940 Egg plc ................................... 146
7,760 EMAP plc .................................. 125
(a)10,500 GKN plc ................................... 134
28,500 Glaxo Wellcome plc ........................ 831
68,320 Granada Group plc ......................... 682
41,570 Great Universal Stores plc ................ 267
(a)55,500 Halma plc ................................. 86
(a)45,650 Imperial Tobacco Group plc ................ 437
12,100 Kingfisher plc ............................ 110
15,700 Lloyds TSB Group plc ...................... 148
23,300 Marconi plc ............................... 303
58,470 Prudential Corp. plc ...................... 856
76,856 Reckitt Benckiser plc ..................... 860
24,330 Reed International plc .................... 212
65,500 Rentokil Initial plc ...................... 149
8,500 RMC Group plc ............................. 111
72,500 Rolls - Royce plc ......................... 257
13,800 Sainsbury (J) plc ......................... 63
(a)31,700 Scottish & Southern Evergy plc ............ 291
82,750 Shell Transport & Trading Co. ............. 690
18,114 Smith & Nephew plc ........................ 67
27,770 SmithKline Beecham plc .................... 363
14,180 Smiths Industries plc ..................... 184
33,900 SSL International plc ..................... 367
(a)51,922 Telewest Communications plc ............... 179
50,000 Tesco plc ................................. 155
457,846 Vodafone AIRTOUCH plc ..................... 1,856
25,800 Wolseley plc .............................. 139
32,100 Woolwich plc .............................. 136
40,380 WPP Group plc ............................. 589
-------
17,324
-------
TOTAL COMMON STOCKS (COST $58,394) .................... 66,984
-------
PREFERRED STOCKS (1.2%)
GERMANY (1.2%)
1,601 Fresenius AG .............................. 366
6,130 Henkel KGaA ............................... 351
1,347 Hugo Boss AG .............................. 234
-------
951
-------
TOTAL PREFERRED STOCKS (COST $897) .................... 951
-------
RIGHTS (0.0%)
HONG KONG (0.0%)
(a)(d)10,600 Sun Hung Kai Properties Ltd. (COST $0) ... 1
-------
TOTAL FOREIGN SECURITIES (88.1%) (COST $59,291) ....... 67,936
-------
<CAPTION>
FACE
AMOUNT
(000)
-------
SHORT-TERM INVESTMENT (6.4%)
REPURCHASE AGREEMENT (6.4%)
4,939 Chase Securities, Inc., 6.15%, dated
6/30/00, due 7/3/00, to be repurchased
at $12,297, collateralized by U.S.
Treasury Notes, 4.75%, due 11/15/08,
valued at $5,043 (COST $4,939) ............ 4,939
-------
FOREIGN CURRENCY (0.8%)
AUD 1 Australian Dollar ......................... 1
GBP 83 British Pound ............................. 125
EUR 492 Euro ...................................... 469
SGD 9 Singapore Dollar .......................... 5
HKD 84 Hong Kong Dollar .......................... 11
JPY 3,790 Japanese Yen .............................. 36
NZD 3 New Zealand Dollar ........................ 1
SEK 6 Swedish Krona ............................. 1
-------
TOTAL FOREIGN CURRENCY (COST $646) .................... 649
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
INTERNATIONAL MAGNUM PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
AMOUNT
(000)
-----------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (95.3%) (COST $64,876) ................... $73,524
-------
OTHER ASSETS (6.7%)
Cash ........................................ $ 1,174
Receivable for Portfolio Shares Sold ........ 3,557
Receivable for Investments Sold ............. 256
Dividends Receivable ........................ 66
Due from Adviser ............................ 36
Foreign Withholding Tax Reclaim Receivable .. 34
Net Unrealized Gain on Foreign Currency
Exchange Contracts ........................ 24
Interest Receivable ......................... 2
Other ....................................... 1 5,150
-------
LIABILITIES (-2.0%)
Payable for Investments Purchased ........... (1,105)
Investment Advisory Fees Payable ............ (139)
Net Unrealized Loss on Future Contracts ..... (111)
Payable for Portfolio Shares Redeemed ....... (83)
Shareholder Reporting Expenses Payable ...... (49)
Custodian Fees Payable ...................... (28)
Administrative Fees Payable ................. (26)
Professional Fees Payable ................... (15) (1,556)
------- -------
NET ASSETS (100%) .......................................... $77,118
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 5,732,887 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ................... $ 13.45
=======
NET ASSETS CONSIST OF:
Paid in Capital ............................................ $66,764
Undistributed Net Investment Income ........................ 278
Accumulated Net Realized Gain .............................. 1,588
Unrealized Appreciation on Investments, Foreign Currency and
Futures Contracts ........................................ 8,488
-------
NET ASSETS ................................................. $77,118
=======
</TABLE>
----------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency exchange contracts open
at June 30, 2000, the Portfolio is obligated to deliver or
is to receive foreign currency in exchange for U.S. dollars
as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
-------------- ------- ---------- ------------- ------ -----------
<S> <C> <C> <C> <C> <C>
JPY 63,740 $ 610 9/18/00 U.S.$ 617 $ 617 $ 7
U.S.$ 441 441 9/18/00 EUR 457 438 (3)
U.S.$ 503 503 9/18/00 EUR 536 514 11
U.S.$ 588 588 9/18/00 JPY 61,649 589 1
U.S.$ 586 586 9/18/00 JPY 60,976 583 (3)
U.S.$ 1,615 1,615 9/18/00 GBP 1,073 1,626 11
------ ------ ---
$4,343 $4,367 $24
====== ====== ===
</TABLE>
-------------------------------------------------------------------------------
(a)--Non-income producing security
(d)--Security valued at fair value -- See note A-1 to financials statements
FUTURES CONTRACTS:
At June 30, 2000 the following future contracts were open:
<TABLE>
<CAPTION>
NET UNREALIZED
NOTIONAL APPRECIATION/
NUMBER OF VALUE EXPIRATION (DEPRECIATION)
CONTRACTS (000) DATE (000)
--------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
CAC 40 Index
(France) 16 U.S.$1,006 Sept. 2000 U.S.$ (25)
DAX Index
(Germany) 7 1,220 Sept. 2000 (56)
MIB 30 Index
(Italy) 2 450 Sept. 2000 (3)
Topix Index
(Japan) 14 2,092 Sept. 2000 23
FTSE 100 Index
(United Kingdom) 22 2,165 Sept. 2000 (50)
---------
U.S.$(111)
=========
</TABLE>
-------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
MARKET
VALUE % OF NET
SECTOR (000) ASSETS
------ ------- --------
<S> <C> <C>
Consumer Discretionary ........... $10,954 14.2%
Information Technology ........... 10,208 13.2
Financials ....................... 9,973 12.9
Industrials ...................... 7,820 10.1
Consumer Staples ................. 7,290 9.5
Telecommunication Services ....... 7,464 9.7
Health Care ...................... 6,624 8.6
Materials ........................ 3,167 4.1
Energy ........................... 3,149 4.1
Utilities ........................ 1,287 1.7
------- ------
Total Foreign Securities ......... $67,936 88.1%
======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
INTERNATIONAL MAGNUM PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
---------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 533
Interest 327
Less: Foreign Taxes Withheld (73)
-------
Total Income 787
-------
EXPENSES:
Investment Advisory Fees 274
Less: Fees Waived (93)
-------
Net Investment Advisory Fees 181
Administrative Fees 100
Shareholder Reports 45
Custodian Fees 34
Professional Fees 31
Interest Expense 11
Directors' Fees and Expenses 1
Other 3
-------
Net Expenses 406
-------
NET INVESTMENT INCOME 381
-------
NET REALIZED GAIN (LOSS) ON:
Investments Sold 857
Foreign Currency Transactions (191)
Futures Contracts 242
-------
Net Realized Gain 908
-------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (1,758)
Foreign Currency Translations (1)
Futures Contracts (620)
-------
Change in Unrealized Appreciation/Depreciation (2,379)
-------
Net Realized Loss and Change in Unrealized Appreciation/Depreciation (1,471)
-------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,090)
=======
</TABLE>
-------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
(000) (000)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 381 $ 536
Net Realized Gain 908 437
Change in Unrealized Appreciation/Depreciation (2,379) 11,192
--------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations (1,090) 12,165
--------- --------
DISTRIBUTIONS
Net Investment Income -- (329)
In Excess of Net Investment Income -- (103)
Net Realized Gain -- (228)
--------- --------
Total Distributions -- (660)
--------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 123,737 64,781
Distributions Reinvested -- 660
Redeemed (108,861) (57,676)
--------- --------
Net Increase in Net Assets Resulting from Capital Share Transactions 14,876 7,765
--------- --------
Total Increase in Net Assets 13,786 19,270
NET ASSETS:
Beginning of Period 63,332 44,062
--------- --------
End of Period (including undistributed/(distribution in excess) of net
investment income of $278 and ($103), respectively) $ 77,118 $ 63,332
========= ========
---------------------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 9,401 5,227
Shares Issued on Distributions Reinvested -- 52
Shares Redeemed (8,226) (4,644)
-------- -------
Net Increase in Capital Shares Outstanding 1,175 635
======== =======
</TABLE>
-------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
INTERNATIONAL MAGNUM PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 JANUARY 2, 1997*
(UNAUDITED) 1999 1998 TO DECEMBER 31, 1997
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.89 $ 11.23 $ 10.38 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06 0.12 0.12 0.13
Net Realized and Unrealized Gain (Loss) (0.50) 2.70 0.81 0.59
------- ------- ------- -------
Total from Investment Operations (0.44) 2.82 0.93 0.72
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.07) (0.04) (0.32)
In Excess of Net Investment Income -- (0.03) -- --
Net Realized Gain -- (0.06) (0.04) (0.02)
------- ------- ------- -------
Total Distributions -- (0.16) (0.08) (0.34)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 13.45 $ 13.89 $ 11.23 $ 10.38
======= ======= ======= =======
TOTAL RETURN (3.17)% 25.19% 8.97% 7.31%
======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $77,118 $63,332 $44,062 $18,855
Ratio of Expenses to Average Net Assets 1.18%** 1.16% 1.15% 1.16%**
Ratio of Expenses to Average Net Assets
Excluding Interest and Foreign Tax Expense 1.15%** 1.15% N/A 1.15%**
Ratio of Net Investment Income (Loss) to Average
Net Assets 1.11%** 1.10% 1.22% 1.43%**
Portfolio Turnover Rate 31% 59% 36% 41%
----------------
Effect of Voluntary Expense Limitation During
the Period:
Per Share Benefit to Net Investment Income $ 0.02 $ 0.05 $ 0.06 $ 0.15
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.45%** 1.67% 1.80% 2.78%**
Net Investment Income (Loss) to Average
Net Assets 0.84%** 0.59% 0.58% (0.19)%**
</TABLE>
-------------------------------------------------------------------------------
* Commencement of operations
** Annualized
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen
separate active, diversified and non-diversified portfolios (individually
referred to as a "Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the International Magnum
Portfolio. The Portfolio seeks long-term capital appreciation by investing
primarily in equity securities of non-U.S. issuers domiciled in EAFE countries.
The Portfolio invests primarily in countries comprising the Morgan Stanley
Capital International (MSCI) EAFE Index (the "Index"). EAFE countries include
most nations in Western Europe, Australia, New Zealand, Hong Kong and Singapore.
The Portfolio also may invest up to 5% of its assets in countries not included
in the Index.
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
under procedures approved 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 they
invest. 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 and expenses at the
prevailing rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not isolate
that portion of the results of operations arising as a result of changes in
the foreign exchange rates from the fluctuations arising from changes in
11
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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.
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.
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. 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. Due from broker is
comprised of cash held at brokers as collateral against open futures
positions as stated in the Statement of Net Assets.
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.
7. 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
12
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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 Asset Management ("MSAM"), 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
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
--------- ------- ---------- ----------
<S> <C> <C> <C>
International Magnum ...... 0.80% 0.75% 0.70%
</TABLE>
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio,
if necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 1.15%.
C. ADMINISTRATOR: MSAM (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, 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. CREDIT FACILITY: The Fund, along with an affiliated open-end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the
Agreement, the Fund are provided with a revolving credit facility (the
"Facility") allowing the Funds to borrow, subject to the limitations set
forth in each Fund's registration statement, amounts that, in the aggregate
for the Funds, will not exceed $235 million. The Funds pay a commitment fee
on the unused portion of the Facility at an annual rate of 0.09%. Fees
incurred in connection with the arrangement of the Facility totaled
approximately $225,000. The commitment fee and the arrangement fee are
allocated to the Funds based on an estimate of the potential amount available
to each Fund under their respective limitations. Such allocated costs are
further allocated to the Portfolios based on their net assets. Amounts drawn
down on the Facility bear interest at the annual rate equal to the then
prevailing Federal Funds rate plus 0.50% which is borne by the respective
borrowing Portfolio. For the six months ended June 30, 2000, there were no
amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, cost and unrealized appreciation (depreciation)
for U.S. Federal income tax purposes of the investments of the Portfolio were:
13
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
NET
COST APPRECIATION DEPRECIATION APPRECIATION
(000) (000) (000) (000)
---------- ------------ ------------ ------------
<S> <C> <C> <C>
$64,876 $11,516 $(2,868) $8,648
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $31,404,000, and $17,519,000
respectively. There were no purchases and sales of U.S. Government securities
for the year ended June 30, 2000. During the six months ended June 30, 2000,
the portfolio incurred $3,035 of brokerage commissions to Morgan Stanley &
Co. Incorporated, an affiliated broker dealer.
For the year ended December 31, 1999, the Portfolio deferred to January 1,
2000, for the U.S. Federal income tax purposes, post-October currency losses
of $135,000.
At June 30, 2000, 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, the 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.
14
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, JR.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, JR.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
-------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED
BY THE PROSPECTUS OF THE THE UNIVERSAL INSTITUTIONAL 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. FOR ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE
INVESTMENTS COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT
www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000 PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT
ACCOUNTANTS OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE
FINANCIAL STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO
ADVERSE OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED
AS TO UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH
ITS AUDITS FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000,
THERE HAVE BEEN NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY
MATTER OF ACCOUNTING PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE,
OR AUDITING SOPE OR PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE
SATISFACTION OF PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE
REFERENCE THERETO IN THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS.
THE FUND, WITH THE APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE
ENGAGED ERNST & YOUNG LLP AS ITS NEW INDEPENDENT ACCOUNTANTS.
15
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP VALUE PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP VALUE PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
Basic Resources (2.9%)
Beverage & Personal Products (0.4%)
Consumer Durables (2.3%)
Consumer Services (8.8%)
Energy (10.8%)
Financial Services (9.8%)
Food & Tobacco & Other (1.7%)
Healthcare (11.1%)
Heavy Industry/Transport (10.3%)
Retail (4.3%)
Technology (22.3%)
Utilities (7.5%)
Other (7.8%)
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY INDUSTRY NET ASSETS
-------- -------- ----------
<S> <C> <C>
Valassis Communications, Inc. Consumer Services 2.9%
The Titan Corp. Heavy Industry/Transportation 2.2
SanDisk Corp. Technology 2.1
Nabors Industries, Inc. Energy 1.8
Global Marine, Inc. Energy 1.8
</TABLE>
PERFORMANCE COMPARED TO THE S&P MID
CAP 400 INDEX(1)
------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION(3)
----- ----- ------------------
<S> <C> <C> <C>
PORTFOLIO 6.02% 12.36 23.35%
INDEX 8.97 16.97 21.90
</TABLE>
1. The S&P Mid Cap 400 Index is a value weighted index of companies that
generally have market values between $500 million and $10 billion that
represent a broad range of industry segments within the U.S. economy.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
3. Commenced operations on January 2, 1997.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends
and distributions were reinvested.
The Mid Cap Value Portfolio seeks above average total return by investing
primarily in common stocks and other equity securities of issuers with equity
capitalization in the range of the companies represented in the Standard &
Poor's Rating Group ("S&P") Mid Cap 400 Index (the "Index"). Such range is
generally $500 million to $10 billion, but the range fluctuates over time with
changes in the equity market. Investments in medium-sized corporations are more
vulnerable to financial risks and other risks than larger corporations and may
involve a higher degree of price volatility than investments in the general
equity markets.
For the six months ended June 30, 2000, the Portfolio had a total return of
6.02% compared to 8.97% for the S&P Mid Cap 400 Index (the "Index"). For the one
year ended June 30, 2000, the Portfolio had a total return of 12.36% compared to
16.97% for the Index. For the period from inception on January 2, 1997 through
June 30, 2000, the Portfolio had an average annual total return of 23.35%
compared to 21.90% for the Index.
The equity markets experienced extreme volatility during the past six months as
technology stocks experienced a sharp sell off during March and April then
surged during June. Mid cap stocks posted weak results for the second quarter of
2000 but remained ahead of large cap stocks during the first half of 2000.
Recently, value stocks within the Index slightly outperformed growth stocks
although growth has outperformed value by over 10% for the year-to-date. The
energy sector remained the best performing sector year-to-date, up over 46%
while health care stocks posted strong results during the past three months.
[SIDENOTE]
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED
ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE
OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST.
[/SIDENOTE]
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP VALUE PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
Stock selection was the primary driver of under-performance while sector
allocation was beneficial to performance. Selections within consumer services
and heavy industry detracted from returns as Valassis Communications and
Caterpillar posted weak results. Security selection within utilities had a
favorable impact on performance as Calpine produced strong results while
Sandisk, Flextronics, and Powerwave were top performers within technology. The
Portfolio's overweight position in energy and technology benefited performance
while an overweight position in telephone services detracted from results.
We maintained an overweight position in energy, as the earnings outlook for oil
service companies remained positive. We continued to underweight financial
services due to a slow down in earnings. Finally, we reduced the Portfolio's
exposure to retail stocks due to decreased consumer demand.
The valuation gap between growth and value stocks remains wide. We expect
continued market volatility due to economic uncertainty although the earnings
outlook for many technology and energy companies remains positive.
July 2000
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP VALUE PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (92.2%)
BASIC RESOURCES (2.9%)
BASIC CHEMICALS (0.1%)
(a)2,100 Cytec Industries, Inc.......................................... $ 52
-----
CONTAINERS (0.5%)
20,600 American National Can Group, Inc............................... 348
-----
METALS - NON-FERROUS (0.1%)
(a)8,900 Freeport-McMoRan Copper & Gold, Inc., Class B................... 82
-----
PAPER (0.6%)
3,900 Consolidated Papers, Inc........................................ 143
(a)38,000 Gaylord Container Corp., Class A................................ 102
3,200 Georgia-Pacific Corp. (Timber Group)............................ 69
1,900 Willamette Industries, Inc...................................... 52
-----
366
-----
SPECIALTY CHEMICALS (1.4%)
5,100 Lubrizol Corp................................................... 107
17,200 Rohm & Haas Co.................................................. 593
(a)19,200 W.R. Grace & Co................................................ 233
-----
933
-----
STEEL (0.2%)
17,100 AK Steel Holding Corp.......................................... 137
300 National Steel Corp., Class B.................................. 1
-----
138
-----
TOTAL BASIC RESOURCES.............................................................. 1,919
-----
BEVERAGE & PERSONAL PRODUCTS (0.4%)
BEVERAGES (0.3%)
5,900 The Pepsi Bottling Group, Inc.................................... 172
-----
PERSONAL PRODUCTS (0.1%)
3,600 Fortune Brands, Inc.............................................. 83
-----
TOTAL BEVERAGES & PERSONAL PRODUCTS................................................. 255
-----
CONSUMER DURABLES (2.3%)
AUTOMOTIVE RELATED (1.6%)
(a)23,000 Lear Corp........................................................ 460
(a)400 SPX Corp......................................................... 48
(a)43,800 Tower Automotive, Inc............................................ 548
-----
1,056
-----
BUILDING & HOUSING (0.4%)
10,300 Masco Corp....................................................... 186
700 Southdown, Inc................................................... 40
-----
226
-----
FURNISHING & APPLIANCES (0.3%)
(a)12,700 Furniture Brands International, Inc.............................. 192
-----
TOTAL CONSUMER DURABLES............................................................. 1,474
CONSUMER SERVICES (8.8%)
ENTERTAINMENT & LEISURE (1.7%)
(a)31,300 Bally Total Fitness Holding Corp................................. 794
(a)5,400 Harrah's Entertainment, Inc...................................... 113
(a)9,700 ValueVision International, Inc., Class A......................... 233
-----
1,140
-----
LODGING & CATERING (0.3%)
10,600 Royal Carribean Cruises Ltd..................................... 196
-----
OTHER (0.1%)
(a)900 Convergys Corp.................................................. 47
-----
PUBLISHING & BROADCAST (6.7%)
(a)7,600 24/7 Media, Inc................................................. 119
(a)8,330 Comcast Corp., Class A (Special)................................ 337
(a)5,600 EchoStar Communications Corp., Class A G....................... 185
3,700 H&R Block, Inc.................................................. 120
(a)8,400 Hispanic Broadcasting Corp...................................... 278
(a)19,600 Snyder Communications, Inc...................................... 465
11,600 The Readers Digest Association, Inc., Class A................... 461
(a)4,600 Univision Communications, Inc................................... 476
(a)49,300 Valassis Communications, Inc.................................... 1,880
(a)900 Westwood One, Inc............................................... 31
-----
4,352
-----
TOTAL CONSUMER SERVICES............................................................ 5,735
-----
ENERGY (10.8%)
NATURAL GAS (0.8%)
7,200 Dynegy, Inc..................................................... 492
-----
OIL- DOMESTIC & CRUDE (1.4%)
3,000 Apache Corp..................................................... 177
2,100 Burlington Resources, Inc....................................... 80
(a)14,060 Ocean Energy, Inc............................................... 200
6,900 Tosco Corp...................................................... 195
10,900 Union Pacific Resources Group, Inc.............................. 240
1,300 Valero Energy Corp.............................................. 41
-----
933
-----
OIL - OFFSHORE DRILLING (8.0%)
(a)41,700 Global Marine, Inc............................................. 1,175
(a)5,200 Grant Prideco, Inc............................................. 130
(a)28,700 Nabors Industries, Inc......................................... 1,193
(a)19,300 Noble Drilling Corp............................................ 795
(a)14,900 Precision Drilling Corp........................................ 576
(a)4,500 R & B Falcon Corp.............................................. 106
(a)9,900 Rowan Cos., Inc................................................ 301
9,400 Santa Fe International Corp.................................... 328
7,800 Transocean Sedco Forex, Inc.................................... 417
(a)5,200 Weatherford International, Inc................................. 207
-----
5,228
-----
OIL - WELL EQUIPMENT & SERVICES (0.6%)
(a)2,400 BJ Services Co................................................. 150
(a)1,500 Cooper Cameron Corp............................................ 99
(a)1,900 Smith International, Inc....................................... 138
-----
387
-----
TOTAL ENERGY...................................................................... 7,040
-----
FINANCIAL SERVICES (9.8%)
BANKS (4.9%)
9,590 Charter One Financial, Inc.................................... 220
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP VALUE PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------------------
<S> <C>
FINANCIAL SERVICES (CONT.)
BANKS (CONT.)
7,200 Comerica, Inc.................................................. $323
14,500 Dime Bancorp, Inc.............................................. 228
21,100 First Security Corp............................................ 286
(a)12,100 Golden State Bancorp, Inc...................................... 218
1,800 Greenpoint Financial Corp...................................... 34
6,500 Hibernia Corp., Class A....................................... 71
5,100 Key Corp....................................................... 90
2,400 Marshall & Ilsley Corp......................................... 100
23,300 Mellon Financial Corp.......................................... 849
5,900 Mercantile Bankshares Corp..................................... 176
6,000 Southtrust Corp................................................ 136
8,200 UnionBanCal Corp............................................... 152
10,900 Washington Mutual, Inc......................................... 315
-----
3,198
-----
CREDIT & FINANCE (1.2%)
(a)18,500 Concord EFS, Inc.............................................. 481
4,100 FINOVA Group, Inc............................................. 53
7,400 Heller Financial, Inc......................................... 152
1,300 PMI Group, Inc................................................ 62
1,100 SLM Holding Corp.............................................. 41
-----
789
-----
INSURANCE (3.3%)
10,000 Ace Ltd....................................................... 280
(a)4,500 Allmerica Financial Corp...................................... 236
9,800 Ambac Financial Group, Inc.................................... 537
(a)30,800 John Hancock Financial Services, Inc.......................... 730
5,100 ReliaStar Financial Corp...................................... 267
2,900 Unumprovident Corp............................................ 58
600 XL Capital Ltd., Class A...................................... 32
-----
2,140
-----
INVESTMENT COMPANIES (0.4%)
(a)3,100 E*Trade Group, Inc............................................ 51
2,700 Lehman Brothers Holdings, Inc................................. 255
-----
306
-----
TOTAL FINANCIAL SERVICES......................................................... 6,433
-----
FOOD, TOBACCO & OTHER (1.7%)
FOOD, TOBACCO & OTHER (0.0%)
500 McCormick & Co., Inc. (Non Voting)............................ 16
-----
FOODS (1.7%)
10,600 Earthgrains Co. (The)......................................... 206
15,800 Flowers Industries, Inc....................................... 315
(a)29,600 Fresh Del Monte Produce, Inc.................................. 204
10,100 IBP, Inc...................................................... 156
2,600 Quaker Oats Co. (The)......................................... 195
-----
1,076
-----
TOTAL FOOD TOBACCO & OTHER....................................................... 1,092
-----
HEALTH CARE (11.1%)
DRUGS (5.6%)
8,300 Alpharma, Inc., Class A....................................... 517
(a)7,500 Alza Corp., Class A........................................... 443
(a)6,800 Celgene Corp.................................................. 400
(a)3,800 Cell Pathways, Inc............................................ 89
(a)1,300 Chiron Corp................................................... 62
(a)2,900 Forest Laboratories, Inc., Class A............................ 293
(a)4,500 Gilead Sciences, Inc.......................................... 320
(a)2,200 IDEC Pharmaceuticals Corp..................................... 258
(a)1,700 Medimmune, Inc................................................ 126
(a)4,900 Millennium Pharmaceuticals, Inc............................... 548
6,000 Mylan Laboratories, Inc....................................... 110
8,800 Teva Pharmaceutical Industries Ltd. ADR....................... 488
-----
3,654
-----
HEALTH SERVICES (2.3%)
(a)4,100 First Health Group Corp...................................... 134
(a)28,200 Foundation Health Systems, Inc., Class A..................... 367
(a)16,600 Health Management Associates, Inc., Class A.................. 217
(a)17,200 Lincare Holdings, Inc........................................ 423
13,400 Tenet Healthcare Corp........................................ 362
-----
1,503
-----
HEALTH TECHNOLOGY (1.9%)
(a)7,700 Cephalon, Inc................................................. 461
(a)1,200 Incyte Genomics, Inc.......................................... 99
3,000 PerkinElmer, Inc.............................................. 198
(a)2,600 QLT PhotoTherapeutics, Inc.................................... 201
(a)6,600 St. Jude Medical, Inc......................................... 303
-----
1,262
-----
HOSPITAL SUPPLIES (1.3%)
(a)4,000 Biomet, Inc................................................... 154
(a)33,900 Sybron International Corp..................................... 671
-----
825
-----
TOTAL HEALTH CARE................................................................ 7,244
-----
HEAVY INDUSTRY / TRANSPORTATION (10.3%)
AEROSPACE (2.6%)
858 Comsat Corp................................................... 20
5,100 General Dynamics Corp......................................... 267
(a)32,000 The Titan Corp................................................ 1,432
-----
1,719
-----
AIR TRANSPORTATION (0.9%)
(a)6,500 Atlas Air, Inc................................................ 233
4,600 Canadian National Railway Co.................................. 134
10,300 Southwest Airlines Co......................................... 195
-----
562
-----
BUSINESS SERVICES (3.0%)
(a)7,325 Circle.com................................................... 27
(a)700 CSG Systems International, Inc............................... 39
(a)5,150 Fiserv, Inc.................................................. 223
(a)9,300 Interim Services, Inc........................................ 165
(a)7,450 MasTec, Inc................................................. 285
(a)5,100 Modis Professional Services, Inc............................. 39
(a)34,500 Republic Services, Inc., Class A............................. 552
(a)13,300 SCI Systems, Inc............................................. 521
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP VALUE PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------------------
<S> <C>
HEAVY INDUSTRY / TRANSPORTATION (CONT.)
BUSINESS SERVICES (CONT.)
(a)7,300 United Rentals, Inc........................................... $ 125
-----
1,976
-----
MACHINERY (0.7%)
(a)4,700 Navistar International Corp................................... 146
9,200 Parker-Hannifin Corp.......................................... 315
-----
461
-----
MISCELLANEOUS INDUSTRIALS (2.9%)
14,700 Dover Corp.................................................... 596
14,500 ITT Industries, Inc........................................... 441
1,000 Lafarge Corp.................................................. 21
(a)11,200 Litton Industries, Inc........................................ 470
8,200 Martin Marietta Materials, Inc................................ 332
-----
1,860
-----
SHIPPING & FREIGHT (0.2%)
4,000 CNF Transportation, Inc....................................... 91
1,400 Teekay Shopping Corp.......................................... 46
-----
137
-----
TOTAL HEAVY INDUSTRY /TRANSPORTATION............................................. 6,715
-----
RETAIL (4.3%)
APPAREL (0.3%)
(a)7,200 Jones Apparel Group, Inc...................................... 169
-----
DISCOUNTERS (2.0%)
(a)20,300 Costco Wholesale Corp......................................... 670
23,000 Family Dollar Stores, Inc..................................... 450
(a)3,400 Lands' End, Inc............................................... 114
(a)4,100 Shopko Stores, Inc............................................ 63
-----
1,297
-----
FOOD- RETAIL (0.5%)
(a)13,500 Kroger Co..................................................... 298
-----
RESTAURANTS (0.2%)
(a)5,300 Brinker International, Inc.................................... 155
-----
Specialty Shops (1.3%)
(a)12,100 Ann Taylor Stores, Inc........................................ 401
1,100 Circuit City Stores, Inc...................................... 36
2,500 CVS Corp...................................................... 100
(a)40,400 Sunglass Hut International, Inc............................... 332
-----
869
-----
TOTAL RETAIL..................................................................... 2,788
-----
TECHNOLOGY (22.3%)
COMPUTERS & OFFICE EQUIPMENT (2.9%)
(a)10,400 Electronics for Imaging, Inc.................................. 263
(a)6,200 Extreme Networks, Inc......................................... 654
(a)12,600 QLogic Corp................................................... 833
(a)15,800 Quantum Corp.-DLT & Storage Systems........................... 153
-----
1,903
-----
ELECTRONICS (9.1%)
(a)8,800 Atmel Corp.................................................... 325
(a)6,800 Cypress Semiconductor Corp.................................... 287
(a)11,500 Fairchild Semiconductor International, Inc., Class A.......... 466
(a)10,900 Flextronics International Ltd................................. 749
(a)8,100 Integrated Device Technology, Inc............................. 485
(a)4,800 KLA-Tencor Corp............................................... 281
(a)4,300 Lam Research Corp............................................. 161
(a)14,000 National Semiconductor Corp................................... 794
(a)4,600 Novellus Systems, Inc......................................... 260
(a)22,400 SanDisk Corp.................................................. 1,371
(a)500 Veeco Instruments, Inc........................................ 37
(a)17,000 Viasystems Group, Inc......................................... 275
(a)11,700 Vishay Intertechnology, Inc................................... 444
-----
5,935
-----
SOFTWARE & SERVICES (8.0%)
500 Adobe Systems, Inc............................................ 65
(a)9,800 Affiliated Computer Services, Inc., Class A................... 324
(a)3,100 AMDOCS Ltd.................................................... 238
(a)3,800 BMC Software, Inc............................................. 139
(a)7,500 Braun Consulting, Inc......................................... 158
(a)10,000 Brio Technology, Inc.......................................... 212
(a)3,900 Commerce One, Inc............................................. 177
(a)1,200 Documentum, Inc............................................... 107
2,500 Electronic Data Systems Corp.................................. 103
(a)33,300 Genuity, Inc.................................................. 305
(a)11,700 Informix Corp................................................. 87
(a)11,300 Intuit, Inc................................................... 468
(a)5,200 J. D. Edwards & Co............................................ 78
(a)10,800 Legato Systems, Inc.......................................... 163
(a)36,677 MarchFirst, Inc............................................... 669
(a)15,100 Network Associates, Inc....................................... 308
(a)9,000 NOVA Corp..................................................... 251
(a)9,700 PSINet, Inc................................................... 244
(a)2,900 Rational Software Corp........................................ 270
(a)9,800 SunGuard Data Systems, Inc.................................... 304
(a)11,100 Vignette Corp................................................. 577
-----
5,247
-----
TELECOMMUNICATION EQUIPMENT (2.3%)
(a)3,400 Andrew Corp................................................... 114
(a)20,500 Digital Microwave Corp........................................ 782
(a)6,500 Finisar Corp.................................................. 170
(a)8,700 Harmonic Lightwaves, Inc...................................... 215
(a)3,800 Powerwave Technologies, Inc................................... 167
-----
1,448
-----
TOTAL TECHNOLOGY................................................................. 14,533
-----
UTILITIES (7.5%)
ELECTRIC POWER (3.9%)
3,600 Allegheny Energy, Inc......................................... 99
1,350 Black Hills Corp.............................................. 30
(a)10,000 Calpine Corp.................................................. 658
1,300 CMS Energy Corp............................................... 29
8,100 Energy East Corp.............................................. 154
2,900 Florida Progress Corp......................................... 136
2,400 IPALCO Enterprises, Inc....................................... 48
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP VALUE PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
VALUE
SHARES (000)
-------------------------------------------------------------------------------------------
<S> <C>
UTILITIES (CONT.)
ELECTRIC POWER (CONT.)
800 New Century Energies, Inc..................................... $ 24
3,700 PECO Energy Co................................................ 149
8,400 PG&E Corp..................................................... 207
2,200 Pinnacle West Capital Corp.................................... 75
20,100 Potomac Electric Power Co..................................... 503
6,800 PPL Corp., Inc................................................ 149
2,800 Public Service Enterprise Group, Inc.......................... 97
7,200 TXU Corp...................................................... 212
-----
2,570
-----
NATURAL GAS (1.5%)
4,200 Coastal Corp.................................................. 256
5,200 Columbia Energy Group......................................... 341
6,900 El Paso Energy Co............................................. 351
1,400 MCN Corp...................................................... 30
-----
978
-----
TELEPHONE SERVICES (2.1%)
(a)18,800 Adelphia Business Solutions, Inc.............................. 436
(a)200 Dobson Communications Corp., Class A.......................... 4
(a)8,200 Flag Telecom Holdings Ltd..................................... 122
(a)4,200 ITXC Corp..................................................... 149
(a)3,300 Leap Wireless International, Inc.............................. 155
(a)23,600 McLeodUSA, Inc................................................ 488
-----
1,354
-----
TOTAL UTILITIES.................................................................. 4,902
-----
TOTAL COMMON STOCKS (COST $56,879)............................................... 60,130
------
PREFERRED STOCK (0.6%)
CONSUMER SERVICES (0.6%) PUBLISHING & BROADCASTING (0.6%)
8,000 News Corp. Ltd. ADR (COST $331)............................... 380
-----
FACE
AMOUNT
(000)
------
SHORT-TERM INVESTMENT (9.2%)
REPURCHASE AGREEMENT (9.2%)
6,021 Chase Securities, Inc., 6.15%, dated 6/30/00, due 7/3/00,
to be repurchased at $6,024, collateralized by
U.S. Treasury Notes, 6.875%, due 1/15/05, valued at $6,149
(COST $6,021)................................................. 6,021
-------
TOTAL INVESTMENTS (102.0%) (COST $63,231)........................................ $66,531
-------
OTHER ASSETS (1.7%)
Cash....................................................................$ 162
Receivable for Investments Sold......................................... 792
Receivable for Portfolio Shares Sold.................................... 125
Due from Adviser........................................................ 25
Dividends Receivable.................................................... 25
Interest Receivable..................................................... 1
Other Assets............................................................ 1 1,131
------
LIABILITIES (-3.7%)
Payable for Investments Purchased....................................... (2,142)
Investment Advisory Fees Payable........................................ (115)
Payable for Portfolio Shares Redeemed................................... (79)
Professional Fees Payable............................................... (18)
Custodian Fees Payable.................................................. (18)
Administrative Fees Payable............................................. (13)
Other Liabilities....................................................... (16) (2,401)
-------- -------
NET ASSETS (100%).......................................................... $65,261
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 3,940,781 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................................ $16.56
=======
NET ASSETS CONSIST OF:
Paid in Capital................................................................ $55,971
Accumulated Net Investment Loss................................................ (5)
Accumulated Net Realized Gain.................................................. 5,995
Unrealized Appreciation on Investments......................................... 3,300
-------
NET ASSETS....................................................................... $65,261
=======
---------------------------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing security
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP VALUE PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
-----------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 187
Interest 113
--------
Total Income 300
--------
EXPENSES:
Investment Advisory Fees 221
Less: Fees Waived (52)
--------
Net Investment Advisory Fees 169
Administrative Fees 79
Custodian Fees 21
Professional Fees 18
Shareholder Reports 18
Directors' Fees and Expenses 1
Other 3
--------
Net Expenses 309
--------
NET INVESTMENT LOSS (9)
--------
NET REALIZED GAIN ON:
Investments Sold 5,166
--------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (1,648)
--------
NET REALIZED GAIN AND CHANGE IN UNREALIZED DEPRECIATION 3,518
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,509
========
-----------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
(000) (000)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (9) $ 83
Net Realized Gain 5,166 6,512
Change in Unrealized Depreciation (1,648) 1,763
------- ------
Net Increase in Net Assets Resulting from Operations 3,509 8,358
------- ------
DISTRIBUTIONS
Net Investment Income -- (79)
Net Realized Gain -- (6,234)
------- ------
Total Distributions -- (6,313)
------- ------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 14,629 20,082
Distributions Reinvested -- 6,313
Redeemed (6,984) (5,714)
------- ------
Net Increase in Net Assets Resulting from Capital Share Transactions 7,645 20,681
------- ------
Total Increase in Net Assets 11,154 22,726
NET ASSETS:
Beginning of Period 54,107 31,381
------- ------
End of Period (including accumulated /undistributed net
investment (loss) income of ($5) and $4, respectively) $65,261 $54,107
======= =======
-------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 906 1,305
Shares Issued on Distributions Reinvested -- 431
Shares Redeemed (430) (375)
------- ------
Net Increase in Capital Shares Outstanding 476 1,361
======= ======
--------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 JANUARY 2, 1997*
(UNAUDITED) 1999 1998 TO DECEMBER 31, 1997
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.62 $ 14.92 $ 13.32 $ 10.00
-------- -------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.00)+ 0.03 0.04 0.02
Net Realized and Unrealized Gain (Loss) 0.94 2.81 2.04 4.05
-------- -------- --------- ---------
Total from Investment Operations 0.94 2.84 2.08 4.07
-------- -------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.03) (0.03) (0.02)
Net Realized Gain -- (2.11) (0.45) (0.73)
-------- -------- --------- ---------
Total Distributions -- (2.14) (0.48) (0.75)
-------- -------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 16.56 $ 15.62 $ 14.92 $ 13.32
======== ======== ========= =========
TOTAL RETURN 6.02% 20.19% 15.85% 40.93%
======== ======== ========= =========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $ 65,261 $ 54,107 $ 31,381 $ 11,461
Ratio of Expenses to Average Net Assets 1.05%** 1.05% 1.05% 1.05%**
Ratio of Net Investment Income (Loss) to Average Net Assets (0.03)%** 0.21% 0.42% 0.19%**
Portfolio Turnover Rate 129% 248% 228% 141%
--------------
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income $ 0.01 $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.22%** 1.37% 1.57% 2.13%**
(0.20)%** (0.11)% (0.10)% (0.89)%**
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
+ Amount is less than $0.01 per share
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen separate active,
diversified and non-diversified portfolios (individually referred to as a
"Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Mid Cap Value Portfolio. The
Portfolio seeks long-term capital growth investing primarily in common stocks
and other equity securities of issuers with equity capitalization in the range
of the companies represented in the Standard & Poor's Rating Group ("S&P") Mid
Cap 400 Index. Such range is generally $500 million to $6 billion but the range
fluctuates over time with changes in the equity market.
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. 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 under procedures established 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. 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. 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 the Portfolio 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.
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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.
B. ADVISER: Morgan Stanley Asset Management ("MSAM"), 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:
FROM
FIRST $500 MORE
$500 MILLION TO THAN
Portfolio MILLION $1 BILLION $1 BILLION
--------- ------- ----------- ----------
Mid Cap Value ....... 0.75% 0.70% 0.65%
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio, if
necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 1.05%.
C. ADMINISTRATOR: MSAM (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, 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. Credit Facility: The Fund, along with an affiliated open-end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the
Agreement, the Funds are provided with a revolving credit facility (the
"Facility") allowing the Funds to borrow, subject to the limitations set
forth in each Fund's registration statement, amounts that, in the aggregate
for the Funds, will not exceed $235 million. The Funds pay a commitment fee
on the unused portion of the Facility at an annual rate of 0.09%. Fees
incurred in connection with the arrangement of the Facility totaled
approximately $225,000. The commitment fee and the arrangement fee are
allocated to the Funds based on an estimate of the potential amount available
to each Fund under their respective limitations. Such allocated costs are
further allocated to the Portfolios based on their net assets. Amounts drawn
down on the Facility bear interest at the annual rate equal to the then
prevailing Federal Funds rate plus 0.50% which is borne by the respective
borrowing Portfolio. For the six month period, there were no amounts drawn
down on the Facility.
F. OTHER: At June 30, 2000, cost and unrealized appreciation (depreciation)
for U.S. Federal income tax purposes of the investments of the Portfolio were:
NET
Cost APPRECIATION DEPRECIATION APPRECIATION
(000) (000) (000) (000)
-------- ------------ ------------ ------------
$ 63,231 $9,511 $(6,211) $3,300
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $78,178,000 and $72,191,000,
respectively. There were no purchases and sales of U.S. Government securities
for the six months ended June 30, 2000.
Net capital and currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Portfolio's
next taxable year. For the year ended December 31, 1999, the Portfolio
deferred to January 1, 2000 for U.S. Federal income tax purposes,
post-October capital losses of $3,000.
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.
39
<PAGE>
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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
--------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE UNIVERSAL INSTITUTIONAL 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. FOR
ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000, PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG LLP
AS ITS NEW INDEPENDENT ACCOUNTANTS.
11
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
U.S. REAL ESTATE PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
U.S. REAL ESTATE PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
Other (3.3%)
Self Storage (5.3%)
Retail Strip Centers (4.9%)
Retail Regional Malls (9.4%)
Residential Manufactured Homes (4.7%)
Residential Apartments (19.2%)
Diversified (8.2%)
Health Care (0.2%)
Industrial (3.0%)
Lodging/Resorts (6.3%)
Mixed (1.9%)
Office (33.6%)
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY INDUSTRY NET ASSETS
-------- -------- ----------
<S> <C> <C>
Equity Office Properties Trust REIT Office 6.8%
Starwood Hotels & Resorts Worldwide, Inc. Lodging/Resorts 6.0%
Avalonbay Communities, Inc. REIT Residential Apartments 5.7%
Simon Property Group, Inc. Retail Regional Malls 5.5%
Equity Residential Properties Trust REIT Residential Apartments 5.4%
</TABLE>
PERFORMANCE COMPARED TO THE NATIONAL
ASSOCIATION OF REAL ESTATE INVESTMENT
TRUSTS (NAREIT) EQUITY INDEX(1)
-----------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION(3)
----- ---- ------------------
<S> <C> <C> <C>
PORTFOLIO.... 15.48% 4.90% 5.54%
INDEX ....... 13.19 3.03 1.81
</TABLE>
1. The NAREIT Equity Index is an unmanaged market weighted index of tax
qualified REITs listed on the New York Stock Exchange, American Stock
Exchange and the NASDAQ National Market System (including dividends).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
3. Commenced operations on March 3, 1997.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
In accordance with SEC regulations, Portfolio performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested.
The U.S. Real Estate Portfolio seeks to provide above-average current income and
long-term capital appreciation by investing primarily in equity securities of
companies in the U.S. real estate industry, including real estate investment
trusts ("REITS").
For the six months ended June 30, 2000, the Portfolio had a total return of
15.48% compared to 13.19% for the National Association of Real Estate Investment
Trusts (NAREIT) Equity Index (the "Index"). For the one year period ended June
30, 2000, the Portfolio had a total return of 4.90% compared to 3.03% for the
Index. For the period from inception on March 3, 1997 through June 30, 2000, the
Portfolio had an average annual total return of 5.54% compared to 1.81% for the
Index.
By all measures, the second quarter of 2000 was a spectacular quarter for the
REIT market. The sector posted a quarterly return in excess of 10%, dramatically
beating all of the major equity indices. It is interesting to note that REITs
demonstrated strength relative to the Nasdaq and the S&P, which declined 13% and
3%, respectively, but also outperformed the Russell 2000 Small Cap Index which
declined 4% and the Russell Value Index which declined 5%. Recall that recently
REITs have traded in-line with the Russell indexes. April was a particularly
favorable month as REITs rallied almost 7% while the difficulties for the New
Economy stocks continued. The market had a modestly favorable May and then
another strong month in June. On a year-to-date basis, the sector had gained
more than 13%.
Thus, REITs performed quite well in the face of the equity market difficulties
and, in our view, they acted as they should have. This may be attributed to two
key factors: fundamental real estate trends remained strong and, at current
valuation levels, REITs truly represent a defensive asset class. REITs are now
[SIDENOTE]
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A
RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE
RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
[/SIDENOTE]
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
U.S. REAL ESTATE PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
trading at almost a 10% discount to the underlying Net Asset Value ("NAV") of
their assets. As a result, there continues to be an attractive arbitrage between
valuations in the public versus the private real estate markets. (We define real
estate arbitrage as the pricing disparity between prices of actual properties in
the private real estate market versus the implied pricing of properties owned by
public companies based on their share price). This disparity in pricing between
the public and private real estate markets, combined with the current strength
in the direct real estate markets and the equity market's newly found interest
in defensive stocks, cause us to believe that the sector remains attractive.
COMMENTARY
Our investment perspective is that over the medium and long-term, the largest
determinant of the value for real estate stocks will be underlying real estate
fundamentals. We measure the sector based on the Price to Net Asset Value per
share ratio ("P/NAV"). Given the large and active private real estate market,
we believe that there are limits as to the level of premium or discount at which
the sector should trade relative to its NAV. These limits can be viewed as the
point at which the arbitrage opportunity between owning real estate in the
private versus public markets becomes compelling. By quarter-end, REITs
continued to trade at almost a 10% discount to the underlying value of their
assets. The discussion of the physical real estate markets that follows
indicates that, with the Fed keenly focused on slowing the economy, the markets
are headed for equilibrium. However, our outlook is that there is only modest
downside risk from the potential for oversupply.
The second quarter appears to have been the first quarter in more than two years
where the sector experienced the benefits of the return of non-dedicated
institutional investors. Their selling pressure, that plagued the sector for
much of the last two years, appeared to have abated in the first quarter. After
experiencing more than $100 million in redemptions in the first quarter of 2000,
subscriptions for the second quarter were almost $400 million and these inflows
may increase after the favorable second quarter results are posted. The industry
held its annual institutional investor forum at the beginning of June in New
York. The key theme emanating from our company meetings was that real estate
fundamentals remain strong in most markets in the country. The most dramatic
operating results were provided by companies with significant asset exposure to
the markets favorably impacted by the technology boom, with the greatest impact
in the office and apartment sectors. Despite the recovery in stock prices,
companies appear to be restrained with regard to equity issuance. The second
quarter involved several interesting announcements on the merger and acquisition
front, including two private buyouts of public companies. In each case, the
stocks were trading at as much as 20% discounts to the underlying value of their
assets. These announced sales fit with our thesis that private investors will
take advantage of arbitrage opportunities provided by the public markets.
REAL ESTATE MARKET
We have been monitoring the property markets for the inevitable shift from the
latter stages of the recovery phase into equilibrium, while maintaining a
watchful eye toward the real estate equivalent of a "hard-landing",
characterized by oversupply. Through the first half of this year, we have not
yet reached equilibrium in many markets, which would be characterized by flat
occupancy levels and inflationary rental growth. In fact, we continue to witness
increasing occupancy rates and strong rental growth in many real estate markets.
Clearly, the strong economy has continued to extend the favorable supply-demand
balance. The following presents an outline of our views of the physical property
markets.
The data reported from the Census Bureau in the second quarter demonstrated a
reduced risk of oversupply in the market for apartments. Permits were below
340,000 units (annual pace on a seasonally adjusted basis) for each of the three
reported months (March, April and May). Similarly, starts fell below 320,000
units in each month. The trailing three-month averages are 303,000 units for
starts and 307,000 units for permits. With net annual demand estimates in the
300,000 to 320,000 unit range based on 2% job growth, it appears that national
apartment supply and demand will be well balanced over the next twelve months.
The International Council of Shopping Centers held its annual convention in late
May and the mood was considerably more upbeat than last year due to less
threatening concerns regarding e-commerce and a buoyant leasing market. Consumer
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
U.S. REAL ESTATE PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
confidence rose in May, but by quarter-end had fallen back to February's level,
marking its lowest level since October 1999. Median same store sales continued
to slow to 4% in May and 2% in June. Supply data indicates that 33 regional
malls (40.2 million square feet) are expected to open through 2002. They will be
dispersed in terms of delivery: 5 malls in 2000, 12 in 2001 and 16 in 2002, with
the 2002 deliveries being the least certain. Given the additional retail square
footage expected to be added in other retail formats, we believe total supply is
running at a pace that will be in excess of demand. With the potential for
oversupply, we maintain an overall underweight position in retail, with a market
weighting in the upper-end mall sub-sector.
According to Torto Wheaton, the national office market experienced above average
demand in the first quarter of 2000, based on 35 million square feet of
absorption. Combined with the fourth quarter of 1999 absorption of 36 million
square feet, this was likely the best six-month period the office market has
ever seen in terms of demand. Downtown vacancies declined by 80 basis points to
7.3%. Vacancy declines were not as dramatic in the suburban markets. Given the
expected continued rental strength and the resulting widening of differential
between existing leases and current market rents, we have extended our
overweighting to the central business district office market and we remain
underweight in the suburban office markets as it appears to be no better than at
equilibrium. Industrial vacancy barely declined in the first quarter, remaining
at 7.1%, based on net absorption of 29 million square feet and a similar level
of supply. Although the sector has achieved the equilibrium stage, like the
office market, the in-fill locations in the primary industrial hubs remain
strong.
The hotel market demonstrated strong revenue per available room ("RevPar")
growth in the second quarter, registering gains of 5.8% in March, 5% in April
and 8% in May. May's gains represented the strongest RevPar growth since January
1997. As a result, we expect to see strong second quarter results for the
majority of the public lodging companies. Supply growth remains at stubbornly
high levels and will likely continue to limit a sustained improvement in
industry RevPar. Leading industry forecaster PricewaterhouseCoopers expects
RevPar growth to decelerate from 3.9% this year to 2.8% in 2001. We remain
cautious on the sector given the supply issues and the further potential for
pressure on margins due to the impacts from wage growth, higher fuel costs and
interest rates.
PORTFOLIO
We continue to shape the Portfolio with companies offering attractive
fundamental valuations relative to their underlying real estate value. The
top-down weightings in the Portfolio remain similar to last quarter. We
increased our overweighting to the companies focused on central business
district office assets as the recent increases in rent have caused a favorable
increase in the gap between existing leases and current market rents. Despite
their weak performance, we have maintained our conviction to overweight the
manufactured home sector. We are attracted by the predictable growth in NAV per
share, the limited degree of new supply, and the modest levels of capital
expenditure required.
The outlook for the REIT market continues to be favorable. We focus on two key
factors: the health of the physical property markets and the public market
pricing for the securities. The private real estate markets have remained
strong, based on the strong U.S. economy and a rational level of new supply. We
are encouraged that the development pipelines either peaked in 1999 or are in
the process of peaking in 2000 for the vast majority of property types. Clearly,
the better than expected strength of the economy has provided the demand for
these large pipelines. However, given the declining levels of construction, the
U.S. real estate market is better prepared for the eventual slowdown in the
economy. This factor, when combined with a REIT market that trades at almost a
10% discount to its private valuation, provides the foundation for a defensive
asset class that is attractively priced. The final critical factor is the
relative attractiveness of real estate versus other asset classes. Given the
current volatility in the equity markets, it appears that REITs may be well
poised to continue to receive a high level of attention from traditional equity
investors.
July 2000
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
U.S. REAL ESTATE PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
----------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (96.7%)
DIVERSIFIED (8.2%)
23,700 Pacific Gulf Properties, Inc. REIT............................. $594
10,400 Pennsylvania REIT.............................................. 178
22,900 Rouse Co....................................................... 567
17,600 Vornado Realty Trust REIT...................................... 611
(a)13,803 Wellsford Real Properties, Inc................................. 209
------
2,159
------
HEALTH CARE (0.2%)
(a)16,200 Meditrust Corp. Paired Stock................................... 61
------
INDUSTRIAL (3.0%)
2,300 Cabot Industrial Trust......................................... 45
19,200 Prime Group Realty Trust REIT.................................. 292
21,200 Prologis Trust................................................. 452
------
789
------
LODGING/RESORTS (6.3%)
8,519 Hilton Hotels Corp............................................. 80
(a)13 Interstate Hotels Corp......................................... --@
48,933 Starwood Hotels & Resorts Worldwide, Inc....................... 1,581
(a)3,100 Wyndham International, Inc..................................... 8
------
1,669
------
MIXED (1.9%)
21,400 PS Business Parks, Inc. REIT................................... 513
------
OFFICE (33.6%)
57,500 Arden Realty Group, Inc........................................ 1,351
35,100 Boston Properties, Inc......................................... 1,356
9,500 Brandywine Realty Trust REIT................................... 182
98,700 Brookfield Properties Corp..................................... 1,311
42,500 CarrAmerica Realty Corp. REIT.................................. 1,126
65,231 Equity Office Properties Trust REIT............................ 1,798
29,400 Great Lakes, Inc. REIT......................................... 500
3,800 Prentiss Properties Trust REIT................................. 91
65,500 Trizec Hahn Corp............................................... 1,171
------
8,886
------
OTHER (0.0%)
(a)9,948 Atlantic Gulf Communities Corp................................. 1
------
RESIDENTIAL APARTMENTS (19.2%)
11,800 Amli Residential Properties Trust REIT......................... 278
22,083 Archstone Communities Trust REIT............................... 465
36,300 Avalonbay Communities, Inc. REIT............................... 1,515
3,900 BRE Properties, Inc., Class A REIT............................. 113
31,149 Equity Residential Properties Trust REIT....................... 1,433
18,100 Essex Property Trust, Inc. REIT................................ 760
13,200 Smith (Charles E.) Residential Realty, Inc. REIT............... 502
1,200 Summit Properties, Inc......................................... 25
------
5,091
------
RESIDENTIAL MANUFACTURED HOMES (4.7%)
25,900 Chateau Properties, Inc. REIT.................................. 732
15,100 Manufactured Home Communities, Inc. REIT....................... 361
4,500 Sun Communities, Inc. REIT..................................... 150
------
1,243
------
RETAIL REGIONAL MALLS (9.4%)
65,700 Simon Property Group, Inc...................................... $1,458
52,300 Tauban Centers, Inc. REIT...................................... 575
13,700 Urban Shopping Centers, Inc. REIT.............................. 461
------
2,494
------
RETAIL STRIP CENTERS (4.9%)
38,300 Burnham Pacific Property Trust REIT............................ 263
37,500 Federal Realty Investment Trust REIT........................... 750
10,700 JDN Realty Corp. REIT.......................................... 109
8,000 Pan Pacific Retail Properties, Inc. REIT....................... 161
100 Ramco-Gershenson Properties Trust REIT......................... 2
------
1,285
------
SELF STORAGE (5.3%)
59,632 Public Storage, Inc. REIT...................................... 1,398
------
TOTAL COMMON STOCKS (COST $25,089).......................................... 25,589
------
PREFERRED STOCK (0.0%)
OTHER 0.0%)
(a)(b)1,401 Atlantic Gulf Communities Corp.(COST $14)...................... 8
------
CONVERTIBLE PREFERRED STOCK (0.0%)
OTHER (0.0%)
(a)(b)2,003 Atlantic Gulf Communities Corp.(COST $20)...................... 11
------
<CAPTION>
NO. OF
WARRANTS
--------
<S> <C>
WARRANTS (0.0%)
OTHER
(a)(b)2,812 Atlantic Gulf Communities Corp., Class A, expiring 6/23/04..... --@
(a)(b)2,812 Atlantic Gulf Communities Corp., Class B, expiring 6/23/04..... --@
(a)(b)2,812 Atlantic Gulf Communities Corp., Class C, expiring 6/23/04..... --@
------
TOTAL WARRANTS (COST $0).................................................... --@
------
<CAPTION>
FACE
AMOUNT
(000)
------
<S> <C>
SHORT-TERM INVESTMENT (9.3%)
REPURCHASE AGREEMENT (9.3%)
2,450 Chase Securities, Inc., 6.15%, dated 6/30/00,
due 7/3/00, to be repurchased at $2,451,
collateralized by U.S. Treasury Notes,
4.75%, due 11/15/08, valued at $2,501
(COST $2,450)................................................ 2,450
------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
U.S. REAL ESTATE PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
AMOUNT
(000)
-----------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (106.0%) (COST $27,573)............................. $28,058
-------
OTHER ASSETS (1.4%)
Cash............................................................... $ 35
Dividends Receivable............................................... 196
Receivable for Investments Sold.................................... 63
Receivable for Portfolio Shares Sold............................... 50
Due from Adviser................................................... 20 364
-------
LIABILITIES (-7.4%)
Payable for Investment Purchased................................... (1,248)
Payable for Portfolio Shares Redeemed.............................. (625)
Advisory Fees Payable.............................................. (43)
Shareholder Reporting Expense Payable.............................. (18)
Professional Fees Payable.......................................... (10)
Administrative Fees Payable........................................ (8)
Custodian Fees Payable............................................. (5) (1,957)
------- -------
NET ASSETS (100%)..................................................... $26,465
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,516,296 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................... $10.52
=======
NET ASSETS CONSIST OF:
Paid in Capital....................................................... $26,267
Undistributed Net Investment Income................................... 541
Accumulated Net Realized Loss......................................... (828)
Unrealized Appreciation on Investments................................ 485
-------
NET ASSETS............................................................ $26,465
=======
--------------------------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing security
(b) -- Includes 1,878 restricted warrants.
@ -- Value is less than $500
REIT -- Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
U.S. REAL ESTATE PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
-------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 488
Interest 28
-------
Total Income 516
-------
EXPENSES:
Investment Advisory Fees 75
Less: Fees Waived (42)
-------
Net Investment Advisory Fees 33
Administrative Fees 26
Shareholder Reports 24
Professional Fees 13
Custodian Fees 6
Directors' Fees and Expenses 1
Other 1
-------
Net Expenses 104
-------
NET INVESTMENT INCOME 412
-------
NET REALIZED LOSS ON:
Investments Sold (215)
-------
CHANGE IN UNREALIZED APPRECIATION ON:
Investments 2,532
-------
NET REALIZED LOSS AND CHANGE IN UNREALIZED APPRECIATION 2,317
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,729
=======
-------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
(000) (000)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 412 $ 763
Net Realized Loss (215) (191)
Change in Unrealized Appreciation/Depreciation 2,532 (1,047)
-------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations 2,729 (475)
-------- --------
DISTRIBUTIONS
Net Investment Income -- (870)
-------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 21,209 13,268
Distributions Reinvested -- 870
Redeemed (13,439) (11,961)
-------- --------
Net Increase in Net Assets Resulting from Capital Share Transactions 7,770 2,177
-------- --------
Total Increase in Net Assets 10,499 832
NET ASSETS:
Beginning of Period 15,966 15,134
-------- --------
End of Period (including undistributed net investment income
of $541 and $129, respectively) $ 26,465 $ 15,966
======== ========
---------------------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 2,113 1,342
Shares Issued on Distributions Reinvested -- 98
Shares Redeemed (1,349) (1,233)
-------- --------
Net Increase in Capital Shares Outstanding 764 207
======== ========
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
U.S. REAL ESTATE PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 MARCH 3, 1997*
(UNAUDITED) 1999 1998 TO DECEMBER 31, 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.11 $ 9.80 $11.41 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.14 0.43 0.40 0.17
Net Realized and Unrealized Gain (Loss) 1.27 (0.59) (1.63) 1.61
------ ------ ------ ------
Total from Investment Operations 1.41 (0.16) (1.23) 1.78
------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income -- (0.53) (0.29) (0.17)
Net Realized Gain -- -- (0.09) (0.20)
------ ------ ------ ------
Total Distributions -- (0.53) (0.38) (0.37)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.52 $ 9.11 $ 9.80 $11.41
====== ====== ====== ======
TOTAL RETURN 15.48% (1.47)% (10.86)% 17.99%
====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $26,465 $15,966 $15,134 $13,055
Ratio of Expenses to Average Net Assets 1.10%** 1.10% 1.10% 1.10%**
Ratio of Net Investment Income to Average Net
Assets 4.35%** 5.03% 4.14% 3.14%**
Portfolio Turnover Rate 12% 40% 100% 114%
----------------
Effect of Voluntary Expense Limitation During
the Period:
Per Share Benefit to Net Investment Income $0.01 $0.07 $0.06 $0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.54%** 1.90% 1.73% 2.32%**
Net Investment Income to Average Net Assets 3.91%** 4.23% 3.51% 1.92%**
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional Funds, Inc., formerly Morgan Stanley Dean Witter
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, 2000, the Fund is comprised of fifteen separate active, diversified and
non-diversified portfolios (individually referred to as a "Portfolio",
collectively as the "Portfolios").
The accompanying financial statements relate to the U.S. Real Estate
Portfolio.The Portfolio seeks to provide above-average current income and
long-term capital appreciation by investing primarily in equity securities of
companies in the U.S. real estate industry, including real estate investment
trusts ("REITS").
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. 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.
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. 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
dividends received from real estate investment trusts.
Permanent book and tax basis differences relating to shareholder distributions
may result in reclassifications among
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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.
B. ADVISER: Morgan Stanley Asset Management ("MSAM"), 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
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
--------- ------- ---------- ----------
<S> <C> <C> <C>
U.S. Real Estate......... 0.80% 0.75% 0.70%
</TABLE>
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio, if
necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 1.10%.
C. ADMINISTRATOR: MSAM (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. CREDIT FACILITY: The Fund, along with an affiliated open-end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the Agreement,
the Funds are provided with a revolving credit facility (the "Facility")
allowing the Funds to borrow, subject to the limitations set forth in each
Fund's registration statement, amounts that, in the aggregate for the Funds,
will not exceed $235 million. The Funds pay a commitment fee on the unused
portion of the Facility at an annual rate of 0.09%. Fees incurred in connection
with the arrangement of the Facility totaled approximately $225,000. The
commitment fee and the arrangement fee are allocated to the Funds based on an
estimate of the potential amount available to each Fund under their respective
limitations. Such allocated costs are further allocated to the Portfolios based
on their net assets. Amounts drawn down on the Facility bear interest at the
annual rate equal to the then prevailing Federal Funds rate plus 0.50% which is
borne by the respective borrowing Portfolio. For the six months ended June 30,
2000, there were no amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, 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>
$27,573 $1,781 $(1,296) $485
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $10,627,000, and $2,182,000,
respectively. There were no purchases and sales of U.S. Government securities
for the six months ended June 30, 2000.
At December 31, 1999, the Portfolio had available capital loss carryforwards to
offset future net capital gains, to the extent provided by regulations, through
December 31, 2006 and December 31, 2007 of approximately $236,000 and $164,000,
respectively. To the extent that capital loss carryforwards are used to offset
any future net capital gains realized during the carryforward period as provided
by U.S. tax regulations, no capital gains tax liability will be incurred by the
Portfolio for gains realized and not distributed. To the extent that capital
gains are so offset, such gains will not be distributed to shareholders.
For the year ended December 31, 1999 the Portfolio deferred to January 1, 2000,
for U.S. Federal income tax purposes, post-October capital losses of $57,000.
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.
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
-----------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE UNIVERSAL INSTITUTIONAL 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. FOR
ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000, PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG LLP
AS ITS NEW INDEPENDENT ACCOUNTANTS.
10
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
VALUE PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
VALUE PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Basic Resources (5.4%)
Beverage & Personal Products (1.0%)
Consumer Durables (9.3%)
Energy (2.2%)
Financial Services (21.9%)
Food, Tobacco & Other (1.1%)
Health Care (15.2%)
Heavy Industry/Transportation (16.1%)
Retail (7.7%)
Technology (12.3%)
Utilities (7.7%)
Other (0.1%)
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY INDUSTRY NET ASSETS
-------- -------- ----------
<S> <C> <C>
HEALTHSOUTH Rehabilitation Corp. Health Care 4.7%
Tenet Healthcare Corp. Health Care 3.7%
Quantum Corp. Technology 3.1%
Liz Claiborne, Inc. Retail 3.0%
Chase Manhattan Corp. Financial Services 2.9%
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500
INDEX(1)
------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION(3)
------ ------ ------------------
<S> <C> <C> <C>
PORTFOLIO ....... -3.53% -15.55% 3.34%
INDEX ........... -0.42 7.25 23.29
</TABLE>
1. The S&P 500 Index is comprised of 500 large-cap U.S. companies with market
capitalization of $1 billion or more. These companies are a representative
sample of some 100 industries chosen mainly for market size, liquidity and
industry group representation.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
3. Commenced operations on January 2, 1997.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
In accordance with SEC regulations, Portfolio performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested.
TOP FIVE SECTORS
<TABLE>
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
------ ------ ----------
<S> <C> <C>
Financial Services $8,069 21.9%
Heavy Industry/Transportation 5,939 16.1
Health Care 5,617 15.2
Technology 4,551 12.3
Consumer Durables 3,437 9.3
</TABLE>
The Value Portfolio seeks above-average total return over a market cycle of
three to five years by investing primarily in a diversified portfolio of
common stocks and other equity securities that are deemed by the Portfolio's
Adviser to be relatively undervalued based on various measures such as price/
earnings ratios and price/book ratios.
For the six months ended June 30, 2000, the Portfolio had a total return of
-3.53% compared to -0.42% for the S&P 500 Index (the "Index"). For the one
year ended June 30, 2000, the Portfolio had a total return of -15.55%
compared to 7.25% for the Index. For the period from inception on January 2,
1997 through June 30, 2000, the Portfolio had an average annual total return
of 3.34% compared to 23.29% for the Index.
Early in the year, performance for the Portfolio showed mixed results.
Performance in the month of March, 2000 was very positive for the Portfolio
which returned 14.77% compared to 9.78% for the Index. However, the
Portfolio's relative performance in the first two months of the year trailed
the Index, so that results for the first quarter of 2000 produced negative
comparisons. For the quarter-ended March 31, 2000, the Portfolio was up 1.12%
while the Index gained 2.29%. Although stock selection was positive for the
first quarter, this was more than offset by negative performance attribution
from sector allocation in the Portfolio.
Positives were found in sector selection within the beverages & personal
products, consumer services, financial services, retail and utilities
sectors. And, while sector selection was a positive (or neutral) factor
[SIDENOTE]
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED
ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE
OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST.
[/SIDENOTE]
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
VALUE PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
in seven out of fourteen industry groups, the negative performance
attribution in the remaining groups created the relative performance
shortfall. By far the most significant impact in performance came from the
Portfolio's exposure to the technology sector. We have been underweight in
the group, for valuation considerations, and this hurt relative performance
disproportionately.
Stock selection, as noted above, was a mild positive for Portfolio
performance. Here, individual stocks helped performance in nearly every
industry sub-sector, although not by enough to boost relative performance
into positive territory overall. Again, individual holdings in technology
were the primary factor, influencing the Portfolio's performance relative to
the benchmark for the first quarter.
Many things about the domestic equity markets changed during the second
quarter of 2000. In general, stocks produced negative returns, with the Index
losing 2.7% while the more volatile NASDAQ lost 13.3%. Technology shares
underperformed the broad market as the speculative internet sector collapsed.
Some value sectors of the market actually rallied during the period with the
utility, food, and tobacco sectors producing strong absolute gains. But when
all was said and done, disappointingly, one trend continued. The Russell
Large Cap Growth Index (-2.7%) outperformed the Russell Large Cap Value Index
(-4.7%). The Portfolio continued to be affected by investors' disdain for
deep value stocks and returned -4.60% for the second quarter. For the entire
first half of 2000, value stocks as represented by the Russell Index returned
-4.2% while the Russell Growth Index generated a positive 4.2% return.
Technology mania comes, value stocks underperform; technology mania goes,
value stocks underperform. So it has been recently.
Interestingly, the past three years have witnessed many different economic
and interest rate conditions: strong economic growth as well as a global
growth recession, rising profit estimates and significant negative earnings
revisions, interest rate hikes and interest rate cuts. Through it all, the
only constant has been the outperformance of the large cap growth sector
versus the large cap value sector. But even this picture does not accurately
demonstrate the severe headwinds our low price-to-earnings value style has
faced! Even the Russell 1000 Value Index contains a significant exposure to
large/mega cap high price-to-earnings "growth" companies such as General
Electric, Disney, Motorola, Hewlett Packard, Exxon, Comcast, Time Warner,
Johnson and Johnson, Merck, American International Group and Worldcom. Value
investors should note that this popular index price-to-earnings valuation of
18 times earnings is quite misleading. In fact, the Russell Value benchmark
can be split into two components, a high price-to-earnings relative value
sector and a deep absolute value component. At the end of the second quarter,
the top half of the weighting in this "value" index traded for 33.5 times
trailing earnings and 25.3 times forward profits. The remaining 50%, the true
value component, trades for about 11 times forward earnings. It is this part
of the stock market that represents our low price-to-earnings investable
universe. And, unfortunately, low price-to-earnings value has fared even
worse than the value benchmark over the past three years. Even within the
value benchmark higher price-to-earnings stocks have outperformed.
Why has value investing suffered so much recently and what can cause a
rotation back to this style? Since neither positive macroeconomic factors nor
company fundamentals have provided value stocks with the opportunity to pay
their owners in sustainable appreciation the issue must not relate to
fundamentals. We have had ample opportunities to mark up many a low
price-to-earnings company the past few years. We believe the issue, instead,
must reside in the nature of the investment business itself. Two factors here
are extremely relevant: cash flows and closet indexing. As most are aware,
growth funds have taken considerable dollar market share from value funds in
recent years. Growth managers buy growth companies and avoid non-growth
companies irrespective of valuation as they have been conditioned to pay
nearly any price for rapidly growing profits. Conversely, cheap stocks
without a story seemingly have no valuation that makes them attractive for
purchase. And so, for now at least, valuation is irrelevant because the
investors with all the cash flow say so.
Closet indexing influences managers of all styles to own the largest
components of their benchmarks, even if it only represents removing a
negative bet. This generates a virtuous cycle where expensive stocks attract
investors because of their large weight in an index. It is unfortunate that
trends in the investment business impact so significantly the valuation of
businesses and the performance of our valuation based investment process, but
they do.
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
VALUE PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
What can happen to help the value investment style? We see three phenomena
that may help value investors. First and foremost, would be a reversal of the
cash flows back towards value and relative growth managers. Most likely this
would occur after a cyclical bear market. Any attempt by investors to remove
a substantial amount of cash from the equity market would require significant
liquidation of index and large cap growth assets. Growth managers need to
experience the same cash flow problems that value managers have experienced
the past two years. Is a large cap growth stock bear market imminent? Many
sectors of the broader market have already experienced bear market
conditions. Sectors such as industrials, financials, retail, utilities,
staples, basics, durables, and transportation appear to be in a bear market
currently. The technology sector has held up on the backs of fewer and fewer
stalwarts such as Sun, EMC, Intel, Oracle, and Cisco. Many second tier
technology stocks have stumbled. The Internet bubble has finally burst.
Should the currently unfolding economic slowdown temper demand for technology
products and services and lead to earnings disappointments, technology shares
could collapse. We would envision a 50% decline in the average technology
stock in this environment. A major bear market in the tech sector would
probably precipitate cash withdrawals from many technology laden aggressive
growth funds.
A second event that may help value investors is the return of financial
merger and acquisition activity. Many value stocks possess absolute
valuations so low that financial buyers as well as strategic buyers can pay
large premiums for these businesses and still generate attractive returns.
Some sectors such as the food industry and small cap industrial sectors have
seen meaningful merger activity recently. As the economy slows without
receding, we expect consolidation and buyout activity to increase in other
sectors including large cap industrials, financials, raw materials, durables,
retail, and staples. This type of activity would support the current prices
of many value companies despite a weakening in the large cap growth sectors.
The final event that may help the value investment style, perhaps
counter-intuitively, is a general economic recession. The equity markets have
been discounting a recession for the past three years. Most interest rate
sensitive and economically sensitive stocks remain hostage to the concept
that they should be purchased only after the next economic downturn. A
recession may cause one last absolute decline in many value stocks, although
relative performance should not suffer. However, recovery from the slowdown
would restart the cyclical clock and would give all investors, including
growth managers, the opportunity to play the next upcycle. We would gladly
sacrifice one more rocky quarter of performance in order to precipitate a
cyclical rotation into the economically sensitive sectors of the equity
markets.
We continue to believe that the Portfolio remains well positioned to provide
superior results, as the valuation characteristics are very favorable. The
Portfolio's price-to-earnings multiple, price-to-cash flow and price-to-sales
ratios are all at substantial discounts to the Index, in keeping with our
Portfolio process methodology. When the market looks beyond the current
period of Fed tightening, the Portfolio's relative valuations should be
compelling. We believe our Portfolio may be rewarded handsomely for even a
modest shift in investor psychology toward low price-to-earnings, value
stocks.
July 2000
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
VALUE PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
----------------------------------------------------------------
<S> <C>
COMMON STOCKS (99.9%)
BASIC RESOURCES (5.4%)
BASIC CHEMICALS (2.2%)
6,300 Eastman Chemical Co. .................. $ 301
20,200 IMC Global, Inc. ...................... 262
(a)16,800 Solutia, Inc. ......................... 231
-------
794
-------
PAPER (0.7%)
4,300 International Paper Co. ............... 128
3,200 Weyerhaeuser Co. ...................... 138
-------
266
-------
SPECIALTY CHEMICALS (2.5%)
27,000 Engelhard Corp. ....................... 461
21,400 Lubrizol Corp. ........................ 449
-------
910
-------
TOTAL BASIC RESOURCES .............................. 1,970
-------
BEVERAGE & PERSONAL PRODUCTS (1.0%)
PERSONAL PRODUCTS (1.0%)
15,300 Fortune Brands, Inc. .................. 353
-------
CONSUMER DURABLES (9.3%)
AUTOMOBILES (2.3%)
19,700 Ford Motor Co. ........................ 847
-------
AUTOMOTIVE RELATED (0.8%)
13,700 Dana Corp. ............................ 290
-------
BUILDING & HOUSING (2.0%)
30,800 Masco Corp. ........................... 556
21,800 Owens Corning ......................... 202
-------
758
-------
FURNISHING & APPLIANCES (4.2%)
16,500 Black & Decker Corp. .................. 649
5,000 Maytag Corp. .......................... 184
15,200 Whirlpool Corp. ....................... 709
-------
1,542
-------
TOTAL CONSUMER DURABLES ............................. 3,437
-------
ENERGY (2.2%)
OIL - DOMESTIC & CRUDE (1.1%)
16,000 USX-Marathon Group, Inc. .............. 401
-------
OIL - INTERNATIONAL (1.1%)
7,700 Texaco, Inc. .......................... 410
-------
TOTAL ENERGY ........................................ 811
-------
FINANCIAL SERVICES (21.9%)
BANKS (11.9%)
11,900 Bank of America Corp. ................. 512
13,100 Bank One Corp. ........................ 348
23,550 Chase Manhattan Corp. ................. 1,085
7,050 First Union Corp. ..................... 175
17,029 Fleet Boston Financial Corp. .......... 579
15,200 PNC Bank Corp. ........................ 712
33,300 Washington Mutual, Inc. ............... 961
-------
4,372
-------
CREDIT & FINANCE (3.2%)
8,900 Associates First Capital Corp., Class A $ 199
6,900 Citigroup, Inc. ....................... 416
4,200 Federal Home Loan Mortgage Corp. ...... 170
3,300 Federal National Mortgage Association . 172
5,400 Household International, Inc. ......... 224
-------
1,181
-------
INSURANCE (6.8%)
21,700 Ace Ltd. .............................. 608
15,900 Allstate Corp. ........................ 354
9,500 American General Corp. ................ 579
8,000 Everest Re Group Ltd. ................. 263
10,200 Hartford Financial Services Group, Inc. 571
200 Transatlantic Holdings, Inc. .......... 17
6,200 UnumProvident Corp. ................... 124
-------
2,516
-------
TOTAL FINANCIAL SERVICES ............................ 8,069
-------
FOOD, TOBACCO & OTHER (1.1%)
FOODS (1.1%)
25,100 IBP, Inc. ............................. 388
-------
HEALTH CARE (15.2%)
HEALTH SERVICES (13.9%)
7,400 Aetna Life & Casualty Co. ............. 475
(a)75,170 Foundation Health Systems, Inc.,
Class A ............................. 977
(a)10,700 HCA - The Healthcare Co. .............. 325
(a)239,200 HEALTHSOUTH Rehabilitation Corp. ...... 1,719
51,000 Tenet Healthcare Corp. ................ 1,377
(a)2,579 Visteon Corp. ......................... 32
(a)2,900 Wellpoint Health Networks, Inc. ....... 210
-------
5,115
-------
HEALTH TECHNOLOGY (1.3%)
8,600 Beckman Coulter, Inc. ................. 502
-------
TOTAL HEALTH CARE ................................... 5,617
-------
HEAVY INDUSTRY/TRANSPORTATION (16.1%)
AIR TRANSPORT (3.2%)
(a)17,700 AMR Corp. ............................. 468
14,300 Delta Air Lines, Inc. ................. 723
-------
1,191
-------
BUSINESS SERVICES (0.8%)
(a)15,400 Waste Management, Inc. ................ 293
-------
ELECTRICAL EQUIPMENT (1.2%)
13,400 Honeywell International, Inc. ......... 451
-------
MACHINERY (7.9%)
17,200 Cooper Industries, Inc. ............... 560
18,600 Cummins Engine Co., Inc. .............. 507
7,900 Eaton Corp. ........................... 530
(a)7,800 Navistar International Corp. .......... 242
24,350 Parker-Hannifin Corp. ................. 834
6,000 Tecumseh Products Co., Class A ........ 229
-------
2,902
-------
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
VALUE PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
VALUE
SHARES (000)
----------------------------------------------------------------
<S> <C>
HEAVY INDUSTRY / TRANSPORTATION (CONT.)
MISCELLANEOUS INDUSTRIALS (2.0%)
(a)7,800 FMC Corp. ............................. $ 452
6,200 TRW, Inc. ............................. 269
-------
721
-------
RAILROADS (0.4%)
7,000 Burlington Northern Santa Fe, Inc. .... 160
-------
SHIPPING & FREIGHT (0.6%)
9,700 CNF Transportation, Inc. .............. 221
-------
TOTAL HEAVY INDUSTRY / TRANSPORTATION ............... 5,939
-------
RETAIL (7.7%)
APPAREL (5.4%)
(a)15,300 Jones Apparel Group, Inc. ............. 360
31,800 Liz Claiborne, Inc. ................... 1,121
21,000 V.F. Corp. ............................ 500
-------
1,981
-------
RESTAURANTS (1.5%)
(a)19,200 Tricon Global Restaurants, Inc. ....... 542
-------
SPECIALTY SHOPS (0.8%)
(a)21,200 Toys 'R' Us, Inc. ..................... 309
-------
TOTAL RETAIL ........................................ 2,832
-------
TECHNOLOGY (12.3%)
COMPUTERS & OFFICE EQUIPMENT (3.6%)
(a)118,300 Quantum Corp. ......................... 1,146
9,200 Xerox Corp. ........................... 191
-------
1,337
-------
ELECTRONICS (3.4%)
(a)22,900 Arrow Electronics, Inc. ............... 710
9,000 Avnet, Inc. ........................... 533
-------
1,243
-------
SOFTWARE & SERVICES (5.3%)
11,900 Computer Associations International,
Inc. ................................ 609
20,100 First Data Corp. ...................... 997
12,791 Sabre Group Holdings, Inc. ............ 365
-------
1,971
-------
TOTAL TECHNOLOGY .................................... 4,551
-------
UTILITIES (7.7%)
ELECTRIC POWER (0.5%)
100 CMP Group, Inc. ...................... 3
3,617 Duke Energy Corp. .................... 204
-------
207
-------
NATURAL GAS (1.0%)
6,100 Coastal Corp. ........................ 371
-------
TELEPHONE SERVICES (6.2%)
11,500 AT&T Corp. ........................... 364
10,400 Bell Atlantic Corp. .................. 528
6,200 GTE Corp. ............................ 386
23,100 SBC Communications, Inc. ............. 999
-------
2,277
-------
TOTAL UTILITIES ..................................... 2,855
-------
TOTAL COMMON STOCKS (COST $40,926) .................. $36,822
-------
<CAPTION>
FACE
AMOUNT
(000)
------
<S> <C>
SHORT-TERM INVESTMENT (1.1%)
REPURCHASE AGREEMENT (1.1%)
424 Chase Securities, Inc., 6.15%,
dated 6/30/00, due 7/3/00, to be
repurchased at $424, collateralized
by U.S. Treasury Notes, 6.875%,
due 1/15/05, valued at $434
(COST $424) ......................... 424
-------
TOTAL INVESTMENTS (101.0%) (COST $41,350) ............. 37,246
-------
OTHER ASSETS (0.2%)
Cash ....................................... $ 1
Dividends Receivable ........................ 44
Due from Adviser ............................ 21
Receivable for Portfolio Shares Sold ........ 9 75
-----
LIABILITIES (-1.2%)
Payable for Investments Purchased ........... (310)
Investment Advisory Fees Payable ............ (55)
Payable for Portfolio Shares Redeemed ....... (31)
Shareholder Reporting Expense Payable ....... (27)
Professional Fees Payable ................... (15)
Administrative Fees Payable ................. (8)
Custodian Fees Payable ...................... (6)
Director's Fees and Expenses Payable ........ (1) (453)
----- -------
NET ASSETS (100%) ..................................... $36,868
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 3,551,150 outstanding $0.001 par
value shares (authorized 500,000,000 shares) $ 10.38
=======
NET ASSETS CONSIST OF:
Paid in Capital ....................................... $40,229
Undistributed Net Investment Income ................... 212
Accumulated Net Realized Gain ......................... 531
Unrealized Depreciation on Investments ................ (4,104)
-------
NET ASSETS ............................................ $36,868
=======
--------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing security
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
VALUE PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 326
Interest 47
-------
Total Income 373
-------
EXPENSES:
Investment Advisory Fees 104
Less: Fees Waived (43)
-------
Net Investment Advisory Fees 61
Administrative Fees 50
Shareholder Reports 25
Professional Fees 15
Custodian Fees 7
Directors' Fees and Expenses 1
Other 1
-------
Net Expenses 160
-------
NET INVESTMENT INCOME 213
-------
NET REALIZED GAIN ON:
Investments Sold 746
-------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (2,210)
-------
NET REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION (1,464)
-------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,251)
=======
------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
(000) (000)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 213 $ 392
Net Realized Gain (Loss) 746 (53)
Change in Unrealized Appreciation/Depreciation (2,210) (1,249)
------- -------
Net Decrease in Net Assets Resulting from Operations (1,251) (910)
------- -------
DISTRIBUTIONS
Net Investment Income -- (403)
In Excess of Net Investment Income -- (1)
------- -------
Total Distributions -- (404)
------- -------
CAPITAL SHARE TRANSACTIONS(1):
Subscribed 6,017 19,378
Distributions Reinvested -- 404
Redeemed (5,097) (7,359)
------- -------
Net Increase in Net Assets Resulting from Capital Share Transactions 920 12,423
------- -------
Total Increase (Decrease) in Net Assets (331) 11,109
NET ASSETS:
Beginning of Period 37,199 26,090
------- -------
End of Period (including undistributed/(distributions in excess of)
net investment income of $212 and $(1), respectively) $36,868 $37,199
======= =======
---------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 567 1,721
Shares Issued on Distributions Reinvested -- 39
Shares Redeemed (472) (654)
------- -------
Net Increase in Capital Shares Outstanding 95 1,106
======= =======
---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 JANUARY 2, 1997*
(UNAUDITED) 1999 1998++ TO DECEMBER 31, 1997
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD
$ 10.76 $ 11.10 $ 11.78 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06 0.13 0.19 0.10
Net Realized and Unrealized Gain (Loss) (0.44) (0.34) (0.45) 1.99
------- ------- ------- -------
Total from Investment Operations (0.38) (0.21) (0.26) 2.09
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.13) (0.16) (0.10)
In Excess of Net Investment Income -- (0.00)+ -- (0.00)+
Net Realized Gain -- -- (0.17) (0.21)
In Excess of Net Realized Gain -- -- (0.09) --
------- ------- ------- -------
Total Distributions -- (0.13) (0.42) (0.31)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.38 $ 10.76 $ 11.10 $ 11.78
======= ======= ======= =======
TOTAL RETURN (3.53)% (1.82)% (2.13)% 20.98%
======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $36,868 $37,199 $26,090 $14,664
Ratio of Expenses to Average Net Assets 0.85%** 0.85% 0.85% 0.85%**
Ratio of Net Investment Income (Loss) to Average Net 1.13%** 1.26% 1.57% 1.70%**
Assets
Portfolio Turnover Rate 28% 43% 45% 34%
---------------
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income $ 0.01 $ 0.04 $ 0.05 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.08%** 1.22% 1.32% 1.87%**
Net Investment Income to Average Net Assets 0.90%** 0.89% 1.10% 0.68%**
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ Amount is less than $0.01 per share.
++ Per share amounts for the year ended December 31, 1998 are based on average
shares outstanding.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen separate active,
diversified and non-diversified portfolios (individually referred to as a
"Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Value Portfolio. The
Portfolio seeks above-average total return over a market cycle of three to five
years by investing primarily in a diversified portfolio of common stocks and
other equity securities that are deemed by the Portfolio's Adviser to be
relatively undervalued based on various measures such as price/earnings ratios
and price/book ratios.
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 under procedures established 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 they
invest. 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.
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. 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.
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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
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.
B. ADVISER: Morgan Stanley Asset Management ("MSAM"), 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
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
--------- ------- ---------- ----------
<S> <C> <C> <C>
Value..................... 0.55% 0.50% 0.45%
</TABLE>
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio, if
necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 0.85%.
C. ADMINISTRATOR: MSAM (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, 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.
D. CUSTODIAN: The Chase Manhattan Bank serves as custodian for the Fund in
accordance with a custodian agreement.
E. CREDIT FACILITY: The Fund, along with an affiliated open-end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the Agreement,
the Funds are provided with a revolving credit facility (the "Facility")
allowing the Funds to borrow, subject to the limitations set forth in each
Fund's registration statement, amounts that, in the aggregate for the Funds,
will not exceed $235 million. The Funds pay a commitment fee on the unused
portion of the Facility at an annual rate of 0.09%. Fees incurred in connection
with the arrangement of the Facility totaled approximately $225,000. The
commitment fee and the arrangement fee are allocated to the Funds based on an
estimate of the potential amount available to each Fund under their respective
limitations. Such allocated costs are further allocated to the Portfolios based
on their net assets. Amounts drawn down on the Facility bear interest at the
annual rate equal to the then prevailing Federal Funds rate plus 0.50% which is
borne by the respective borrowing Portfolio. For the six month period ended June
30, 2000, there were no amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, 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 DEPRECIATION
(000) (000) (000) (000)
----- ------------ ------------ ------------
<S> <C> <C> <C>
$41,350 $1,962 $(6,066) $(4,104)
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $16,665,000 and $9,908,000,
respectively. There were no purchases and sales of U.S. Government securities
for the six months ended June 30, 2000. During the six months ended June 30,
2000, the portfolio incurred $7,302 of brokerage commissions to Morgan Stanley &
Co. Incorporated, an affiliated broker dealer.
At December 31, 1999 the Portfolio had available capital loss carryforwards to
offset future net capital gains, to the extent provided by regulations, through
December 31, 2007 of approximately $82,000. To the extent that capital loss
carryforwards are used to offset any future net capital gains realized during
the carryforward period as provided by U.S. tax regulations, no capital gains
tax liability will be incurred by the Portfolio for gains realized and not
distributed. To the extent that capital gains are so offset, such gains will not
be distributed to shareholders.
For the year ended December 31, 1999 the Portfolio deferred to January 1, 2000,
for U.S. Federal income tax purposes, post-October capital losses of $99,000.
From time to time, the 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.
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
--------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE THE UNIVERSAL INSTITUTIONAL 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. FOR
ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000, PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG LLP
AS ITS NEW INDEPENDENT ACCOUNTANTS.
10
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
TECHNOLOGY PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
TECHNOLOGY PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Other (1.6%)
Test, Analysis & Instrumentation Equipment (1.0%)
Software Products (14.9%)
Semiconductor Manufacturing (18.6%)
Semiconductor Capital Equipment Manufacturing (3.0%)
Other - Technology (11.3%)
Biotechnology (5.4%)
Data Communications (28.6%)
Data Storage & Processing (2.5%)
Electronic Equipment (9.5%)
Information Processing (2.0%)
Medical Technology (0.5%)
Micro Computer Manufacturing (1.1%)
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY INDUSTRY NET ASSETS
-------- -------- ----------
<S> <C> <C>
Nortel Networks Corp. Data Communications 3.8%
Transwitch Corp. Data Communications 3.2%
E-Tek Dynamics, Inc. Data Communications 2.8%
Cisco Systems, Inc. Data Communications 2.8%
QLogic Corp. Semiconductor Manufacturing 2.3%
</TABLE>
PERFORMANCE COMPARED TO THE S & P 500
INDEX, NASDAQ COMPOSITE INDEX(1)
-----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------
YTD SINCE INCEPTION(3)
------ ------------------
<S> <C> <C>
PORTFOLIO 16.48% 44.61%
S&P 500 INDEX -0.42 5.44
NASDAQ -2.54 18.88
</TABLE>
1. The S & P 500 Index is comprised of the stocks of 500 large-cap U.S.
companies with market capitalization of $1 billion or more. These companies
represent approximately 100 industries chosen mainly for market size,
liquidity, and industry group representation. The Nasdaq Composite Index is a
market capitalization-weighted index comprised of all common stocks listed
on the NASDAQ stock market.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
3. Commenced operations on November 30, 1999.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested.
The investment objective of the Technology Portfolio is to achieve long-term
capital appreciation by investing primarily in equity securities of companies
that the investment adviser expects will benefit from their involvement in
technology and technology-related industries. The focus of the Portfolio is to
identify significant long-term technology trends and to invest in those premier
companies we believe are positioned to materially gain from these trends. Stocks
selected for the Portfolio are also expected to meet comprehensive selection
criteria. The Portfolio's concentration in the technology sector makes it
subject to greater risk and volatility than portfolios that are more
diversified, and the value of its shares may be substantially affected by
economic events. In addition, the Portfolio may invest up to 35% of its total
assets in securities of foreign issuers.
For the six months ended June 30, 2000, the Portfolio had a total return of
16.48% compared to -0.42% for the S&P 500 Index (the"Index") and -2.54% for the
Nasdaq Composite Index. For the period from inception on November 30, 1999
through June 30, 2000, the Portfolio had a total return of 44.61% compared to
5.44% for the Index and 18.88% for the Nasdaq Composite Index.
The first half of 2000 was marked by increased volatility for U.S. equity
markets primarily due to rising interest rates. After a period of strong
appreciation in the first quarter of the year, many of the best performing
technology names corrected significantly in April and May. In June, the category
bounced back with the Nasdaq appreciating about 17%.
Consistent with our strategy, we increased exposure to higher quality, more
proven companies during the first half of the year and reduced weightings in
others we felt were more vulnerable in tougher market
[SIDENOTE]
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED
ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE
OF THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST.
[/SIDENOTE]
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
TECHNOLOGY PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
environments. For example, during April we added to our positions in companies
such as Nortel, Texas Instruments, Oracle, and Sun Microsystems. When the market
rebounded in June, our emphasis on higher quality, less speculative companies
helped the Portfolio, as they were the first to benefit from the recovery.
Despite heightened stock market volatility this year, our companies continue to
experience strong underlying business fundamentals. Specifically, we continue to
favor companies that supply components needed to build out next generation
telecommunications networks. Nortel Networks has been one of the top
contributors to the Portfolio's performance and remains a top ten position. The
company is a leader in optical networking, broadband access systems, and
wireless data networks. Given that service providers such as Qwest
Communications and Vodaphone Airtouch need to significantly upgrade their
current networks in order to maintain service quality customer satisfaction, we
anticipate Nortel's business momentum to remain strong for the foreseeable
future regardless of the interest rate environment.
Terayon Communication Systems (0.5% of net assets), another significant
contributor to recent performance, also has the "arms dealer" type business
model we prefer. The company is the premier manufacturer of cable internet
access equipment. As a result, Terayon has benefitted and should continue to
benefit, from increased capital spending by cable companies, who need to enhance
their networks in order to offer broadband services such as internet access to
their customers. Year-to-date, Terayon's stock has appreciated 261%.
Our largest detractor from performance during the first half of the year was
Harmonic Lightwaves; however, we remain bullish on its long-term outlook. The
company is a leading supplier of optical and broadband access equipment to the
cable industry. Like Nortel and Terayon, Harmonic is well positioned to
capitalize on the continued build out of broadband access networks; however, two
issues recently caused investor concerns and stock price volatility. First, the
company's largest customer, AT&T, had a pause in their investment cycle. Second,
Divicom, a recent acquisition, has seen a slowdown in its business. After
prudent due diligence, we have concluded that these problems are of a temporary
nature, and remain confident in Harmonic's long-term prospects.
With the Fed expected to be in the seventh inning stretch on interest rate hikes
and the surge of growth stocks late in the second quarter, we are very
optimistic about the long-term prospects for technology stocks going forward.
Signs of a soft landing, as well as strong fundamentals, and compelling business
opportunities create a favorable environment for long-term investing.
July 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
TECHNOLOGY PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
----------------------------------------------------------------
<S> <C>
COMMON STOCKS (98.3%)
TECHNOLOGY (98.3%)
BIOTECHNOLOGY (5.4%)
(a)3,950 Aclara BioSciences, Inc. .............. $ 201
(a)15,550 Biosource International, Inc. ......... 346
(a)6,800 Corixa Corp. .......................... 292
(a)6,150 CV Therapeutics, Inc. ................. 426
(a)6,000 Exelixis, Inc. ........................ 200
(a)2,200 Genentech, Inc. ....................... 378
(a)5,100 Gilead Sciences, Inc. ................. 363
(a)3,600 Medimmune, Inc. ....................... 266
(a)2,400 Millennium Pharmaceuticals, Inc. ...... 269
(a)17,050 NPS Pharmaceuticals, Inc. ............. 456
(a)5,850 Tularik, Inc. ......................... 173
-------
3,370
-------
DATA COMMUNICATIONS (28.6%)
(a)7,950 Advanced Fibre Communications, Inc. ... 360
(a)15,600 American Tower Corp., Class A ........ 650
(a)2,050 China Telecom (Hong Kong) Ltd. ADR .... 365
(a)3,350 CIENA Corp. ........................... 558
(a)27,500 Cisco Systems, Inc. ................... 1,748
(a)7,850 CTC Communications Group, Inc. ........ 283
(a)3,350 Ditech Communications Corp. ........... 317
6,750 E-Tek Dynamics, Inc. .................. 1,781
(a)12,000 Efficient Networks, Inc. .............. 883
(a)2,550 Gilat Satellite Networks Ltd. ......... 177
(a)36,000 Harmonic Lightwaves, Inc. ............. 891
(a)9,800 Metromedia Fiber Network, Inc., Class A 389
(a)21,300 NET2000 Communications, Inc. .......... 349
(a)1,650 Next Level Communications, Inc. ....... 141
12,450 Nokia Corp. ADR ....................... 622
35,150 Nortel Networks Corp. ................. 2,399
(a)19,650 Powerwave Technologies, Inc. .......... 865
(a)7,650 Proxim, Inc. .......................... 757
(a)4,950 RF Micro Devices, Inc. ................ 434
(a)9,900 SBA Communications Corp. .............. 514
8,650 Scientific-Atlanta, Inc. .............. 644
(a)2,650 Sycamore Networks, Inc. ............... 292
(a)4,500 Terayon Communication Systems, Inc. ... 289
(a)25,900 Transwitch Corp. ...................... 1,999
6,800 Vodafone AirTouch plc ADR ............. 282
-------
17,989
-------
DATA STORAGE & PROCESSING (2.5%)
(a)15,750 SanDisk Corp. ......................... 964
(a)5,225 VERITAS Software Corp. ................ 590
-------
1,554
-------
ELECTRONIC EQUIPMENT (9.5%)
(a)7,950 DDI Corp. ............................. 226
9,100 Ericsson Telecommunications ADR ....... 182
(a)2,500 Foundry Networks, Inc. ................ 275
(a)10,300 Intersil Holding Corp. ................ 557
(a)3,900 Juniper Networks, Inc. ................ 568
(a)11,650 LSI Logic Corp. ....................... 630
(a)13,600 Micrel, Inc. .......................... 591
(a)7,425 Microchip Technology, Inc. ............ 433
(a)4,400 National Semiconductor Corp. .......... 250
7,650 PE Corp.-PE Biosystems Group .......... 504
(a)3,550 SDL, Inc. ............................. 1,012
7,950 Tyco International Ltd. ............... 377
(a)2,750 Waters Corp. .......................... 343
-------
5,948
-------
INFORMATION PROCESSING (2.0%)
3,175 Corning, Inc. ......................... 857
(a)8,400 Pegasus Communications Corp. .......... 412
-------
1,269
-------
MEDICAL TECHNOLOGY (0.5%)
5,000 PerkinElmer, Inc. ..................... 331
-------
MICRO COMPUTER MANUFACTURING (1.1%)
(a)7,400 Sun Microsystems, Inc. ................ 673
-------
MINI & MAINFRAME COMPUTER MANUFACTURING (0.0%)
(a)(d)4,400 Zi Corp. .............................. 24
-------
SEMICONDUCTOR CAPITAL EQUIPMENT MANUFACTURING (3.0%)
(a)5,200 Applied Materials, Inc. ............... 471
(a)13,050 KLA Tencor Corp. ...................... 764
(a)10,450 Novellus Systems, Inc. ................ 591
(a)1,428 Taiwan Semiconductor Manufacturing Co.
Ltd. ADR ........................... 56
-------
1,882
-------
SEMICONDUCTOR MANUFACTURING (18.6%)
(a)12,550 Advanced Micro Devices, Inc. .......... 969
(a)4,300 Altera Corp. .......................... 438
(a)9,750 Analog Devices, Inc. .................. 741
(a)12,450 ASM International N.V. ................ 330
(a)22,050 ASM Lithography Holding N.V. .......... 973
(a)6,950 Atmel Corp. ........................... 256
(a)4,250 Bookham Technology plc ADR ............ 252
(a)2,150 Broadcom Corp., Class A ............... 471
(a)1,000 Chartered Semiconductor ADR ........... 90
(a)12,350 Cypress Semiconductor Corp., Ltd. ADR . 522
(a)7,200 hi/fn, Inc. ........................... 319
(a)2,750 Infineon Technologies AG ADR .......... 218
10,650 Intel Corp. ........................... 1,424
(a)15,250 Lam Research Corp. .................... 572
6,600 Linear Technology Corp. ............... 422
(a)13,650 Maxim Intergrated Products, Inc. ...... 927
8,507 Motorola, Inc. ........................ 247
(a)3,400 PMC-Sierra, Inc. ...................... 604
(a)22,250 QLogic Corp. .......................... 1,470
6,400 Texas Instruments, Inc. ............... 440
-------
11,685
-------
SOFTWARE PRODUCTS (14.9%)
(a)25,700 Accord Networks Ltd. .................. 238
(a)600 Akamai Technologies, Inc. ............. 71
(a)4,400 Ariba, Inc. ........................... 431
(a)6,500 BEA Systems, Inc. ..................... 321
(a)5,100 Cacheflow, Inc. ....................... 314
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
TECHNOLOGY PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
VALUE
SHARES (000)
----------------------------------------------------------------
<S> <C>
SOFTWARE PRODUCTS (CONT.)
(a)1,425 Digital Island, Inc. .................. $ 69
(a)8,200 Documentum, Inc. ...................... 733
(a)750 Espeed, Inc., Class A ................. 33
(a)32,700 Genuity, Inc. ......................... 299
(a)1,200 i2 Technologies, Inc. ................. 125
(a)6,500 Informatica Corp. ..................... 533
(a)3,200 Inktomi Corp. ......................... 378
(a)11,800 Mediaplex, Inc. ....................... 228
(a)4,000 Mercury Interactive Corp. ............. 387
(a)2,050 Micromuse, Inc. ....................... 339
(a)300 Oni Systems Corp. ..................... 35
(a)9,350 Oracle Corp. .......................... 786
(a)11,550 Portal Software, Inc. ................. 738
(a)9,950 PSInet, Inc. .......................... 250
(a)9,600 PurchasePro.com, Inc. ................. 394
(a)3,500 Rational Software Corp. ............... 325
(a)9,750 Red Hat, Inc. ......................... 264
(a)58,750 SAGA Systems, Inc. .................... 731
(a)3,800 TIBCO Software, Inc. .................. 407
(a)7,550 Vignette Corp. ........................ 393
(a)5,800 Virage, Inc. .......................... 105
(a)3,500 Yahoo!, Inc. .......................... 434
-------
9,361
-------
TEST, ANALYSIS & INSTRUMENTATION EQUIPMENT (1.0%)
(a)3,000 Credence Systems Corp. ................ 166
(a)6,240 Veeco Instruments, Inc. ............... 457
-------
623
-------
OTHER TECHNOLOGY (11.2%)
(a)12,500 Asyst Technologies, Inc. .............. 428
(a)2,450 Brocade Communications System, Inc. ... 450
(a)6,950 Corporate Executive Board Co. ......... 416
(a)1,300 Exfo Electro Optical Engineering, Inc.. 57
(a)7,700 Extreme Networks, Inc. ................ 812
(a)3,850 Netegrity, Inc. ....................... 290
(a)15,891 NEXTLINK Communications, Inc. ......... 603
(a)7,350 Pinnacle Holdings, Inc. ............... 397
(a)900 Precise Software Solutions, Ltd. ...... 22
(a)5,400 Redback Networks, Inc. ................ 961
(a)1,700 StorageNetworks, Inc. ................. 153
(a)1,100 Stratos Lightwave, Inc. ............... 31
(a)19,000 TV Guide, Inc. ........................ 651
(a)8,161 VeriSign, Inc. ........................ 1,440
(a)19,700 Vertel Corp. .......................... 345
-------
7,056
-------
TOTAL COMMON STOCKS (COST $62,849) .................... 61,765
-------
PREFERRED STOCK (0.1%)
OTHER-TECHNOLOGY (0.1%)
(a)(d)8,000 Warp Solutions (COST $ 24) ............ 40
-------
SHORT-TERM INVESTMENT (2.3%)
REPURCHASE AGREEMENT (2.3%)
1,449 Chase Securities, Inc., 6.15%, dated
6/30/00, due 7/3/00, to be repurchased
at $1,450, collaterlized by U.S.
Treasury Notes, 8.75%, due 5/15/20,
valued at $1,480 (COST $1,449) ........ 1,449
-------
TOTAL INVESTMENTS (100.7%) (COST $64,322) ............. 63,254
-------
OTHER ASSETS (0.8%)
Cash ........................................ $ 12
Receivable for Investments Sold ............. 394
Receivable for Portfolio Shares Sold ........ 57
Due from Adviser ............................ 45
Dividends Receivable ........................ 2 510
-----
LIABILITIES (-1.5%)
Payable for Investments Purchased ........... (746)
Investment Advisory Fees Payable ............ (101)
Custodian Fees Payable ...................... (41)
Administrative Fees Payable ................. (14)
Professional Fees Payable ................... (11)
Shareholder Reporting Expense Payable ....... (3) (916)
----- -------
NET ASSETS (100%) ..................................... $62,848
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 4,359,708 outstanding $0.001 par
value shares (authorized 500,000,000 shares) $ 14.42
=======
NET ASSETS CONSIST OF:
Paid in Capital ....................................... $ 66,144
Accumulated Net Investment Loss ....................... (134)
Accumulated Net Realized Loss ......................... (2,094)
Unrealized Depreciation on Investments ................ (1,068)
NET ASSETS ............................................ $62,848
=======
--------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing security
(d) -- Security valued at fair value -- see note A-1 to financial statements.
(e) -- 144A Security -- certain conditions for public sale may exist.
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
TECHNOLOGY PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest $ 77
Dividends 6
-------
Total Income 83
-------
EXPENSES:
Investment Advisory Fees 149
Less: Fees Waived (47)
-------
Net Investment Advisory Fees 102
Custodian Fees 50
Professional Fees 10
Administrative Fees 48
Shareholder Reports 5
Directors' Fees and Expenses 1
Other 1
-------
Net Expenses 217
-------
NET INVESTMENT LOSS (134)
-------
NET REALIZED LOSS ON:
Investments Sold (2,105)
-------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (1,559)
-------
NET REALIZED LOSS AND CHANGE IN UNREALIZED DEPRECIATION (3,664)
-------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(3,798)
=======
------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 NOVEMBER 30, 1999*
(UNAUDITED) TO DECEMBER 31, 1999
(000) (000)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $ (134) $ (1)
Net Realized Gain (2,105) 18
Change in Unrealized Appreciation/Depreciation (1,559) 491
-------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations (3,798) 508
-------- --------
DISTRIBUTIONS
Net Investment Income -- (6)
-------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 73,663 3,153
Redeemed (10,672) --
-------- --------
Net Increase in Net Assets Resulting from Capital Share Transactions 62,991 3,153
-------- --------
Total Increase in Net Assets 59,193 3,655
NET ASSETS:
Beginning of Period 3,655 --
-------- --------
End of Period (including (accumulated)/undistributed net investment
(loss) income of $(134) and $0, respectively) $62,848 $3,655
======== ========
-----------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 4,847 295
Shares Redeemed (783) --
-------- --------
Net Increase in Capital Shares Outstanding 4,064 295
======== ========
-----------------------------------------------------------------------------------------------------------------
*Commencement of operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
TECHNOLOGY PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 NOVEMBER 30, 1999*
(UNAUDITED) TO DECEMBER 31, 1999++
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.38 $ 10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.07) 0.00+
Net Realized and Unrealized Gain (Loss) 2.11 2.41
-------- --------
Total from Investment Operations 2.04 2.41
-------- --------
DISTRIBUTIONS
Net Investment Income -- (0.03)
-------- --------
NET ASSET VALUE, END OF PERIOD $ 14.42 $ 12.38
======== ========
TOTAL RETURN 16.48% 24.16%
======== ========
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $ 62,848 $ 3,655
Ratio of Expenses to Average Net Assets 1.15%** 1.15%**
Ratio of Net Investment Income (Loss) to Average Net Assets (0.71)%** (0.39)%**
Portfolio Turnover Rate 57% 6%
--------------
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income $ 0.01 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.40%** 12.57%**
Net Investment Loss to Average Net Assets (0.96)%** (11.82)%**
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
++ Per share amounts are based on average shares outstanding
+ Amount is less than $0.01 per share
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen
separate active, diversified and non-diversified portfolios (individually
referred to as a "Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Technology Portfolio. The
investment objective of the Portfolio is to achieve long-term capital
appreciation by investing primarily in equity securities of companies expected
to benefit from their involvement in technology and technology-related
industries. The focus of the Portfolio is to identify significant long-term
technology trends and to invest in those premier companies we believe are
positioned to materially gain from these trends. Stocks selected for the
Portfolio are also expected to meet comprehensive selection criteria. The
Portfolio may invest up to 35% of its total assets in securities of foreign
companies to participate sufficiently in the global tech technology market.
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. 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 the 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.
3. REPURCHASE AGREEMENTS: The Portfolio 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. 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
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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.
B. ADVISER: Morgan Stanley Asset Management ("MSAM"), 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>
Technology............. 0.80% 0.75% 0.70%
</TABLE>
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio, if
necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 1.15%.
C. ADMINISTRATOR: MSAM (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. CREDIT FACILITY: The Fund, along with an affiliated open-end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the Agreement,
the Funds are provided with a revolving credit facility (the "Facility")
allowing the Funds to borrow, subject to the limitations set forth in each
Fund's registration statement, amounts that, in the aggregate for the Funds,
will not exceed $235 million. The Funds pay a commitment fee on the unused
portion of the Facility at an annual rate of 0.09%. Fees incurred in connection
with the arrangement of the Facility totaled approximately $225,000. The
commitment fee and the arrangement fee are allocated to the Funds based on an
estimate of the potential amount available to each Fund under their respective
limitations. Such allocated costs are further allocated to the Portfolios based
on their net assets. Amounts drawn down on the Facility bear interest at the
annual rate equal to the then prevailing Federal Funds rate plus 0.50% which is
borne by the respective borrowing Portfolio. For the six months ended June 30,
2000, there were no amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, cost and unrealized appreciation (depreciation) for
U.S. Federal income tax purposes of the investments of the Portfolio were:
<TABLE>
<CAPTION>
NET
APPRECIATION DEPRECIATION DEPRECIATION
COST (000) (000) (000) (000)
--------- ------------ -------------- ------------
<S> <C> <C> <C>
$ 64,322 $6,406 $(7,474) $(1,068)
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $82,828,000 and $20,180,000
respectively. There were no purchases and sales of U.S. Government securities
for the six months ended June 30, 2000.
From time to time, the 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.
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
--------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE THE UNIVERSAL INSTITUTIONAL 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. FOR
ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000, PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG LLP
AS ITS NEW INDEPENDENT ACCOUNTANTS.
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP GROWTH PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP GROWTH PORTFOLIO
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
--------------------------------------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Other (1.3%)
Utilities (10.8%)
Technology (33.5%)
Retail (3.9%)
Beverage & Personal Products (1.2%)
Consumer Durables (1.0%)
Consumer Services (13.9%)
Energy (6.9%)
Financial Services (1.3%)
Heavy Industry/Transport (14.5%)
Healthcare (11.7%)
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY INDUSTRY NET ASSETS
-------- -------- ----------
<S> <C> <C>
SDL, Inc. Technology 2.2%
Exodus Communications, Inc. Technology 2.0%
ADC Telecommunications, Inc. Technology 1.9%
Jabil Circuit, Inc. Heavy Industry/Transport 1.7%
Rational Software Corp. Technology 1.6%
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE COMPARED TO THE
S&P MID CAP 400 INDEX(1)
--------------------------------------------------
TOTAL RETURNS(2)
---------------------------------
YTD SINCE INCEPTION (3)
-------- -------------------
<S> <C> <C>
PORTFOLIO ...... 5.64% 46.20%
INDEX .......... 8.97 31.42
</TABLE>
1. The S&P Mid Cap 400 Index is a value weighted index of companies that
generally have market values between $500 million and $10 billion,
depending upon current equity market valuations, and represent a broad
range of industry segments within the U.S. economy.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
3. Commenced operations on October 18, 1999.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested.
The Mid Cap Growth Portfolio seeks long-term capital growth by investing
primarily in common stocks and other equity securities of issuers with equity
capitalization in the range of the companies represented in the Standard &
Poor's Rating Group ("S&P") Mid Cap 400 Index. Such range is generally $500
million to $10 billion, but the range fluctuates over time with changes in the
equity market. Investments in medium-sized corporations are more vulnerable to
financial risks and other risks than larger corporations and may involve a
higher degree of price volatility than the investments in the general equity
markets.
For the six months ended June 30, 2000, the Portfolio had a total return of
5.64% compared to 8.97% for the S&P Mid Cap 400 Index (the"Index"). For the
period from inception on October 18, 1999 through June 30, 2000, the Portfolio
had a total return of 46.20% compared to 31.42% for the Index.
The Portfolio underperformed the Index for the first half of 2000. While it
slightly outperformed during the first quarter of 2000, it lagged in April and
May. The Portfolio made another strong showing in June 2000.
Despite the volatility caused by investor fears of aggressive Fed tightening,
technology was the best performing sector. It ended the first half of the year
with a rally among the highest quality names in June 2000. Overweight positions
in telephone services, particularly competitive local exchange carriers (CLECs),
and consumer services, as many of the media and advertising companies we favored
corrected after their strong run-ups in 1999, negatively impacted the Portfolio.
Our underweight positions of financials and basic resources helped the
Portfolio, particularly during June.
As we moved into the second quarter of 2000 we were shifting to a more diverse
mix of stable and aggressive growers, in anticipation of a broadening market. We
upgraded the quality of the Portfolio by focusing on companies with the
following characteristics: higher earnings quality, no need for financing, and
nearer-term profitability. In addition, many stocks corrected beginning in mid-
March and continuing
[SIDENOTE]
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST.
[/SIDENOTE]
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP GROWTH PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
into May 2000, giving us the ability to add to holdings with good fundamentals
at attractive valuation levels.
Going into the second half of the year, we believe that the Fed is successfully
slowing the economy; however, we will continue to watch the economic data
carefully to judge the magnitude of this slowdown. We believe our diverse mix of
stable and aggressive growers leaves us well positioned to react to changes in
the economy.
July 2000
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP GROWTH PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (98.7%)
BEVERAGE & PERSONAL PRODUCTS (1.2%)
PERSONAL PRODUCTS (1.2%)
1,300 Estee Lauder Co., Class A ........................ $ 64
------
CONSUMER DURABLES (1.0%)
AUTOMOTIVE RELATED (1.0%)
1,300 Harley-Davidson, Inc. ............................ 50
------
CONSUMER SERVICES (13.9%)
ENTERTAINMENT & LEISURE (4.1%)
(a)2,700 AT & T Corp.-Liberty Media Group, Class A ........ 65
(a)1,100 Liberty Digital, Inc., Class A ................... 33
1,500 MGM Grand, Inc. .................................. 48
(a)2,000 Premier Parks, Inc. .............................. 46
(a)1,600 Ticketmaster Online-CitySearch, Inc., Class B .... 26
------
218
------
OTHER (0.8%)
(a)800 HomeStore.com, Inc. .............................. 23
(a)1,000 MyPoints.com, Inc. ............................... 19
------
42
------
PUBLISHING & BROADCASTING (9.0%)
(a)1,400 Acxiom Corp. ..................................... 38
(a)800 Cablevision Systems Corp., Class A ............... 54
(a)1,400 Citadel Communications Corp. ..................... 49
(a)1,300 Hispanic Broadcasting Corp. ...................... 43
(a)900 Lamar Advertising Co. ............................ 39
1,600 The Readers Digest Association, Inc., Class A .... 64
(a)1,800 TV Guide, Inc. ................................... 62
(a)500 Univision Communications, Inc. ................... 52
1,300 Young & Rubicam, Inc. ............................ 74
------
475
------
TOTAL CONSUMER SERVICES ............................................ 735
------
ENERGY (6.9%)
NATURAL GAS (0.8%)
652 Dynegy, Inc. ..................................... 44
------
OIL - OFFSHORE DRILLING (2.3%)
(a)1,800 Global Marine, Inc. .............................. 51
(a)1,700 Nabors Industries, Inc. .......................... 70
------
121
------
OIL - DOMESTIC & CRUDE (1.3%)
1,400 Noble Affiliates, Inc. ........................... 52
(a)400 Triton Energy Ltd. ............................... 16
------
68
------
OIL - WELL EQUIPMENT & SERVICE (2.5%)
(a)700 BJ Services Co. .................................. 44
(a)600 Smith International, Inc. ........................ 44
(a)1,941 Varco International, Inc. ........................ 45
------
133
------
TOTAL ENERGY ......................................................... 366
------
FINANCIAL SERVICES (1.3%)
CREDIT & FINANCE (1.3%)
(a)2,600 Concord EFS, Inc. ............................... 68
------
HEALTH CARE (11.7%)
DRUGS (5.8%)
(a)800 Biovail Corp. .................................... 45
(a)700 Celgene Corp. .................................... 41
(a)800 Forest Laboratories, Inc, Class A ................ 81
(a)800 Medimmune, Inc. .................................. 59
(a)700 Millennium Pharmaceuticals, Inc. ................. 78
------
304
------
HEALTH SERVICES (2.3%)
(a)5,000 Health Management Associates, Inc., Class A ...... 65
(a)2,300 Lincare Holdings, Inc. ........................... 57
------
122
------
HEALTH TECHNOLOGY (3.6%)
(a)300 Human Genome Sciences, Inc. ...................... 40
1,000 PerkinElmer, Inc. ................................ 66
(a)600 QLT PhotoTherapeutics, Inc. ...................... 46
(a)300 Waters Corp. ..................................... 38
------
190
------
TOTAL HEALTH CARE .................................................... 616
------
HEAVY INDUSTRY / TRANSPORT (14.5%)
AEROSPACE (4.0%)
1,800 Bombardier, Inc. Class B ......................... 49
(a)500 Gilat Satellite Networks Ltd. .................... 35
(a)1,600 The Titan Corp. .................................. 71
(a)1,000 Viasat, Inc. ..................................... 54
------
209
------
AIR TRANSPORT (0.8%)
2,300 Southwest Airlines Co. ........................... 44
------
BUSINESS SERVICES (8.8%)
(a)1,800 Crown Castle International Corp. ................. 66
(a)1,200 Dycom Industries, Inc. ........................... 55
(a)1,500 Fiserv, Inc. ..................................... 65
(a)1,800 Jabil Circuit, Inc. .............................. 89
(a)1,400 MasTec, Inc. ..................................... 53
(a)700 Quanta Services, Inc. ............................ 39
(a)1,400 SCI Systems, Inc. ................................ 55
(a)600 TMP Worldwide, Inc. .............................. 44
------
466
------
MISCELLANEOUS INDUSTRIALS (0.9%)
1,100 Dover Corp. ...................................... 45
------
TOTAL HEAVY INDUSTRY\TRANSPORT ....................................... 764
------
RETAIL (3.9%)
RESTAURANTS (1.1%)
(a)1,500 Starbucks Corp. .................................. 57
SPECIALTY SHOPS (2.8%)
1,400 CVS Corp. ........................................ 56
(a)900 RadioShack Corp. ................................. 43
700 Tiffany & Co. .................................... 47
------
146
------
TOTAL RETAIL ......................................................... 203
------
The accompanying notes are an intetgral part of the financial statements.
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------------
<S> <C>
TECHNOLOGY (33.5%)
COMPUTERS & OFFICE EQUIPMENT (0.9%)
(a)700 QLogic Corp. ..................................... $ 46
------
ELECTRONICS (9.8%)
(a)500 Applied Micro Circuits Corp. ..................... 50
(a)1,100 ATMI, Inc. ....................................... 51
(a)900 Flextronics International Ltd. ................... 62
(a)500 Globespan, Inc. .................................. 61
(a)900 Integrated Device Technology, Inc. ............... 54
(a)1,000 Lattice Semiconductor Corp. ...................... 69
(a)1,300 LSI Logic Corp. .................................. 70
(a)300 Novellus Systems, Inc. ........................... 17
(a)1,100 Vitesse Semiconductor Corp. ...................... 81
------
515
------
SOFTWARE & SERVICES (11.9%)
(a)700 Art Technology Group, Inc. ....................... 71
(a)2,300 Exodus Communications, Inc. ...................... 106
(a)2,100 Genuity, Inc ..................................... 19
(a)600 Inktomi Corp. .................................... 71
(a)700 ISS Group, Inc. .................................. 69
(a)600 Macromedia, Inc. ................................. 58
(a)800 Mercury Interactive Corp. ........................ 77
(a)900 Rational Software Corp. .......................... 84
(a)422 VeriSign, Inc. ................................... 74
------
629
------
TELECOMMUNICATIONS EQUIPMENT (10.9%)
(a)1,200 ADC Telecommunications, Inc. ..................... 101
(a)800 Alpha Industries, Inc. ........................... 35
(a)1,300 Andrew Corp. ..................................... 44
(a)800 Bookham Technology plc ADR ....................... 47
(a)400 Ciena Corp. ...................................... 67
(a)1,000 Powerwave Technologies, Inc. ..................... 44
(a)500 RF Micro Devices, Inc. ........................... 44
1,100 Scientific-Atlanta, Inc. ......................... 82
(a)400 SDL, Inc. ........................................ 114
------
578
------
TOTAL TECHNOLOGY ..................................................... 1,768
------
UTILITIES (10.8%)
ELECTRIC POWER (1.3%)
(a)1,000 Calpine Corp. .................................... 66
------
TELEPHONE SERVICES (9.5%)
(a)1,700 FLAG Telecom Holdings Ltd. ....................... 25
(a)600 GT Group Telecom, Inc., Class B .................. 10
(a)1,600 IDT Corp. ........................................ 54
(a)3,400 McLeodUSA, Inc. .................................. 70
(a)1,200 Microcell Telecommunications ..................... 43
(a)1,600 NEXTLINK Communications, Inc. .................... 61
(a)600 Time Warner Telecom, Inc., Class A ............... 39
(a)1,700 Tritel, Inc. ..................................... 50
(a)681 VoiceStream Wireless Corp. ....................... 79
(a)1,300 Western Wireless Corp., Class A .................. 71
------
502
------
TOTAL UTILITIES ................................................... 568
------
TOTAL COMMON STOCKS (COST $4,664) .................................... 5,202
------
<CAPTION>
FACE
AMOUNT
(000)
-------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (4.8%)
REPURCHASE AGREEMENT (4.8%)
254 Chase Securities, Inc., 6.15%, dated
6/30/00, due 7/3/00, to be repurchased
at $254, collateralized by U.S. Treasury
Notes, 5.50%, due 5/15/09, valued at
$260 (COST $254) ................................. 254
------
TOTAL INVESTMENTS (103.5%)(COST $4,918) ........................... 5,456
------
OTHER ASSETS (1.7%)
Cash ................................................... $ 9
Receivable for Investments Sold ........................ 59
Due from Adviser ....................................... 22 90
-----
LIABILITIES(-5.2%)
Payable for Investments Purchased ...................... (159)
Payable for Portfolio Shares Redeemed .................. (61)
Custodian Fees Payable ................................. (20)
Professional Fees Payable .............................. (13)
Shareholder Reporting Expense Payable .................. (13)
Investment Advisory Fees Payable ....................... (8)
Administrative Fees Payable ............................ (1) (275)
----- ------
NET ASSETS (100%) ...................................................... $5,271
======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 360,456 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ............................... $14.62
======
Net Assets Consist Of:
Paid in Capital ........................................................ $4,354
Accumulated Net Investment Loss ........................................ (11)
Accumulated Net Realized Gain .......................................... 390
Unrealized Appreciation on Investments ................................. 538
------
Net Assets ............................................................. $5,271
======
--------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing security
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest $ 9
Dividends 1
-----
Total Income 10
-----
EXPENSES:
Investment Advisory Fees 15
Less: Fees Waived (15)
-----
Net Investment Advisory Fees --
Shareholder Reports 18
Professional Fees 14
Custodian Fees 13
Administrative Fees 6
Directors' Fees and Expenses 1
Expenses Reimbursed by Adviser (31)
-----
Net Expenses 21
-----
NET INVESTMENT LOSS (11)
-----
NET REALIZED GAIN ON:
Investments Sold 199
-----
CHANGE IN UNREALIZED DEPRECIATION ON:
Investments (43)
-----
NET REALIZED GAIN AND CHANGE IN UNREALIZED DEPRECIATION 156
-----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 145
=====
</TABLE>
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 OCTOBER 18, 1999*
(UNAUDITED) TO DECEMBER 31,1999
(000) (000)
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $ (11) $ (3)
Net Realized Gain 199 194
Change in Unrealized Appreciation/Depreciation (43) 581
------ ------
Net Increase in Net Assets Resulting from Operations 145 772
------ ------
DISTRIBUTIONS
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 3,216 2,087
Redeemed (949) --
------ ------
Net Increase in Net Assets Resulting from Capital Share Transactions 2,267 2,087
------ ------
Total Increase in Net Assets 2,412 2,859
====== ======
NET ASSETS:
Beginning of Period 2,859 --
------ ------
End of Period (including accumulated/undistributed net
investment (loss) income of $(11) and $0, respectively) $5,271 $2,859
====== ======
------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 220 207
Shares Redeemed (67) --
------ ------
Net Increase in Capital Shares Outstanding 153 207
====== ======
------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of Operations
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MID CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 OCTOBER 18, 1999*
(UNAUDITED) TO DECEMBER 31, 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.84 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.04) (0.01)
Net Realized and Unrealized Gain 0.82 3.85
------ ------
Total from Investment Operations 0.78 3.84
------ ------
NET ASSET VALUE, END OF PERIOD $14.62 $13.84
====== ======
TOTAL RETURN 5.64% 38.40%
====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $5,271 $2,859
Ratio of Expenses to Average Net Assets 1.05%** 1.05%**
Ratio of Net Investment Loss to Average Net Assets (0.56)%** (0.61)%**
Portfolio Turnover Rate 99% 52%
------------------------------
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income $0.15 $0.15
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.38%** 8.06%**
Net Investment Loss to Average Net Assets (2.89)%** (7.62)%**
--------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen separate active,
diversified and non-diversified portfolios (individually referred to as a
"Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Mid Cap Growth Portfolio.
The Portfolio seeks long-term capital growth by investing primarily in common
stocks and other equity securities of issuers with equity capitalization in the
range of the companies represented in the Standard & Poor's Rating Group ("S&P")
Mid Cap 400 Index. Such range is generally $500 million to $6 billion but the
range fluctuates over time with changes in the equity market.
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. 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. 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. 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.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
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 Asset Management ("MSAM"), 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
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
--------- ------- ---------- ----------
<S> <C> <C> <C>
Mid Cap Growth ............. 0.75% 0.70% 0.65%
</TABLE>
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio, if
necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 1.05%.
C. ADMINISTRATOR: MSAM (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. Credit Facility: The Fund, along with an affiliated open-end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the Agreement,
the Funds are provided with a revolving credit facility (the "Facility")
allowing the Funds to borrow, subject to the limitations set forth in each
Fund's registration statement, amounts that, in the aggregate for the Funds,
will not exceed $235 million. The Funds pay a commitment fee on the unused
portion of the Facility at an annual rate of 0.09%. Fees incurred in connection
with the arrangement of the Facility totaled approximately $225,000. The
commitment fee and the arrangement fee are allocated to the Funds based on an
estimate of the potential amount available to each Fund under their respective
limitations. Such allocated costs are further allocated to the Portfolios based
on their net assets. Amounts drawn down on the Facility bear interest at the
annual rate equal to the then prevailing Federal Funds rate plus 0.50% which is
borne by the respective borrowing Portfolio. For the six months ended June 30,
2000, there were no amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, 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>
$4,918 $811 $(273) $538
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $6,199,000 and $3,777,000,
respectively. There were no purchases and sales of U.S. Government securities
for the year ended June 30, 2000.
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.
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
--------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE THE UNIVERSAL INSTITUTIONAL 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. FOR
ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000 PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG LLP
AS ITS NEW INDEPENDENT ACCOUNTANTS.
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ACTIVE INTERNATIONAL ALLOCATION
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
---------------------------------------------------------------------------
<TABLE>
<S> <C>
Other (15.7%)
United Kingdom (16.0%)
Switzerland (6.4%)
Sweden (2.7%)
Spain (2.5%)
Singapore (1.9%)
Portugal (0.1%)
Netherlands (7.0%)
Australia (1.1%)
Finland (2.5%)
France (10.4%)
Germany (6.6%)
Hong Kong (0.7%)
Italy (3.5%)
Japan (22.9%)
</TABLE>
Of the amount shown above as "Other", a significant portion represents cash
equivalents required under regulations to be held as collateral relating to
investments in futures contracts.
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY COUNTRY NET ASSETS
-------- ------- ----------
<S> <C> <C>
BP Amoco plc United Kingdom 3.4%
Royal Dutch Petroleum Co. Netherlands 3.1
Vodafone Group plc United Kingdom 2.4
Nokia Oyj Finland 2.1
Nestle (Registered). Switzerland 1.8
</TABLE>
TOP FIVE SECTORS
<TABLE>
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
------ ------ ----------
<S> <C> <C>
Financials $2,603 19.7%
Consumer Discretionary 1,559 11.8
Energy 1,221 9.3
Industrials 1,148 8.7
Healthcare 1,100 8.3
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN
STANLEY CAPITAL INTERNATIONAL (MSCI)
EAFE INDEX(1)
-----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------
YTD SINCE INCEPTION (3)
------- -------------------
<S> <C> <C>
PORTFOLIO -6.73% 9.82%
INDEX -4.06 11.65
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe,
Australasia and the Far East (includes dividends net of withholding taxes).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
3. Commenced operations on September 20, 1999.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested.
The Active International Allocation Portfolio invests in international equity
markets, with emphasis placed upon countries and sectors, rather that stock
selection. This approach reflects our belief that a diversified selection of
securities representing exposure to countries and sectors that we find
attractive, provides an effective way to maximize the return potential and
minimize the risk associated with international investing. Foreign investing
involves certain risks, including currency fluctuations and controls,
restrictions on foreign investments, less liquidity and the potential for the
market volatility and political instability.
For the six months ended June 30, 2000, the Portfolio had a total return of
-6.73% compared to -4.06% for the Morgan Stanley Capital International (MSCI)
EAFE Index (the"Index"). For the period from inception on September 20, 1999
through June 30, 2000, the Portfolio had a total return of 9.82% compared to
11.65% for the Index.
OVERALL PERFORMANCE REVIEW
The first half of 2000 was exceedingly volatile for global markets. In the last
weeks of the first quarter there was a dramatic rotation from the technology,
media and telecom (TMT) sectors to the "old economy" stocks. This led the MSCI
EAFE Value Index to outperform the EAFE Growth Index in March. This was in sharp
contrast to the performance in January - February period when EAFE Growth
(-0.4%) strongly outpaced EAFE Value (-7.5%). These formerly high- flying TMT
sectors continued to sell off until the third week of May, and during this
period the more defensive sectors such as health care, food and utilities were
strong performers. Since then, the market has been choppy with some TMT rising
back sharply.
[SIDENOTE]
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST.
[/SIDENOTE]
1
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ACTIVE INTERNATIONAL ALLOCATION
INVESTMENT OVERVIEW (CONT.)
PERFORMANCE ATTRIBUTION
The main drivers of our performance from country selection were an underweight
to the U.K., Hong Kong, and Ireland and our overweights to Germany and the
Netherlands. Detracting from returns were our above Index weight in Japan, Spain
and Singapore and our underweights to Australia and Italy. Our significant
underweight (half the Index weight) to the diversified telecommunications sector
added roughly 70 basis points to relative returns as these stocks were sold very
heavily in the second quarter (sector total return was -21.6%). During the
second quarter, we deployed a portion of our cash into our energy sector tilt,
particularly integrated oils, which added to relative returns.
PORTFOLIO REVIEW AND OUTLOOK
We believe we are at an inflection point in global economic growth. MSDW
economists have stopped raising their forecasts and believe that global economic
growth is peaking. However, any improvement in the gloomy outlook for Japan
would positively impact global growth and estimates for Latin America and
Non-Japan Asia are still being revised upwards. The key for global markets is
the outlook for inflation and higher commodity prices and wage rates which are a
large source of price pressures and difficult to arrest.
However, with the latest batch of U.S. economic data and anecdotal evidence, the
burden of proof is shifting to those who believe that the U.S. economy and
inflation are going to reaccelerate again and that the Fed has considerably more
work to do. The odds of a summer rally have risen. Next year's prognosis for
U.S. earnings growth will be negatively impacted by accelerating labor costs and
slowing top-line growth but increased pricing power and a weaker dollar should
be supportive.
Conversely, Japan's economy continues to bounce along the bottom, with recent
statistics being only mildly encouraging. Though business plans in the Tankan
survey were disappointing, the rise in sentiment measures was encouraging. A
rise in automobile sales (8.5%) was the fourth monthly rise in a row, and NTT
doubled its earnings forecast because of surging Internet usage. However, the
elections were totally uninspiring, healthy skepticism abounds and foreign
investors reduced their holdings during the second quarter.
We think that the perception that Japanese restructuring is not progressing is
misplaced. The pace is similar to that achieved in the earliest stages of
European restructuring. For example, labor force reduction appears to be moving
at 2% a year for the largest blue chips, which puts Japan on course for a
seven-year total reduction of 15% in listed-company labor force, the same pace
as that set by Europe in 1990-97. Importantly, the public outcry over a proposed
government bail out of Sogo, the bankrupt retailer, seems to have forced the
government to step back from its old convoy system of bailing out the weak.
In Europe, our economists have cut their 2001 economic growth forecasts by 0.5%
to 3.0% to reflect the impact of higher oil prices. Our 2001 earnings per share
forecast is 13% with earnings revisions trends probably peaking in the third
quarter. The possible staunching of the dramatic flows from Europe into NASDAQ
could be a powerful impetus to European equity and Euro performance.
Our major strategy in Europe is our underweight allocation to the diversified
telecommunications. These stocks remain expensive and face extreme competitive
pressures. The fundamentals have improved with the likelihood of sharply lower
3G license costs, but the incumbents still face significant investment costs and
uncertain growth and revenues. Although down significantly from their first
quarter highs (-32.3%), most of these names are still up sharply for the
12-month period (+31.2%) and trade at price-to-earnings above 50.
We believe that Asia ex-Japan could be the major beneficiary of a summer rally
in global equity markets. We are overweight and focused on Singapore, Hong Kong
and Korea. Singapore has been an incredibly poor performing market this year
(-22.7%), but the fundamentals are great. Our economist predicts GDP growth of
around 7% for the year with inflation at less than 2%. The market is about as
cheap as markets get these days at 18.5 times this year's earnings and only 2
times book value. Korea is cheap and offers attractively priced technology
exposure. In Hong Kong, we moved from a below Index position in the first half
to overweight recently, due to the perceived end of interest rates increases
that has inspired investors to cover their underweight positions in the bank and
property stocks. The news from China is decidedly positive, as extolled by
Stephen Roach (Morgan Stanley Dean Witter's Chief Economist) after his recent
trip: the economy is on the mend, the winds of World Trade Organization
accession are at its back and the first tranche of reforms are starting to work.
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ACTIVE INTERNATIONAL ALLOCATION
INVESTMENT OVERVIEW (CONT.)
In sum, we are agnostic, but are fully invested. The major risks to equity
markets are a steep decline in the U.S. dollar, downward earnings revisions, and
tightening liquidity (M3 and M1 growth have slowed faster than expected and
August/September could see the ECB tighten and the Bank of Japan end the zero
interest rate policy (ZIRP)). The Portfolio is defensively positioned with
overweight allocations to utilities, European real estate, foods, and
pharmaceuticals. Our sole cyclical holding is our overweight allocation to oil
and gas. While oil has largely been a supply/demand story, we believe that the
reporting by U.S. companies of the second quarter results in late July could be
the catalyst for a re-rating of the sector. July 2000
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
----------------------------------------------------
<S> <C>
COMMON STOCKS (85.9%)
AUSTRALIA (1.0%)
467 Amcor Ltd. ........................ $ 2
690 AMP Ltd. .......................... 7
409 Australian Gas Light Co., Ltd. ... 2
157 Brambles Industries Ltd. .......... 5
1,073 Broken Hill Proprietary Co., Ltd. 13
454 Coca-Cola Amatil Ltd. ............. 1
815 Coles Myer Ltd. ................... 3
203 Commonwealth Bank of Australia .... 3
102 CSL Ltd. .......................... 2
89 F.H. Faulding & Co., Ltd. ......... -@
1,270 Fosters Brewing Group Ltd. ........ 4
1,007 General Property Trust ............ 2
1,750 Goodman Fielder Ltd. .............. 1
196 Leighton Holdings Ltd. ............ 1
384 Lend Lease Corp., Ltd. ............ 5
266 Mayne Nickless Ltd. ............... 1
972 National Australia Bank Ltd. ...... 16
1,347 News Corp., Ltd. .................. 18
1,363 Normandy Mining Ltd. .............. 1
449 North Ltd. ........................ 1
130 Orica Ltd. ........................ 1
771 Pacific Dunlop Ltd. ............... 1
(a)155 Paperlinx Ltd. .................... -@
289 QBE Insurance Group Ltd. .......... 1
123 Rio Tinto Ltd. .................... 2
864 Santos Ltd. ....................... 3
282 Schroders Property Fund ........... -@
451 Southcorp Ltd. .................... 1
226 Stockland Trust Group ............. -@
227 Suncorp-Metway Ltd. ............... 1
234 TABCORP Holdings Ltd. ............. 1
2,120 Telstra Corp., Ltd. ............... 9
134 Wesfarmers Ltd. ................... 1
956 Westfield Trust ................... 2
1,333 Westpac Banking Corp., Ltd. ....... 10
1,193 WMC Ltd. .......................... 5
831 Woolworths Ltd. ................... 3
------
129
------
AUSTRIA (0.0%)
19 OMV AG ............................ 2
------
BELGIUM (0.0%)
21 Electrabel S.A. ................... 5
29 UCB S.A. .......................... 1
------
6
------
FINLAND (2.5%)
121 Instrumentarium Oyj ............... 3
121 Kesko Oyj ......................... 1
121 Metra Oyj, Class B ................ 2
242 Metso Oyj ......................... 3
(a)5,515 Nokia Oyj ......................... 281
1,236 Nordic Baltic Holding (NBH) AB GDR 9
215 Outokumpa Oyj ..................... $2
242 Raisio Group plc .................. 1
11 Rautaruukki Oyj ................... -@
313 Sonera Oyj ........................ 14
121 Tietoenator Oyj ................... 4
485 UPM-Kymmene Oyj ................... 12
121 Vakuutusyhtio Sampo Oyj, Class A .. 5
------
337
------
FRANCE (10.4%)
283 Accor S.A. ........................ 12
168 Air Liquide ....................... 22
(a)1,035 Alcatel ........................... 68
1,270 Aventis S.A. ...................... 93
503 Axa ............................... 79
367 Banque Nationale de Paris ......... 35
116 BIC Corp. ......................... 6
53 Bouygues .......................... 36
(a)191 Canal Plus ........................ 32
124 Cap Gemini Sogeti ................. 22
750 Carrefour S.A. .................... 51
(a)145 Cie de Saint Gobain ............... 20
8 Coflexip SA ....................... 1
(a)24 Dassault Systemes S.A. ............ 2
(a)75 Eridania Beghin-Say S.A. .......... 7
2 Essilor International S.A. ........ 1
132 Etablissements Economiques
du Casion Guichard ................ 12
279 France Telecom S.A. ............... 39
70 Gecina ............................ 7
438 Groupe Danone ..................... 58
170 Immeubles de France ............... 3
100 Klepierre ......................... 9
112 L'Oreal S.A. ...................... 97
45 Lafarge ........................... 4
241 Lagardere S.C.A. .................. 18
139 LVMH (Louis Vuitton Moet Hennessy) 57
232 Michelin (CGDE), Class B .......... 7
109 Pechiney S.A. ..................... 5
142 Pernod-Ricard S.A. ................ 8
56 Peugeot S.A. ...................... 11
(a)192 Pinault-Printemps-Redoute S.A. .... 43
(a)1 Sagem S.A. ........................ 1
1,325 Sanofi-Synthelabo S.A. ............ 63
256 Schneider S.A. .................... 18
30 Silic ............................. 4
80 Simco S.A. ........................ 6
50 Societe Fonciere Lyonnaise ........ 5
(a)472 Societe Generale .................. 28
49 Sodexho Alliance .................. 9
(a)461 STMicroelectronics N.V. ........... 29
299 Suez Lyonnaise des Eaux S.A. ...... 52
(a)259 Thomson CSF ....................... 10
1,182 Total Fina S.A., Class B .......... 181
100 Unibail ........................... 14
(a)335 Usinor Sacilor .................... 4
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
VALUE
SHARES (000)
----------------------------------------------------
<S> <C>
FRANCE (CONT.)
(a)149 Valeo S.A. ........................ $8
830 Vivendi ........................... 73
------
1,370
------
GERMANY (8.3%)
(a)450 Allianze AG ....................... 160
750 BASF AG ........................... 30
850 Bayer AG .......................... 33
600 Bayerische Verinsbank AG .......... 39
300 Beiersdorf AG ..................... 25
200 Continental AG .................... 3
1,250 DaimlerChrysler AG ................ 66
850 Deutsche Bank AG .................. 71
800 Deutsche Telekom AG ............... 46
150 Douglas Holding AG ................ 4
650 Dresdner Bank AG .................. 26
1,930 E.On AG ........................... 93
(a)50 EM.TV & Merchandising AG .......... 3
150 Fresenius Medical Care AG ......... 12
100 Gehe AG ........................... 3
50 Heidelberger Zement AG ............ 3
540 IVG Holding AG .................... 7
(a)100 Karstadtquelle AG ................. 3
250 Linde AG .......................... 10
200 Lufthansa AG ...................... 5
(a)200 MAN AG ............................ 6
150 Merck KGaA ........................ 5
(a)550 Metro AG .......................... 19
(a)350 Muechener Rueck AG (Registered) ... 110
300 Preussag AG ....................... 10
(a)1,150 RWE AG ............................ 39
450 SAP AG ............................ 68
150 Schering AG ....................... 8
1,100 Siemens AG ........................ 165
700 Thyssen Krupp AG .................. 11
400 Volkswagen AG ..................... 15
(a)100 WCM Beteiligungs-und Grundbesitz AG 2
------
1,100
------
HONG KONG (0.7%)
839 Bank of East Asia Ltd. ............ 2
2,000 CLP Holdings Ltd. ................. 9
1,300 Hang Seng Bank Ltd. ............... 12
5,300 Hong Kong & China Gas Co. Ltd. .... 6
1,826 Hong Kong Telecommunications Ltd. . 4
2,200 Hutchison Whampoa Ltd. ............ 28
(a)500 Johnson Electric Holdings Ltd. .... 5
1,038 New World Development Co., Ltd. ... 1
2,000 Shangri-La Asia Ltd. .............. 2
2,185 Sino Land Co. ..................... 1
4,000 South China Morning Post Holdings Ltd. 3
1,000 Sun Hung Kai Properties Ltd. ...... 7
1,000 Swire Pacific Ltd., Class A ....... 6
1,000 Wharf Holdings Ltd. ............... $2
------
88
------
IRELAND (0.0%)
(a)100 Kerry Group plc ................... 1
------
ITALY (3.5%)
1,920 Assicurazioni Generali S.p.A. ..... 66
294 Autogrill S.p.A. .................. 3
367 Banca Popolare di Milano .......... 3
4,125 Banco Ambrosiano Veneto S.p.A. .... 18
4,475 Banco di Roma ..................... 5
2,500 Benetton Group S.p.A. ............. 5
5,144 Credito Italiano S.p.A. ........... 25
(a)1,000 Danieli & Co., S.p.A. ............. 5
11,364 Enel S.p.A ........................ 50
16,500 ENI S.p.A. ........................ 95
261 Fiat S.p.A. ....................... 7
1,000 Italgas S.p.A. .................... 4
1,500 Mediaset S.p.A. ................... 23
(a)551 Mediobanca S.p.A. ................. 6
(a)940 Olivetti S.p.A. ................... 3
4,000 Pirelli S.p.A. .................... 10
900 R.A.S. S.p.A. ..................... 10
1,286 San Paolo-IMI S.p.A. .............. 23
(a)7,458 Telecom Italia Mobile S.p.A. ...... 76
(a)1,773 Telecom Italia Mobile S.p.A. (RNC) 9
1,014 Telecom Italia S.p.A. ............. 14
229 Telecom Italia S.p.A. Di Risp (NCS) 2
------
462
------
JAPAN (22.9%)
200 Acom Co., Ltd. .................... 17
100 Advantest Corp. ................... 22
2,000 Ajinomoto Co., Inc. ............... 26
5,000 Asahi Bank Ltd. ................... 21
1,000 Asahi Breweries Ltd. .............. 12
2,000 Asahi Chemical Industry Co., Ltd. . 14
4,000 Asahi Glass Co., Ltd. ............. 45
9,000 Bank of Tokyo-Mitsubishi Ltd. ..... 109
200 Benesse Corp. ..................... 14
1,000 Bridgestone Corp. ................. 21
1,000 Canon, Inc. ....................... 50
4 Central Japan Railway Co. ......... 23
1,000 Dai Nippon Printing Co. Ltd. ...... 18
2,000 Daiwa House Industry Co., Ltd. ... 15
2,000 Daiwan Securities Co., Ltd. ....... 26
10 East Japan Railway Co. ............ 58
1,000 Fanuc Ltd. ........................ 102
7,000 Fuji Bank ......................... 53
1,000 Fuji Photo Film Ltd. .............. 41
1,000 Fujitsu Ltd. ...................... 35
1,000 Hitachi Ltd. ...................... 14
1,000 Honda Motor Co., Ltd. ............. 34
9,000 Industrial Bank of Japan .......... 68
1,000 Ito- Yokado Co., Ltd. ............. 60
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
VALUE
SHARES (000)
----------------------------------------------------
<S> <C>
JAPAN (CONT.)
1,000 Japan Airlines Co., Ltd. .......... $ 4
1 Japan Tobacco, Inc. ............... 9
1,000 Jusco Co., Ltd. ................... 19
100 Kadokawa Shoten Publishing Co., Ltd. 10
12,000 Kajima Corp. ...................... 38
2,300 Kansai Electric Power Co., Ltd. ... 41
1,000 Kao Corp. ......................... 30
(a)1,000 Kawasaki Heavy Industries, Ltd. ... 2
1,000 Kawasaki Steel Corp. .............. 1
13,000 Kinki Nippon Railway Co., Ltd. .... 53
3,000 Kirin Brewery Co., Ltd. ........... 37
100 Kyocera Corp. ..................... 17
1,000 Marui Co., Ltd. ................... 19
3,000 Matsushita Electric Industrial
Co., Ltd. ......................... 78
3,000 Mitsubishi Chemical Corp. ......... 12
4,000 Mitsubishi Electric Corp. ......... 43
3,000 Mitsubishi Estate Co., Ltd. ....... 35
12,000 Mitsubishi Heavy Industries Ltd. .. 53
2,000 Mitsubishi Trust & Banking Co. .... 15
1,000 Mitsui & Co. ...................... 8
1,000 NEC Corp. ......................... 31
4,000 New Oji Paper Co., Ltd. ........... 27
200 Nintendo Corp., Ltd. .............. 35
1,000 Nippon Denso Co., Ltd. ............ 24
4,000 Nippon Express Co, Ltd. ........... 25
5,000 Nippon Oil Co., Ltd. .............. 23
13,000 Nippon Steel Co. .................. 27
7 Nippon Telegraph & Telephone Corp.
(NTT) ............................. 93
(a)3,000 Nissan Motor Co., Ltd. ............ 18
100 Nissin Food Products Co., Ltd. .... 3
2,000 Nomura Securities Co., Ltd. ....... 49
1,000 Obayashi Corp. .................... 4
5,000 Osaka Gas Co., Ltd. ............... 14
200 Promise Co., Ltd. ................ 16
200 Rohm Co., Ltd. .................... 58
10,000 Sakura Bank Ltd. .................. 69
1,000 Sankyo Co., Ltd. .................. 23
4,000 Sanyo Electric Co., Ltd. ......... 36
2,000 Sekisui House Co., Ltd. ........... 18
2,000 Sharp Corp. ....................... 35
1,000 SHOWA SHELL SEKIYU K.K. ........... 5
600 Softbank Corp. .................... 81
1,700 Sony Corp. ........................ 159
(a)5,000 Sumitomo Bank ..................... 61
3,000 Sumitomo Chemical Co., Ltd. ....... 18
3,000 Sumitomo Electric Industries ...... 51
1,000 Sumitomo Metal Industries, Ltd. ... 1
1,000 Taisho Pharmaceutical Co., Ltd. ... 36
2,000 Takeda Chemical Industries ........ 131
200 Takefuji Corp. .................... 24
1,000 Teijin Ltd. ....................... 5
100 Toho Co. .......................... 17
3,300 Tohoku Electric Power Co., Ltd. ... 44
5,000 Tokai Bank Ltd. ................... 25
1,000 Tokio Marine & Fire Insurance
Co., Ltd. ......................... 12
3,300 Tokyo Electric Power Co., Ltd. .... 80
2,000 Tokyo Gas Co. ..................... 6
1,000 Toray Industries, Inc. ........... 4
2,000 Toshiba Corp. ..................... 23
4,000 Toyota Motor Corp. ................ 182
------
3,015
------
NETHERLANDS (7.0%)
1,459 ABN Amro Holdings N.V. ............ 36
(a)1,659 Aegon N.V. ........................ 59
229 Akzo Nobel N.V. ................... 10
110 Buhrmann N.V. ..................... 3
898 Elsevier N.V. ..................... 11
(a)183 Getronics N.V. .................... 3
147 Hagemeyer N.V. .................... 4
705 Heineken N.V. ..................... 43
1,308 ING Groep N.V. .................... 88
(a)1,794 Koninklijke (Royal) Philips
Electronics N.V. .................. 85
858 Koninklijke Ahold N.V. ............ 25
344 Koninklijke KPN N.V. .............. 15
37 Oce N.V. .......................... 1
330 Rodamco Continental Europe N.V. ... 13
6,560 Royal Dutch Petroleum Co. ......... 407
647 TNT Post Group N.V. ............... 17
440 Uni-Invest N.V. ................... 6
1,759 Unilever N.V. ..................... 81
136 Vedior N.V. ....................... 2
381 Wolters Kluwer N.V. ............... 10
------
919
------
NORWAY (0.0%)
(a)100 Petroleum Geo-Services ASA ........ 2
------
PORTUGAL (0.1%)
229 EDP-Electricidade de Portugal, S.A. 4
423 Portugal Telecom S.A. ............. 5
------
9
------
SINGAPORE (1.9%)
2,000 City Developments Ltd. ............ 8
(a)100 Creative Technology Ltd. .......... 2
1,000 Cycle & Carriage Ltd. ............. 2
5,000 DBS Group Holdings Ltd. ........... 64
5,000 DBS Land Ltd. ..................... 6
(a)1,000 First Capital Corp., Ltd. ......... 1
1,000 Fraser & Neave Ltd. ............... 3
3,000 Hotel Properties Ltd. ............. 3
3,000 Keppel Corp., Ltd. ............... 6
(a)2,000 Neptune Orient Lines Ltd. (Foreign) 2
4,200 Oversea-Chinese Banking Corp. ..... 29
2,000 Parkway Holdings Ltd. ............. 5
7,000 Sembcorp Industries Ltd. .......... 8
(a)4,000 Singapore Airlines Ltd. (Foreign) . 40
1,000 Singapore Press Holdings Ltd. ..... 16
11,000 Singapore Technologies Engineering
Ltd. .............................. 16
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
VALUE
SHARES (000)
----------------------------------------------------
<S> <C>
SINGAPORE (CONT.)
(a)3,900 Singapore Telecommunications Ltd. . $ 6
6,000 United Industrial Corp., Ltd. ..... 3
3,168 United Overseas Bank Ltd. (Foreign) 21
2,000 United Overseas Land Ltd. ......... 2
1,000 Venture Manufacturing (Singapore) Ltd. 10
------
253
------
SPAIN (2.5%)
100 Acerinox S.A. ..................... 3
137 ACS, Actividades de Construccion
y Servicios, S.A. ................. 4
318 Aguas de Barcelona ................ 4
464 Autopistas Concesionaria Espanola . 4
184 Azucarere Ebro Agricolas .......... 2
4,443 Banco Bilbao Vizcaya (Registered) . 66
4,132 Banco Santander S.A. .............. 43
141 Corporacion Financiera Alba ....... 4
105 Corporacion Mapfre ................ 1
2,033 Endesa ............................ 39
182 Fomento de Construcciones Y Contratas 3
842 Gas Natural SDG ................... 15
292 Grupo Dragados S.A. ............... 2
1,682 Iberdrola ......................... 22
200 Inmobiliaria Colonial, S.A. ....... 3
749 Metrovacesa S.A. .................. 13
(a)480 Prima Inmobiliaria S.A. ........... 5
2,756 Repsol ............................ 55
(a)1,004 Telefonica ........................ 22
(a)700 Telepizza ......................... 4
502 Union Electrica Fenosa ............ 9
1,989 Vallehermoso ...................... 12
89 Viscofan Envolturas Celulosicas S.A. 1
------
336
------
SWEDEN (2.7%)
100 Atlas Copco AB, Class A ........... 2
100 Atlas Copco AB, Class B ........... 2
620 Castellum AB ...................... 7
800 Drott AB, Class B ................. 9
400 Electrolux AB, Series B ........... 6
220 Fastighets AB Tornet .............. 3
1,200 Hennes & Mauritz AB, Class B ...... 25
300 JM AB ............................. 5
100 OM Gruppen AB ..................... 4
100 S.K.F. AB, Class B ................ 2
(a)400 Sandvik AB, Class B ............... 8
400 SCA AB, Class B ................... 7
500 Securitas AB, Class B ............. 11
1,600 Skandia Forsakrings AB ............ 42
700 Skandinaviska Enskilda Banken, Class A 8
100 Skanska AB, Class B ............... 3
600 Sparbanken Sverige AB, Class A .... 9
700 Svenska Handelsbanken AB, Class A . 10
100 Svenskt Stal AB (SSAB), Series A .. 1
8,900 Telefonaktiebolaget LM Eicsson AB . 176
300 Trelleborg AB, Class B ............ 2
100 Volvo AB, Class A ................. 2
400 Volvo AB, Class B ................. 9
(a)500 WM- Data AB, Class B .............. 3
------
356
------
SWITZERLAND (6.4%)
370 ABB Ltd. .......................... 44
20 Adecco ............................ 17
200 CS Holdings AG (Registered) ....... 40
(a)12 Givaudan (Registered) ............. 4
120 Nestle (Registered) ............... 240
130 Novartis AG (Registered) .......... 206
2 Roche Holding AG (Bearer) ......... 21
12 Roche Holding AG (Registered) ..... 117
(a)10 Sulzer AG (Registered) ............ 6
(a)20 Swiss Reinsurance (Registered) .... 41
20 Swisscom AG (Registered) .......... 7
10 The Swatch Group AG ............... 13
(a)370 UBS AG (Registered) ............... 54
60 Zurich Allied AG .................. 29
------
839
------
UNITED KINGDOM (16.0%)
466 3i Group plc ...................... 10
1,006 Abbey National plc ................ 12
1,217 Allied Zurich plc ................. 14
526 Amvescap plc ...................... 8
(a)104 Anglian Water plc ................. 1
(a)740 ARM Holdings plc .................. 8
1,080 Barclays plc ...................... 27
914 Bass plc .......................... 10
4,940 BG Group plc ...................... 32
1,056 Boots Co. plc ..................... 8
46,104 BP Amoco plc ...................... 442
3,757 British Aerospace plc ............. 23
1,441 British Airport Authority ......... 12
3,516 British American Tobacco plc ...... 24
3,340 British Land Co. plc .............. 21
1,680 British Sky Broadcasting plc ...... 33
(a)1,763 British Telecommunications plc .... 23
2,370 Burford Holdings plc .............. 4
126 Burmah Castrol plc ................ 3
3,712 Cadbury Schweppes plc ............. 24
(a)2,034 Canary Wharf Finance plc .......... 11
161 Capita Group plc .................. 4
6,026 Centrica plc ...................... 20
1,288 Commercial Union plc .............. 21
6,123 Diageo plc ........................ 55
(a)1,331 Dixons Group plc .................. 5
(a)2,015 GKN plc ........................... 26
4,700 Glaxo Wellcome plc ................ 137
1,808 Granada Group plc ................. 18
5,550 Grantchesters Holdings plc ........ 14
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
VALUE
SHARES (000)
----------------------------------------------------
<S> <C>
UNITED KINGDOM (CONT.)
2,320 Great Portland Estates plc ........ $ 8
989 Great Universal Stores plc ........ 6
1,622 Halifax plc ....................... 16
870 Hammerson plc ..................... 6
1,388 Hays plc .......................... 8
5,308 HSBC Holdings plc ................. 61
986 Imperial Chemical Industries plc .. 8
(a)4,414 Invensys plc ...................... 17
1,461 Kingfisher plc .................... 13
2,119 Land Securities plc ............... 25
955 Lasmo plc ......................... 2
4,837 Legal & General Group plc ......... 11
4,116 Lloyds TSB Group plc .............. 39
310 Logica plc ........................ 7
1,089 Marconi plc ....................... 14
2,755 Marks & Spencer plc ............... 10
(a)580 MEPC plc .......................... 5
565 National Grid Group plc ........... 4
2,108 National Power plc ................ 13
622 Nycomed Amersham plc .............. 6
780 Peninsular & Oriental Steam Navigation 7
2,259 Prudential Corp. plc .............. 33
237 Psion plc ......................... 2
(a)536 Railtrack Group plc ............... 8
1,341 Reed International plc ............ 12
2,753 Rentokil Initial plc .............. 6
1,271 Reuters Group plc ................. 22
539 Rio Tinto plc ..................... 9
(a)1,690 Royal Bank of Scotland Group plc .. 28
2,424 Sainsbury (J) plc ................. 11
698 ScottishPower plc ................. 6
361 SEMA Group plc .................... 5
1,910 Slough Estates plc ................ 11
1,096 Smith & Nephew plc ................ 4
7,397 SmithKline Beecham plc ............ 97
36 SSL International plc ............. -@
(a)313 Tate & Lyle plc ................... 2
4,172 Tesco plc ......................... 13
(a)134 Thames Water plc .................. 2
950 The Sage Group plc ................ 8
165 Unigate plc ....................... 1
7,175 Unilever plc ...................... 43
77,187 Vodafone Group plc ................ 312
601 WPP Group plc ..................... 9
2,729 Zeneca Group plc .................. 127
------
2,107
------
TOTAL COMMON STOCKS (COST $11,052) ..........11,331
------
PREFERRED STOCKS (0.4%)
AUSTRALIA (0.1%)
1,196 News Corp., Ltd. .................. 15
------
GERMANY(0.3%)
150 S.A.P. AG-Vorzug .................. 28
100 Volkswagen AG ..................... 2
------
30
------
TOTAL PREFERRED STOCKS (COST $33) ............ 45
------
NO. OF
RIGHTS
------------
RIGHTS(0.0%)
GERMANY(0.0%)
(a)(d)540 IVG Holding AG .................... -@
------
SPAIN(0.0%)
(a)(d)464 Autopistas Concesionaria Espanola . -@
------
TOTAL RIGHTS (COST $0) ...................... -@
------
TOTAL FOREIGN SECURITIES (86.3%)
(COST $11,085) ...............................11,376
------
FACE
AMOUNT
(000)
------------
SHORT-TERM INVESTMENTS (12.3%)
REPURCHASE AGREEMENT (12.3%)
1,617 Chase Securities, Inc., 6.15%,
dated 6/30/00, due 7/3/00, to be
repurchased at $1,618,
collateralized by U.S. Treasury
Notes, 8.75%, due 5/15/20, valued
$1,648 (Cost $1,617) .............. 1,617
------
FOREIGN CURRENCY (0.5%)
AUD 1 Australian Dollar 1
GBP 11 British Pound 16
EUR 31 Euro 30
HKD 17 Hong Kong Dollar 2
SGD 6 Singapore Dollar 3
JPY 894 Japanese Yen 8
SEK 37 Swedish Krona 4
U.S.$ 9 Swiss Franc 6
------
TOTAL FOREIGN CURRENCY (COST $70) 70
------
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<CAPTION>
AMOUNT
(000)
--------------------------------------------------------
<S> <C> <C>
Total Investments (99.1%) (Cost $12,772) ....... $13,063
-------
OTHER ASSETS (2.2%)
Cash ................................... $125
Receivable for Daily Variation
on Futures Contracts ................... 60
Receivable for Shares Sold ............. 49
Due from Adviser ....................... 28
Dividends Receivable ................... 13
Net Unrealized Gain on Foreign Currency
Exchange Contracts ..................... 12
Foreign Withholding Tax Reclaim Receivable 1 288
----
LIABILITIES (-1.3%)
Payable for Daily Variation on Futures
Contracts .............................. (80)
Shareholder Reporting Expense Payable .. (26)
Investment Advisory Fees Payable ....... (25)
Custodian Fees Payable ................. (19)
Professional Fees Payable .............. (9)
Administrative Fees Payable ............ (6) (165)
-------
NET ASSETS (100%) ....................... $13,186
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,204,202 outstanding $0.001 par
value shares (authorized 500,000,000 shares) .. $ 10.95
=======
NET ASSETS CONSIST OF:
Paid in Capital ................................ $12,215
Undistributed Net Investment Income ............ 65
Accumulated Net Realized Gain .................. 615
Unrealized Appreciation on Investments and
Foreign Currency Translations .................. 291
-------
Net Assets .................................... $13,186
=======
--------------------------------------------------------
</TABLE>
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency exchange
contracts open at June 30, 2000 the Portfolio
is obligated to deliver or is to receive foreign
currency in exchange for U.S. dollars as
indicated below:
<TABLE>
<CAPTION>
CURRENCY NET
TO IN EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
------- ----- ---------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
JPY 8,173 $77 7/21/00 U.S.$ 77 $79 $2
JPY 7,188 68 7/21/00 U.S.$ 68 67 (1)
JPY 3,829 37 9/11/00 U.S.$ 37 37 --
JPY 1,577 15 9/11/00 U.S.$ 15 15 --
U.S.$ 175 175 9/8/00 EUR 183 174 (1)
U.S.$ 225 225 9/8/00 JPY 235 226 1
U.S.$ 343 341 7/21/00 JPY 36,259 343 2
U.S.$ 416 407 7/21/00 JPY 44,023 416 9
------ ------ ---
$1,345 $1,357 $12
====== ====== ===
</TABLE>
------------------------------------------------------------
(a) -- Non-income producing security
(d) -- Securities were valued at fair value see note A-1 to
the financial statements
@ -- Value is less than $500.
EUR -- Euro
JPY -- Japanese Yen
NCS -- Non Convertible Shares
RNC -- Non Convertible Savings Shares
------------------------------------------------------------
FUTURES CONTRACTS:
At June 30, 2000 the following futures contracts were open:
<TABLE>
<CAPTION>
UNREALIZED
NOTIONAL APPRECIATION/
NUMBER OF VALUE EXPIRATION DEPRECIATION
CONTRACTS (000) DATE (000)
--------- -------- ---------- -------------
<S> <C> <C> <C> <C>
CAC 40 Index 2 $126 9/29/00 $(3)
DAX Index 1 177 9/15/00 (10)
IBEX Plus 1 105 7/21/00 (4)
Nikkei 4 117 9/07/00 1
Topix 3 451 9/07/00 1
----
$(15)
====
</TABLE>
------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
MARKET
VALUE % OF NET
SECTOR DIVERSIFICATION (000) ASSETS
---------------------- ------ --------
<S> <C> <C>
Financials $2,603 19.7%
Consumer Discretionary 1,559 11.8
Energy 1,221 9.3
Industrials 1,148 8.7
Healthcare 1,100 8.3
Information Technology 1,073 8.1
Consumer Staples 973 7.4
Telecommunication Services 703 5.4
Utilities 693 5.3
Materials 303 2.3
------- -----
Total Foreign Securities $11,376 86.3%
======= =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
---------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 98
Interest 50
Less: Foreign Taxes Withheld (9)
------
Total Income 139
------
EXPENSES:
Investment Advisory Fees 50
Less: Fees Waived (48)
------
Net Investment Advisory Fees 2
Custodian Fees 20
Administrative Fees 19
Shareholder Reports 18
Professional Fees 12
Directors' Fees and Expenses 1
Other 1
------
Net Expenses 73
------
NET INVESTMENT INCOME 66
------
NET REALIZED GAIN (LOSS) ON:
Investments Sold 551
Foreign Currency Transactions (42)
Futures Contracts 12
------
Net Realized Gain 521
------
CHANGE IN UNREALIZED DEPRECIATION ON:
Investments (1,326)
Foreign Currency Translations (66)
------
Change in Unrealized Depreciation (1,392)
------
NET REALIZED LOSS AND CHANGE IN UNREALIZED DEPRECIATION (871)
------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (805)
======
---------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 SEPTEMBER 20, 1999*
(UNAUDITED) TO DECEMBER 31,
(000) 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 66 $ 25
Net Realized Gain 521 100
Change in Unrealized Appreciation / Depreciation (1,392) 1,683
------- -------
Net Increase (Decrease) in Net Assets Resulting from Operations (805) 1,808
------- -------
DISTRIBUTIONS
Net Investment Income -- (25)
In Excess of Net Investment Income -- (7)
------- -------
Total Distributions -- (32)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 6,993 10,628
Redeemed (5,318) (88)
------- -------
Net Increase in Net Assets Resulting from Capital Share Transactions 1,675 10,540
------- -------
Total Increase in Net Assets 870 12,316
------- -------
NET ASSETS:
Beginning of Period 12,316 --
------- -------
End of Period (including undistributed / (distributions in excess of) net
investment income of $65 and $(1), respectively) $13,186 $12,316
======= =======
---------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 638 1,058
Shares Issued on Distributions Reinvested -- --
Shares Redeemed (483) (9)
------- -------
Net Increase in Capital Shares Outstanding 155 1,049
======= =======
---------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD FROM
JUNE 30,2000 SEPTEMBER 20, 1999*
(UNAUDITED) TO DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.74 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.05 0.02
Net Realized and Unrealized Gain (Loss) (0.84) 1.75
------- -------
Total from Investment Operations (0.79) 1.77
------- -------
DISTRIBUTIONS
Net Investment Income -- (0.03)
------- -------
NET ASSET VALUE, END OF PERIOD $ 10.95 $ 11.74
======= =======
TOTAL RETURN (6.73)% 17.74%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $13,186 $12,316
Ratio of Expenses to Average Net Assets 1.15%** 1.15%**
Ratio of Net Investment Income (Loss) to Average Net Assets 1.05%** 0.82%**
Portfolio Turnover Rate 34% 19%
----------
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income $ 0.04 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.94%** 2.63%**
Net Investment Income (Loss) to Average Net Assets 0.29%** (0.66)%**
------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen separate active,
diversified and non-diversified portfolios (individually referred to as a
"Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Active International
Allocation Portfolio. The Portfolio invests in international equity markets,
with emphasis placed upon countries, rather that stock selection.
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
12
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
balances. However, pursuant to U.S. Federal income tax regulations, gains and
losses from certain foreign currency transactions and the foreign currency
portion of gains and losses realized on sales and maturities of foreign
denominated debt securities are treated as ordinary income for U.S. Federal
income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from foreign currency exchange contracts,
disposition of foreign currencies, currency gains or losses realized between the
trade and settlement dates on securities transactions, and the difference
between the amount of investment income and foreign 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.
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. 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.
7. 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 appor-
13
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
tioned 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, ownership of shares is defined according to entries in the
issuer's share register. 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 Asset Management ("MSAM"), 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
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
--------- ------- ---------- ----------
<S> <C> <C> <C>
Active International 0.80% 0.75% 0.70%
</TABLE>
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio, if
necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 1.15%.
C. ADMINISTRATOR: MSAM (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. CREDIT FACILITY: The Fund, along with an affiliated open-end fund
(collectively the "Funds"), maintains a 364-day Credit Agreement with a bank
group comprised of major money center banks. Under the terms of the Agreement,
the Funds are provided with a revolving credit facility (the "Facility")
allowing the Funds to borrow, subject to the limitations set forth in each
Fund's registration statement, amounts that, in the aggregate for the Funds,
will not exceed $235 million. The Funds pay a commitment fee on the unused
portion of the Facility at an annual rate of 0.09%. Fees incurred in connection
with the arrangement of the Facility totaled approximately $225,000. The
commitment fee and the arrangement fee are allocated to the Funds based on an
estimate of the potential amount available to each Fund under their respective
limitations. Such allocated costs are further allocated to the Portfolios based
on their net assets. Amounts drawn down on the Facility bear interest at the
annual rate equal to the then prevailing Federal Funds rate plus 0.50% which is
borne by the respective borrowing Portfolio. For the six months ended June 30,
2000, there were no amounts drawn down on the Facility.
F. OTHER: At June 30, 2000, 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>
$ 12,772 $ 1,061 $ (770) $ 291
</TABLE>
For the six months ended June 30, 2000, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $4,646,000 and $3,722,000,
respectively. There were no purchases and sales of U.S. Government securities
for the six months ended June 30, 2000.
Net capital and currency losses incurred after October 31 and within the taxable
year are deemed to arise on the first business day of the Portfolio's next
taxable year. For the year ended December 31, 1999, the Portfolio defered to
Jan-
14
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 2000
(UNAUDITED)
uary 1, 2000 for U.S. Federal income tax purposes, post-October capital
losses of $4,900.
At June 30, 2000, 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, the 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 the Portfolio.
15
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
--------------------------------------------------------------------------------
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE THE UNIVERSAL INSTITUTIONAL 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. FOR
ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000 PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG LLP
AS ITS NEW INDEPENDENT ACCOUNTANTS.
16
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MONEY MARKET PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MONEY MARKET PORTFOLIO
INVESTMENT OVERVIEW
[CHART]
COMPOSITION OF NET ASSETS (AT JUNE 30, 2000)
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
Other (9.1%)
U.S Government & Agency Securities (13.0%)
Commercial Paper (70.7%)
Certificates of Deposit/Bank Notes (7.2%)
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
SECURITY TYPE NET ASSETS
-------- ---- ----------
<S> <C> <C>
Citicorp Corp. Commercial Paper 2.9%
Met Life Funding, Inc. Commercial Paper 2.9
Halifax Corp. plc Commercial Paper 2.4
Societe Generale NA, Inc. Commercial Paper 2.2
National Rural Utilities
Cooperative Finance Corp. Commercial Paper 2.1
</TABLE>
COMPARATIVE MONTHLY AVERAGE YIELDS
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO IBC MONEY FUND COMPARABLE YIELDS INDEX
<S> <C> <C>
JUNE 5.89% 5.86%
</TABLE>
TOP FIVE SECTORS
<TABLE>
<CAPTION>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
------ ------- ----------
<S> <C> <C>
International Banks $18,460 17.7%
U.S. Government & Agency
Securities 13,593 13.0
Finance-Automotive 12,843 12.3
Diversified Financial Services 7,344 7.0
Finance-Corporate 7,260 7.0
</TABLE>
The Money Market Portfolio's investment objectives are to maximize current
income and preserve capital while maintaining high levels of liquidity
through investing in money market instruments which have effective maturities of
397 days or less. The Portfolio is expected to maintain a net asset value of
$1.00 per share. There can be no assurance, however, that the Portfolio will be
successful in maintaining a net asset value of $1.00 per share.
The annualized seven-day and thirty day yields for the Portfolio as of June 30,
2000 were 5.99% and 5.89%, respectively. As with all money market portfolios,
the seven-day and thirty-day yields are not necessarily indicative of future
performance.
During the first five months of this year, the U.S. economy continued to show
few signs of slowing down. First quarter real Gross Domestic Product increased
at a 4.8% annual pace and the nation's unemployment rate for the month of April
reached 3.9%, the lowest level in 30 years. Tight labor markets placed pressure
on wage and benefit growth as the first quarter Employment Cost Index posted its
highest reading in close to 9 years. At the same time, the overall trend in the
core Consumer Price Index (CPI) appeared to head gradually higher. For the
three-month period ending May 31, the Consumer Price Index (CPI), excluding food
and energy, rose an annualized 3.2% as compared to a 1.9% increase for all of
1999. However, by June, the impact of higher interest rates seemed to begin
cooling off the U.S. economy. Starting in late-May through mid-June,
weaker-than-expected employment, retail sales and housing-related statistics
were all released. The May employment report, released in early June, featured
an uptick in the unemployment rate to 4.1% and an estimated decline in nonfarm
payrolls, after excluding recently hired census workers.
Over the past six months, the Federal Reserve continued on its course of trying
to slow economic growth to a more sustainable, noninflationary pace. On three
separate occasions, during the first half of this year, the Fed increased its
target federal funds rate. As of June 30, the target federal funds rate stood at
6.50%,
[SIDENOTE]
INVESTMENTS IN SHARES OF THE PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, ALTHOUGH THE PORTFOLIO SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE
YOUR MONEY BY INVESTING IN THIS PORTFOLIO. YIELDS WILL FLUCTUATE AS MARKET
CONDITIONS CHANGE.
[/SIDENOTE]
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MONEY MARKET PORTFOLIO
INVESTMENT OVERVIEW (CONT.)
an increase of 100 basis points since year-end. As a result of the higher rates
available on money market securities, net yields on the Portfolio continued in
an upward trend throughout the semi-annual period under review.
Our primary strategy during the first half of this year has consisted of
purchasing money market securities that matured near upcoming Federal Open
Market Committee (FOMC) meeting dates in order to quickly reinvest at higher
short-term interest rate levels. As always, we try to operate the Portfolio in a
conservative manner without the use of derivatives or funding agreements.
On June 30, 2000, approximately 71 percent of the Portfolio was invested in high
quality commercial paper, 13 percent in Federal agency obligations, 9 percent in
overnight repurchase agreements, and 7 percent in short-term bank notes and
negotiable certificates of deposit issued by financially strong commercial
banks. At June 30, the Portfolio's weighted average maturity was 44 days, an
increase of 8 days from December 31. Ninety one percent of holdings were due to
mature in less than three months. Therefore, we believe the Portfolio is well
positioned for stability of principal with a very high degree of liquidity. As
always, the Portfolio continued to serve as a useful investment for liquidity,
preservation of capital and a yield that reflects prevailing money market
conditions.
Looking ahead, although we expect slight further increases in our yield levels
over the months ahead, we are not anticipating the relatively sharp increases
that occurred during the first half of this year. We believe our Portfolio is
well positioned to take advantage of the money market yield levels which become
available during the months ahead.
July 2000
2
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Face Amortized
Amount Cost
(000) (000)
-------------------------------------------------------------------------------
<S> <C>
MONEY MARKET INSTRUMENTS (13.0%)
US GOVERNMENT & AGENCY SECURITIES (13.0%)
FEDERAL HOME LOAN BANKS
$ 1,000 6.12%, 03/01/2001 ................................ $ 959
2,032 6.15%, 08/03/2000 ................................ 2,021
1,938 6.16%, 08/16/2000 ................................ 1,923
Federal Home Loan Mortgage Corp.
2,000 5.95%, 08/17/2000 ................................ 1,438
2,000 6.30%, 10/06/2000 ................................ 1,985
1,415 6.70%, 04/26/2001 ................................ 1,963
1,500 6.22%, 03/01/2001 ................................ 1,967
Federal National Mortgage Association
2,000 6.175%, 10/19/2000 ............................... 1,337
-------
13,593
-------
TOTAL U.S. GOVERNMENT & AGENCY SECURITIES
(COST $13,593) ........................................... 13,593
-------
COMMERCIAL PAPER (70.7%)
BANKING(2.9%)
3,000 Citicorp 6.54%, 07/06/2000 ....................... 2,998
-------
DIVERSIFIED FINANCIAL SERVICES (7.0%)
1,900 Associates Corp. of North America
6.50%, 07/13/2000 ............................... 1,897
2,000 Associates First Capital Corp.
6.57%, 09/08/2000 ............................... 1,976
2,000 General Electric Capital Corp.
6.04%, 08/17/2000 ............................... 1,984
1,500 General Electric Capital Corp.
6.05%, 08/25/2000 ............................... 1,487
-------
7,344
-------
FINANCE - AUTOMOTIVE (12.3%)
1,900 American Honda Finance Corp.
6.58%, 07/25/2000 ............................... 1,892
2,000 American Honda Finance Corp.
6.63%, 08/01/2000 ............................... 1,989
1,422 BMW U.S. Capital Corp. 6.55%, 08/07/2000 ......... 1,413
2,000 Daimler Chrysler North American Holding
Corp. 6.57%, 07/24/2000 ......................... 1,992
1,800 Daimler Chrysler North American Holding
Corp. 6.67%, 08/28/2000 ......................... 1,781
2,000 Ford Motor Credit Co. 6.54%, 08/07/2000 .......... 1,988
1,800 Ford Motor Credit Co. 6.54%, 08/09/2000 .......... 1,788
-------
12,843
-------
FINANCE - CONSUMER (5.1%)
1,500 New Center Asset Trust 5.98%, 07/10/2000 ......... 1,498
2,000 New Center Asset Trust 6.57%, 07/17/2000 ......... 1,995
1,800 Norwest Financial, Inc. 6.52%, 07/05/2000 ........ 1,799
-------
5,292
-------
FINANCE - CORPORATE (7.0%)
1,500 Ciesco LP 6.56%, 07/20/2000 ...................... 1,495
2,000 Ciesco LP 6.58%, 08/09/2000 ...................... 1,986
2,000 CIT Group, Inc. 6.00%, 07/13/2000 ................ 1,998
$ 1,800 CIT Group, Inc. 6.64%, 08/29/2000 ................ 1,781
-------
7,260
-------
FOOD & BEVERAGES (1.9%)
2,000 HJ Heinz Co. 6.54%, 08/03/2000 ................... 1,989
-------
INSURANCE (2.9%)
3,000 MetLife Funding, Inc. 6.55%, 07/10/2000 .......... 2,996
-------
INTERNATIONAL BANKS (17.7%)
2,000 Abbey National NA Corp.
6.58%, 09/12/2000 ............................... 1,974
1,800 ABN- Amro NA Finance, Inc.
6.55%, 07/24/2000 ............................... 1,794
2,000 ABN- Amro NA Finance, Inc.
6.60%, 07/13/2000 ............................... 1,996
2,000 ANZ (Delaware), Inc.
6.57%, 09/15/2000 ............................... 1,973
2,000 Canadian Imperial Holdings, Inc.
6.60%, 09/11/2000 ............................... 1,974
2,000 Deutsche Bank Financial, Inc.
6.64%, 08/15/2000 ............................... 1,984
2,500 Halifax plc 6.79%, 07/05/2000 .................... 2,499
2,000 National Australia Funding (Del), Inc.
6.44%, 10/04/2000 ............................... 1,967
2,300 Societe Generale NA, Inc. 6.53%, 07/05/2000 ...... 2,299
-------
18,460
-------
INVESTMENT BANKERS/BROKERS/SERVICES (3.3%)
2,000 Goldman Sachs Group, Inc.
6.14%, 07/11/2000 ............................... 1,997
1,500 Goldman Sachs Group, Inc.
6.66%, 08/23/2000 ............................... 1,486
-------
3,483
-------
MAJOR U.S. TELECOMMUNICATIONS (5.6%)
2,200 AT&T Corp. 6.56%, 09/05/2000 ..................... 2,174
1,700 AT&T Corp. 6.70%, 07/10/2000 ..................... 1,698
2,000 BellSouth Telecommunications, Inc.
6.53%, 08/11/2000 ............................... 1,986
-------
5,858
-------
RENTAL/LEASING COMPANIES (1.9%)
2,000 International Lease Finance Corp.
6.56%, 07/19/2000 ............................... 1,994
-------
TELECOMMUNICATIONS EQUIPMENT (1.0%)
1,000 Motorola, Inc. 6.58%, 08/23/2000 ................. 991
-------
UTILITIES (2.1%)
2,250 National Rural Utilities Cooperative Finance
Corp. 6.56%, 08/18/2000 ......................... 2,231
-------
TOTAL COMMERCIAL PAPER (COST $73,739) ........................ 73,739
-------
CERTIFICATES OF DEPOSIT / BANK NOTES (7.2%)
INTERNATIONAL BANKS (1.9%)
2,000 Deutsche Bank AG 6.75%, 08/21/2000 ............... 2,000
-------
MAJOR BANKS (5.3%)
1,500 Bank of America NA 6.82%, 07/21/2000 ............. 1,500
2,000 Bank of America NA 6.82%, 09/01/2000 ............. 2,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONT.)
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Face Amortized
Amount Cost
(000) (000)
-------------------------------------------------------------------------------
<S> <C>
CERTIFICATES OF DEPOSIT / BANK NOTES (CONT.)
$ 2,000 First Union National Bank
6.65%, 07/27/2000 ............................... $ 2,000
-------
5,500
-------
TOTAL CERTIFICATES OF DEPOSIT (COST $7,500) ................... 7,500
-------
REPURCHASE AGREEMENT (9.4%)
9,790 Goldman Sachs & Co. 6.15%, dated 6/30/00,
due 7/3/00, to be repurchased at $9,795,
collateralized by U.S. Treasury Bonds,
10.375%, due 11/15/09, valued $11,464
(COST $9,790) .................................. 9,790
-------
TOTAL INVESTMENTS (100.3%) (COST $104,622) ....................... 104,622
-------
OTHER ASSETS (0.1%)
Cash ........................................... $ 26
Interest Receivable ............................ 79
Due from Adviser ............................... 44 149
----
LIABILITIES (-0.4%)
Dividends Payable .............................. (293)
Investment Advisory Fees Payable ............... (79)
Shareholder Reporting Fees Payable ............. (38)
Administrative Fees Payable .................... (25)
Professional Fees .............................. (19)
Custodian Fees Payable ......................... (10)
Other Liabilities .............................. (3) (467)
----- ---------
NET ASSETS (100%) ............................................... $104,304
=========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 104,307,198 outstanding $0.001 par value
shares (authorized 500,000,000 shares) ...................... $ 1.00
========
NET ASSETS CONSIST OF:
Paid in Capital ................................................. 104,304
--------
Net Assets ...................................................... $104,304
========
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MONEY MARKET PORTFOLIO
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
(000)
-----------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest $ 3,156
-------
EXPENSES:
Investment Advisory Fees 154
Less: Fees Waived (78)
Net Investment Advisory Fees 76
Administrative Fees 129
Professional Fees 33
Shareholder Reports 31
Custodian Fees 7
Directors' Fees and Expense 2
Other 5
Net Expenses 283
-------
NET INVESTMENT INCOME 2,873
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,873
=======
-----------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 JANUARY 5, 1999* TO
(UNAUDITED) DECEMBER 31, 1999
(000) (000)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 2,873 $ 3,880
-------- --------
DISTRIBUTIONS
Net Investment Income (2,873) (3,880)
-------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 19,731 91,220
Distributions Reinvested 2,580 3,876
Redeemed (11,299) (1,804)
-------- --------
Net Increase in Net Assets Resulting from Capital Share Transactions 11,012 93,292
-------- --------
Total Increase in Net Assets 11,012 93,292
NET ASSETS:
Beginning of Period 93,292 --
-------- --------
End of Period $104,304 $ 93,292
======== ========
-----------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 19,871 91,220
Shares Issued on Distributions Reinvested 2,579 3,880
Shares Redeemed (11,439) (1,804)
-------- --------
Net Increase in Capital Shares Outstanding 11,011 93,296
======== ========
-----------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 2000 JANUARY 5, 1999*
(UNAUDITED) TO DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.028 0.045
------- -------
DISTRIBUTIONS
Net Investment Income (0.028) (0.045)
------- -------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
======= =======
TOTAL RETURN 2.81% 4.63%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $104,304 $93,292
Ratio of Expenses to Average Net Assets 0.55%** 0.55%**
Ratio of Net Investment Income (Loss) to Average Net Assets 5.63%** 4.60%**
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income $ 0.001 $ 0.002
Ratios Before Expense Limitation:
Expenses to Average Net Assets 0.70%** 0.77%**
Net Investment Loss to Average Net Assets 5.48%** 4.38%**
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Universal Institutional 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, 2000, the Fund is comprised of fifteen separate active,
diversified and non-diversified portfolios (individually referred to as a
"Portfolio", collectively as the "Portfolios").
The accompanying financial statements relate to the Money Market Portfolio as at
June 30, 2000. The Portfolio's investment objectives are to maximize current
income and preserve capital while maintaining high levels of liquidity through
investing in high quality money market instruments which have effective
maturities of 397 days or less. The Portfolio is expected to maintain a net
asset value of $1.00 per share. There can be no assurance, however, that the
Portfolio will be successful in maintaining a net asset value of $1.00 per
share. The 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: Securities owned by the Money Market Portfolio are stated
at amortized cost which approximates market value. 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 under
procedures established 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.
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. 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. Interest income
is recognized on the accrual basis except where collection is in doubt. 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.
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.
B. ADVISER: Morgan Stanley Asset Management ("MSAM"), 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
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
---------- ------- ----------- ----------
<S> <C> <C> <C>
Money Market 0.30% 0.25% 0.20%
</TABLE>
MSAM has agreed to reduce fees payable to it and to reimburse the Portfolio, if
necessary, to the extent that the annual operating expenses expressed as a
percentage of average daily net assets, exceed the maximum ratio of 0.55%.
7
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
C. ADMINISTRATOR: MSAM (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, 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: From time to time, the 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.
8
<PAGE>
THE UNIVERSAL INSTITUTIONAL 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
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil, LLP
Graham E. Jones
Senior Vice President,
BGK Properties
John Levin
Chairman and Chief Executive Officer,
John A. Levin & Co., Inc.
Andrew McNally IV
Managing Director,
Hammond Kennedy Whitney
William G. Morton, Jr.
Chairman and Chief Executive Officer,
Boston Stock Exchange
Samuel T. Reeves
Chairman and Chief Executive Officer,
Pinnacle Trading L.L.C
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw, Esq.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management
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, New York 10020
OFFICERS
Harold J. Schaaff, Jr.
PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
James A. Gallo
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Richard J. Shoch
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
THE PROSPECTUS OF THE UNIVERSAL INSTITUTIONAL 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. FOR
ADDITIONAL INFORMATION INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT www.msdw.com/im.
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000 PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS AND AUDIT COMMITTEE ENGAGED ERNST & YOUNG
LLP AS ITS NEW INDEPENDENT ACCOUNTANTS.
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