MORGAN STANLEY UNIVERSAL FUNDS INC, N-30D, 2000-03-09

MORGAN STANLEY UNIVERSAL FUNDS INC
N-30D, 2000-03-09

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<PAGE>

ASIAN EQUITY PORTFOLIO

ANNUAL REPORT
DECEMBER 31, 1999

<PAGE>

ASIAN EQUITY PORTFOLIO

INVESTMENT OVERVIEW

COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- --------------------------------------------------------------------------------
[CHART]
<TABLE>
<S> <C>
China (0.7%)
Hong Kong (28.7%)
Indonesia (1.9%)
South Korea (22.2%)
Malaysia (3.3%)
Philippines (1.2%)
Singapore (13.3%)
Taiwan (16.8%)
Thailand (2.9%)
Other (9.0%)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
PERCENT OF
SECURITY COUNTRY NET ASSETS
- -------- ---------- ----------
<S> <C> <C>
Samsung Electronics Co. South Korea 7.6%
Hutchinson Whampoa Ltd. Hong Kong 6.7%
Cheung Kong Holdings Ltd. Hong Kong 4.7%
Taiwan Semiconductor Co. Taiwan 3.5%
Sun Hung Kai Properties Hong Kong 3.0%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- -------- ----- ----------
<S> <C> <C>
Finance $3,860 22.5%
Services 3,591 21.0%
Capital Equipment 3,245 19.0%
Consumer Goods 2,096 12.2%
Multi-Industry 1,399 8.2%
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI)
ALL-COUNTRY FAR EAST FREE EX-JAPAN INDEX(1)
- --------------------------------------------------------------------------------
TOTAL RETURNS(2)
----------------------------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION(3)
-------------- ------------------
<S> <C> <C>
Portfolio.............................. 79.81% -1.79%
Index.................................. 59.40% -7.86%
</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 (includes dividends).

2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.

3. Commenced operations on March 3, 1997.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.

[CHART]
<TABLE>
<CAPTION>
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
3/3/97* 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C>
Asian Equity Portfolio $10,000 _____ _____ $9,501
MSCI All-Country Far East
Free ex-Japan Index(1) $10,000 _____ _____ $7,902
</TABLE>
* Commencement of Operations

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.

CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS
OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES
MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY
THE MSCI ALL-COUNTRY FAR EAST FREE EX-JAPAN INDEX AND ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S
FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.

The 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).

For the year ended December 31, 1999, the Portfolio had a total return of 79.81%
compared to 59.40% for the Morgan Stanley Capital International (MSCI)
All-Country Far East Free ex-Japan Index (the "Index"). For the period from
inception on March 3, 1997 through December 31, 1999, the Portfolio had an
average annual total return of -1.79% compared to -7.86% for the Index.

Most of the markets in the Index rose in 1999. Continuing a trend that started
mid-year, performance at the country level varied more than during the first
half of the year. Echoing trends in the developed markets, technology and
telecommunications stocks, particularly mobile telecommunications, tended to
outperform while banks, manufacturers and other "Old Economy" stocks generally
lagged.

Most Asian markets performed well during the year due to higher than expected
economic growth and corporate earnings as well as continued positive liquidity
conditions. During the first half of the year

1
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO

INVESTMENT OVERVIEW (CONT.)

market breadth was very strong with most sectors participating in the rallies.
Breadth narrowed during the fourth quarter in line with the global pattern and
outperformers were typically technology or telecommunications related. Overall
market valuations as of year end were at fairly high multiples relative to
historical norms of most markets but the outlook for corporate earnings in 2000
remains quite strong. Economic growth expectations have been upgraded
significantly across Asia, although the rate of change of improvement will slow
in 2000 as low base effects drop out. Korea has led the growth revival, but
laggard economies like Hong Kong and Thailand demonstrated faster growth trends
in the third and fourth quarters as well. Currencies were stable compared to the
U.S. dollar but there is pressure on some currencies to appreciate, particularly
if the yen remains relatively strong.

Most countries in the region reported increases in exports of electronics
components during 1999. This growth has contributed significantly to GDP growth
upgrades in Taiwan, South Korea, Singapore and Malaysia. Global price pressures
have forced manufacturers to cut costs, which often means sourcing more from
low-cost Asian producers. The trend towards greater outsourcing, firmly
established among American companies, is being adopted by an increasing number
of Japanese companies. Outsourcing is also broadening from the personal computer
supply chain to include other technology applications including
telecommunications. The Portfolio has a significant exposure to a number of
Asian electronics companies in Taiwan, Korea, Singapore and Thailand, and these
investments performed well as order books gained momentum.

Trends which need to be monitored include U.S. monetary tightening, domestic
pressures for higher interest rates in a number of Asian countries, possible
negative terms of trade conditions if oil prices maintain current strength and a
heavy calendar of new Asian equity issues in 2000. Most markets performed well
despite the headwinds of rising global interest rates in 1999 given limited
foreign debt financing needs and healthy domestic liquidity. The U.S. current
account deficit is a significant issue for the global economy; a best case
scenario would be a gradual slowdown in the growth of U.S. consumption
accompanied by accelerated growth in demand in Europe, Japan and the rest of
Asia. The rise in the price of oil is similar to a tax hike for most of Asia;
Indonesia and Malaysia are the only net beneficiaries of higher prices. Japanese
economic recovery is very positive for Asia and Japanese corporate restructuring
opens up new opportunities for outsourcing across a range of manufacturing
industries. Political factors to watch in 2000 include parliamentary or
presidential elections in Korea, Taiwan and Thailand, although we currently do
not expect major market risks from these events. We expect that the bulk of
market returns in 2000 will be generated through earnings growth rather than
further multiple expansion. Asian markets have stabilized after the economic
crisis conditions of 1997 and 1998 and interest rates have fallen back to normal
levels. We expect strong earnings growth from many companies. We will also
continue to invest in corporate restructuring stories, as restructuring received
added impetus from the crisis and should lead to higher sustainable returns on
capital in the future.

We expected Y2K concerns to affect liquidity in the fourth quarter but the
millennium date change turned out to be a `non-event'. Going forward we think
that the outlook for non-Japan Asia as an asset class continues to be positive.
While the risks from a volatile U.S. market and a Fed tightening are well known,
Asia is likely to weather that trend much better. The restructuring undertaken
by Asian companies over the last 2 years should enable the return on equity for
the region to exceed historic levels over the next 3 years. This shift upwards
is more likely to be structural than cyclical. The strategy of focusing on stock
selection, with an emphasis on attractively valued companies that should exceed
consensus expectations, remains unchanged.

January 2000

2
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO

STATEMENT OF NET ASSETS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (90.7%)
CHINA (0.7%)
113,900 Hengan International Group Co., Ltd. ......................... $32
96,600 Huaneng Power International, Inc. ............................ 23
203,000 Yanzhou Coal Mining Co., Ltd. ................................ 56
93,000 Zhejiang Expressway Co., Ltd. ................................ 14
--------------------
125
--------------------
HONG KONG (28.7%)
31,000 Asia Satellite Telecommunications Holdings Ltd. .............. 98
40,000 Cathway Pacific Airways ...................................... 71
64,000 Cheung Kong Holdings Ltd. .................................... 813
62,000 China Telecom (Hong Kong) .................................... 388
(a)40,000 Great Wall Technology Co., Ltd. .............................. 39
12,900 Hang Seng Bank Ltd. .......................................... 147
105,000 Hong Kong & China Gas Co., Ltd. .............................. 144
20,000 Hong Kong Land Holdings Ltd. ................................. 30
161,000 Hong Kong Telecommunications Ltd. ............................ 465
79,381 Hutchison Whampoa Ltd. ....................................... 1,154
29,000 Jardine International Motor Holdings Ltd. .................... 14
12,000 Johnson Electric Holdings Ltd. ............................... 77
20,800 Kerry Properties Ltd. ........................................ 29
(a)64,600 Li & Fung Ltd. ............................................... 162
62,400 New World China Land Ltd. .................................... 23
33,000 New World Development Co., Ltd. .............................. 74
125,000 Sino Land Co., Ltd. .......................................... 72
16,600 SmarTone Telecommunications Holdings Ltd. .................... 80
49,000 Sun Hung Kai Properties Ltd. ................................. 511
35,967 Swire Pacific Ltd., Class A .................................. 212
27,100 Television Broadcasts Ltd. ................................... 185
(a)48,000 Timeless Software Ltd. ....................................... 28
21,000 Wing Hang Bank Ltd. .......................................... 72
(a)9,000 Yue Yuen Industrial Holdings ................................. 21
--------------------
4,909
--------------------
INDONESIA (1.9%)
112,000 Aneka Tambang ................................................ 22
27,500 Gudang Garam ................................................. 74
(a)500 Gulf Indonesia Resources Ltd. ................................ 4
48,000 Indofood Sukses Makmur (Foreign) ............................. 60
41,000 PT Semen Fresik .............................................. 65
9,180 Telekomunikasi Indonesia ADR ................................. 101
--------------------
326
--------------------
MALAYSIA (3.3%)
23,000 Carlsberg Brewery Malaysia Bhd ............................... 71
43,800 Malayan Banking Bhd .......................................... 156
7,000 Nestle (Malaysia) Bhd ........................................ 30
67,000 Public Bank Bhd .............................................. 58
12,000 British American Tobacco Bhd ................................. 92
26,000 Sime Darby Bhd ............................................... 33
14,000 Tanjong plc .................................................. 31
22,000 Telekom Malaysia Bhd ......................................... 85
2,000 Unisem (Malaysia) Bhd ........................................ 13
--------------------
569
--------------------
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
PHILIPPINES (1.1%)
(a)18,100 ABS-CBN Broadcasting Corp. ADR ............................... $23
3,470 Philippine Long Distance Telephone Co. ....................... 88
30,620 San Miguel Corp., Class B .................................... 43
146,300 SM Prime Holdings, Inc. ...................................... 28
--------------------
182
--------------------
SINGAPORE (13.3%)
(a)18,000 Chartered Semiconductor Ltd. ................................. 98
18,000 City Developments Ltd. ....................................... 105
(a)19,276 DBS Group Holdings Ltd. ...................................... 316
30,000 DBS Land Ltd. ................................................ 59
29,000 Gul Technologies ............................................. 32
21,600 Natsteel Electronics Ltd. .................................... 114
36,000 Neptune Orient Lines ......................................... 48
44,000 Omni Industries Ltd. ......................................... 80
32,108 Oversea-Chinese Banking Corp. (Foreign) ...................... 295
(a)14,982 Overseas Union Bank Ltd. ..................................... 88
19,000 Sembawang Logistics Ltd. ..................................... 77
(a)20,000 Singapore Airlines Ltd. ...................................... 227
7,900 Singapore Press Holdings Ltd. ................................ 171
72,000 Singapore Technologies Engineering Ltd. ...................... 112
66,000 Singapore Telecommunications Ltd. ............................ 136
14,008 United Overseas Bank Ltd. (Foreign) .......................... 124
16,700 Venture Manufacturing Ltd. ................................... 192
--------------------
2,274
--------------------
SOUTH KOREA (22.2%)
850 Cheil Jedang Corp. ........................................... 98
(a)2,810 Daeduck Electronics Co. ...................................... 33
1,980 Dongwon Securities Co. ....................................... 43
8,480 Good Morning Securities Co., Ltd. ............................ 41
4,570 H & CB ....................................................... 145
4,810 Hana Bank .................................................... 37
1,240 Hankuk Glass Industry Co., Ltd. .............................. 23
(a)2,390 Humax Co., Ltd. .............................................. 40
3,671 Hyundai Electronics Industries Co. ........................... 78
(a)14,112 Hyundai Motor Co. GDR ........................................ 152
(a)1,000 Insung Information ........................................... 34
10,666 Kookmin Bank ................................................. 167
660 Korea Chemical Co., Ltd. ..................................... 43
17,180 Korea Electric Power Corp. ADR ............................... 288
(a)2,230 Korea Technology Banking Co. ................................. 22
4,150 Korea Telecom Corp. ADR ...................................... 310
2,930 L.G. Chemical Ltd. ........................................... 93
5,820 Mirae Co. .................................................... 45
(a)1,870 Pantech Co., Ltd. ............................................ 42
7,150 Pohang Iron & Steel Co.,Ltd. ADR ............................. 250
1,550 Samsung Electro-Mechanics Co. ................................ 103
5,548 Samsung Electronics Co. ...................................... 1,300
10,990 SK Telecom Co., Ltd. ADR ..................................... 422
--------------------
3,809
--------------------
TAIWAN (16.8%)
560 Acer Peripherals, Inc. ....................................... 2
(a)(d)2,112 Acer Peripherals, Inc. GDR ................................... 87
</TABLE>

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

3
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO

STATEMENT OF NET ASSETS (CONT.)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
TAIWAN (CONT.)
(a)54,300 Acer, Inc. ................................................... $164
(a)29,103 Advanced Semiconductor Engineering, Inc. ..................... 104
(a)3,000 Ambit Microsystems Corp ...................................... 22
(a)1,100 ASE Test Ltd. ................................................ 27
14,778 Asustek Computer, Inc. ....................................... 156
149,200 China Steel Corp. ............................................ 110
(a)56,880 Chinatrust Commercial Bank ................................... 66
10,184 Compal Electronics ........................................... 34
(a)14,000 Compeq Manufacturing Co., Ltd. ............................... 76
15,000 Delta Electronics, Inc. ...................................... 65
(a)46,240 Evergreen Marine Corp. ....................................... 38
37,770 Far Eastern Textile Ltd. ..................................... 90
(b)(a)600 Far Eastern Textile Ltd. GDR ................................. 14
(a)32,000 First Commercial Bank ........................................ 40
24,000 Formosa Plastics Corp. ....................................... 48
(a)22,520 Hon Hai Precision Industry ................................... 168
50,700 International Commercial Bank of China ....................... 57
53,470 Nan Ya Plastic Corp. ......................................... 118
14,860 President Chain Store Corp. .................................. 66
(a)5,000 Ritek Corp. .................................................. 30
(a)37,268 Siliconware Precision Industries Co. ......................... 95
(a)65,440 Taishin International Bank ................................... 37
(a)111,566 Taiwan Semiconductor Manufacturing Co. ....................... 594
(a)125,000 United Microelectronics Corp. Ltd. ........................... 446
43,160 United World Chinese Commercial Bank ......................... 52
(a)11,000 Universal Scientific Industrial Co., Ltd. .................... 35
16,000 Wyse Technology Taiwan Ltd. .................................. 31
--------------------
2,872
--------------------
THAILAND (2.7%)
8,400 Advanced Info Service PCL (Foreign) .......................... 141
(d)8,500 BEC World (Foreign) .......................................... 60
4,460 Delta Electronics (Thailand) PCL (Foreign) ................... 53
55,700 Golden Land Property Development PCL (Foreign) ............... 29
15,033 Siam Cement PCL (Foreign) .................................... 80
57,800 Thai Farmers Bank PCL (Foreign) .............................. 97
--------------------
460
--------------------
TOTAL COMMON STOCKS (COST $12,411) ............................................. 15,526
--------------------
<CAPTION>
NO. OF
WARRANTS
- ---------------
<S> <C> <C>
WARRANTS (0.3%)
PHILIPPINES (0.1%)
(a)44,010 Queenbee Resources Corp., expiring 3/24/03 ................... 18
THAILAND (0.2%)
(a)62,000 Siam Commercial Bank PCL, expiring 5/10/02 ................... 29
--------------------
TOTAL WARRANTS (COST $28) ...................................................... 47
--------------------
TOTAL FOREIGN SECURITIES (91.0%) (COST $12,439) ................................ 15,573
--------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN CURRENCY (0.1%)
PKR 45 Pakistan Rupee ..................................................... $1
HKD 112 Hong Kong Dollar ................................................... 14
KWN 738 South Korean Won ................................................... 1
TWD 106 Taiwan Dollar ...................................................... 3
--------------------
TOTAL FOREIGN CURRENCY (COST $19) .............................................. 19
--------------------
TOTAL INVESTMENTS (91.1%) (COST $12,458) ....................................... 15,592
--------------------
OTHER ASSETS (10.9%)
Cash .......................................... $ 1,720
Due from Adviser .............................. 93
Receivable for Portfolio Shares Sold .......... 42
Dividends Receivable .......................... 9
Foreign Withholding Tax Reclaim Receivable .... 2
Other Assets .................................. 1 1,867
------------------------
LIABILITIES (-2.0%)
Payable for Portfolio Shares Redeemed ......... (197)
Custodian Fees Payable ........................ (94)
Professional Fees Payable ..................... (18)
Administrative Fees Payable ................... (6)
Other Liabilities ............................. (26) (341)
------------------------ --------------------
NET ASSETS (100%) .............................................................. $ 17,118
--------------------
--------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,830,564 outstanding $0.001 par value shares
(authorized 500,000,000 shares) .............................................. $9.35
--------------------
--------------------
NET ASSETS CONSIST OF:
Paid in Capital ................................................................ $ 12,667
Distributions in Excess of Net Investment Income ............................... (2)
Accumulated Net Realized Gain .................................................. 1,320
Unrealized Appreciation on Investments and Foreign Currency
Translations (Net of foreign taxes of $1) .................................... 3,133
--------------------
--------------------
NET ASSETS ..................................................................... $ 17,118
--------------------
--------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing security
(b) -- 144A Security - certain conditions for public sale may exist.
(d) -- Securities were valued at fair value - see note A-1 to the financial
statements.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
PCL -- Public Company Limited

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

4
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO

STATEMENT OF NET ASSETS (CONT.)
DECEMBER 31, 1999

- --------------------------------------------------------------------------------
Summary of Foreign Securities by Sector Classification
<TABLE>
<CAPTION>
VALUE % OF NET
SECTOR CLASSIFICATION (000) ASSETS
- --------------------- ------------- --------
<S> <C> <C>
Finance $ 3,860 22.5%
Services 3,591 21.0
Capital Equipment 3,245 19.0
Consumer Goods 2,096 12.2
Multi-Industry 1,399 8.2
Materials 853 5.0
Energy 529 3.1
------------- --------
Total Foreign Securities $ 15,573 91.0%
------------- --------
------------- --------
</TABLE>

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

5
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO

NET REALIZED GAIN ON:
Investments Sold 8,388
Foreign Currency Transactions 20
-----------------
Net Realized Gain 8,408
-----------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (Net of foreign tax benefit of $2) 2,181
Foreign Currency Translations (1)
-----------------
Change in Unrealized Appreciation/Depreciation 2,180
-----------------
Net Realized Gain and Change in Unrealized Appreciation/Depreciation 10,588
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 10,645
-----------------
-----------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

NET ASSETS:
Beginning of Period 12,504 12,571
----------------- -----------------
End of Period (Including (distributions in excess of) undistributed net
investment income of $(2) and $1, respectively) $ 17,118 $ 12,504
----------------- -----------------
----------------- -----------------
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 8,451 2,849
Shares Issued on Distributions Reinvested 10 13
Shares Redeemed (9,021) (2,701)
----------------- -----------------
Net Increase (Decrease) in Capital Shares Outstanding (560) 161
----------------- -----------------
----------------- -----------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

6
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO

FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
------------------------ MARCH 3, 1997*
1999 1998 TO DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.23 $ 5.64 $ 10.00
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03 0.05 0.01
Net Realized and Unrealized Gain 4.14 (0.42) (4.36)
-------- -------- --------
Total from Investment Operations 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 $9.35 $5.23 $5.64
-------- -------- --------
-------- -------- --------
TOTAL RETURN 79.81% (6.45)% (43.52)%
-------- -------- --------
-------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $ 17,118 $ 12,504 $12,571
Ratio of Expenses to Average Net Assets 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%**
Ratio of Net Investment Income to Average Net Assets 0.32% 1.14% 0.32%**
Portfolio Turnover Rate 190% 121% 130%
- ------------------
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income $0.19 $0.07 $0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.03% 2.80% 3.10%**
Net Investment Loss to Average Net Assets (1.43)% (0.45)% (1.43)%**
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized

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

7
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999

Morgan Stanley Dean Witter Universal Funds, Inc., (formerly Morgan Stanley
Universal Funds, Inc.), (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. As of
December 31, 1999, the Fund was 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.

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.

8
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999

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. 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 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,

9
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999

ownership of shares is defined according to entries in the issuer's share
register. It is possible that a Portfolio holding these securities could lose
its share registration through fraud, negligence or even mere oversight. In
addition, shares being delivered for sales and cash being paid for purchases may
be delivered before the exchange is complete. This may subject the Portfolio to
further risk of loss in the event of a failure to complete the transaction by
the counterparty.

B. ADVISER: Morgan Stanley Dean Witter Investment Management Inc. ("MSDW
Investment Management"), a wholly-owned subsidiary of Morgan Stanley Dean Witter
& Co., provides the Portfolio with investment advisory services for a fee, paid
quarterly, at the annual rate based on average daily net assets as follows:
<TABLE>
<CAPTION>
FROM
FIRST $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
- --------- ------- ---------- ----------
<S> <C> <C> <C>
Asian Equity....................... 0.80% 0.75% 0.70%
</TABLE>
MSDW Investment Management has agreed to reduce fees payable to it and to
reimburse the Portfolio, if necessary, to the extent that the annual operating
expenses expressed as a percentage of average daily net assets, exceed the
maximum ratio of 1.20%.

C. ADMINISTRATOR: MSDW Investment Management (the "Administrator") also provides
the Portfolio with administrative services pursuant to an administrative
agreement for a monthly fee which on an annual basis equals 0.25% of the average
daily net assets of the Portfolio, plus reimbursement of out-of-pocket expenses.
Under an agreement between the Administrator and Chase Global Funds Services
Company ("CGFSC"), a corporate affiliate of The Chase Manhattan Bank, 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: During December 1999, the Fund, along with an affiliated
open-end fund (collectively the "Funds") entered into 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 year ended
December 31, 1999, there were no amounts drawn down on the Facility.

F. OTHER: At December 31, 1999, cost and unrealized appreciation (depreciation)
for U.S. Federal income tax purposes of the investments of the Portfolio were:
<TABLE>
<CAPTION>
NET
COST APPRECIATION DEPRECIATION APPRECIATION
(000) (000) (000) (000)
----- ------------ ------------ ------------
<S> <C> <C> <C>
$12,692 $3,171 $(290) $2,881
</TABLE>
For the year ended December 31, 1999, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $30,960,444 and $38,257,361,
respectively. There were no purchases and sales of U.S. Government securities
for the year ended December 31, 1999. During the year ended December 31, 1999,
the Fund incurred $67,749 as brokerage commission 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 intends to
defer to January 1, 2000 for U.S. Federal income tax purposes, post-October
currency losses of $1,000.

At December 31, 1999, the net assets of certain Portfolios were substantially
comprised of foreign denominated securities and currency. Changes in currency
exchange rates will affect the U.S. dollar value of and investment income from
such securities.

From time to time, a Portfolio may have shareholders that hold a significant
portion of the Portfolio's outstanding shares. Investment activities of these
shareholders could have a material impact on those Portfolios.

10
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of
Morgan Stanley Dean Witter Universal Funds, Inc.--
Asian Equity Portfolio

In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Morgan Stanley Dean Witter Universal Funds, Inc.--Asian Equity Portfolio (the
"Portfolio") at December 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in the
period then ended and for the period March 3, 1997 (commencement of operations)
through December 31, 1997 in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

February 11, 2000

11
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
FEDERAL TAX INFORMATION (UNAUDITED)

For the year ended December 31, 1999, the Portfolio has designated a 20%
long-term capital gain of approximately $5,000.

12
<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

Michael F. Klein
DIRECTOR AND PRESIDENT
Managing Director, Morgan Stanley Dean Witter Investment
Management Inc. and Morgan Stanley & Co.
Incorporated

John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.

Gerard E. Jones
Partner, Richards & O'Neil LLP

Andrew McNally IV
River Road Partners

Samuel T. Reeves
Chairman of the Board and Chief Executive Officer
Pinnacle Trading L.L.C

Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation

Frederick O. Robertshaw
Of Counsel, Copple, Chamberlin & Boehm, P.C.

INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020

Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, PA 19428-2899

DISTRIBUTOR
Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas
New York, New York 10020

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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

OFFICERS
Stefanie V. Chang
VICE PRESIDENT

James A. Gallo
VICE PRESIDENT

Harold J. Schaaff, Jr.
VICE PRESIDENT

Richard J. Shoch
VICE PRESIDENT

Joseph P. Stadler
VICE PRESIDENT

Mary E. Mullin
SECRETARY

Karl O. Hartmann
ASSISTANT SECRETARY

Belinda A. Brady
TREASURER

Robin L. Conkey
ASSISTANT TREASURER

- --------------------------------------------------------------------------------

FOR ADDITIONAL INFORMATION, INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT
www.msdw.com\institutional\investmentmanagement.

13
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

EMERGING MARKETS DEBT PORTFOLIO

ANNUAL REPORT
DECEMBER 31, 1999

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

EMERGING MARKETS DEBT PORTFOLIO

INVESTMENT OVERVIEW

COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- -------------------------------------------------------------------------------
[CHART]

<TABLE>
<S> <C>
Other (5.6%)
Venezuela (5.6%)
Turkey (4.0%)
Russia (8.0%)
Poland (0.6%)
Philippines (1.8%)
Peru (2.8%)
Panama (0.8%)
Netherlands (0.6%)
Morocco (2.3%)
Mexico (14.4%)
South Korea (0.5%)
Jordan (0.8%)
Algeria (0.7%)
Argentina (18.5%)
Brazil (25.9%)
Bulgaria (3.6%)
Colombia (1.8%)
Ecuador (0.5%)
Indonesia (1.2%)
</TABLE>

TOP FIVE COUNTRIES

VALUE PERCENT OF
COUNTRY (000) NET ASSETS
- ------- ------ ----------
<S> <C> <C>
Brazil.................. $8,162 25.9%
Argentina............... 5,829 18.5%
Mexico.................. 4,560 14.4%
Russia.................. 2,535 8.0%
Venezuela............... 1,757 5.6%
</TABLE>

PERFORMANCE COMPARED TO THE J.P.
MORGAN EMERGING MARKETS BOND PLUS
INDEX(1)
- ---------------------------------------------------------------------------------
TOTAL RETURNS(2)
-------------------------------------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION(3)
------------ ------------------
<S> <C> <C>
Portfolio......... 29.37% -2.67%
Index ............ 25.97 3.77
</TABLE>
1. 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 of Argentina, Brazil, Bulgaria, Colombia,
Ecuador, Mexico, Morocco, Nigeria, Panama, Peru, the Philippines, Poland,
Russia, South Korea and Venezuela.

2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.

3. Commenced operations on June 16, 1997.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.

[CHART]
<TABLE>
<CAPTION>
COMPARISON OF THE CHANGE IN VALUE OF A
$10,000 INVESTMENT
- -----------------------------------------------------------------------
6/16/97* 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C>

Emerging Markets Debt Portfolio $10,000 - $ 9,335

J.P. Morgan Emerging Markets $10,000 - $10,986
Bond Plus Index

- -

</TABLE>

*Commencement of operations

[GRAPH]

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 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 year ended December 31, 1999, the Portfolio had a total return of
29.37% compared to 25.97% for the J.P. Morgan Emerging Markets Bond Plus
Index (the "Index"). For the period from inception on June 16, 1997 through
December 31, 1999, the Portfolio had an average annual total return of -2.67%
compared to 3.77% for the Index.

Emerging markets debt was easily the best performing fixed income asset class
in 1999, returning 25.97% as measured by the Index. In addition, emerging
markets debt was the best performing fixed income asset class for the
five-year period through 1999--a remarkable feat given the multiple shocks
witnessed during the period (Mexico, Asia, Russia, Brazil and two distinct
periods of U.S. monetary tightening).

CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN
THIS REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN
THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE
SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE
OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE
SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN
RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING. YIELDS WILL
FLUCTUATE AS MARKET CONDITIONS CHANGE.

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

EMERGING MARKETS DEBT PORTFOLIO

INVESTMENT OVERVIEW (CONT.)

In the fourth quarter of 1999, the Portfolio had a total return of 13.62%,
bringing the 1999 performance up to 29.37% compared with 12.58% in the fourth
quarter and the aforementioned 25.97% for the entirety of 1999 for the Index.
During the fourth quarter, overweights in Brazil and Peru, and underweights in
Argentina, South Korea and Poland and security selection decisions in Russia
positively impacted results relative to the Index. Conversely, an overweight
position in the Philippines and Indonesia detracted from relative performance.

FACTORS INFLUENCING 1999 OUTCOME

Investors contended with several concerns during the year, including Brazil's
devaluation, a panic over the fate of the Argentine peso, rising global interest
rates, acute uncertainty in Russia, increased violence in Colombia and
Indonesia, a default in Ecuador, and a severe earthquake in Turkey, to name a
few. Nonetheless, the asset class posted exceptionally strong absolute returns
during 1999--a fact mainly reflecting its relative cheapness at the start of
last year. With yield spreads of approximately 1200 basis points above U.S.
Treasuries at the beginning of 1999, emerging markets debt clearly provided a
healthy amount of interest income, which, in turn, provided an excellent cushion
for investors.

For much of the year, relative valuations for emerging markets debt remained
near historically wide levels. Fueled by a variety of fundamental factors,
emerging market debt then enjoyed a powerful rally in the final months of 1999
with yield spreads tightening to approximately 830 basis points over U.S.
Treasuries. Investors were comforted by signs of a bottoming out of economic
activity in most Latin American economies, while growth in Emerging Asia
surprised on the upside throughout the year. Overall, external balances improved
during the latter part of the year, reflecting higher oil prices and import
compression. At the structural level, systemically important countries (e.g.,
Brazil and Mexico) were pushing through reform agendas while the absence of
reform setbacks in other countries (e.g., Argentina and Russia) provided
investors with a modicum of comfort. Finally, the political environment in
emerging countries remained benign with key elections proceeding relatively
smoothly.

OUTLOOK FOR 2000

Looking into the new year, the outlook for emerging markets debt remains
favorable and encouraging. The asset class is attractive both in terms of income
(the Index now yields some 850 basis points over U.S. Treasury rates) and
prospects for price appreciation. This prognosis reflects two self-reinforcing
factors.

Short-term uncertainties notwithstanding, the global environment continues to be
supportive. Emerging markets are facing a world in which economic growth looks
set to be both higher and better synchronized across regions. Moreover, the
developing world is benefiting from evidence of improved risk appetite that
should be manifested in higher capital inflows. Finally, commodity prices remain
on an upward trend that should help the most systemically important--but
precariously positioned--emerging countries.

The second factor relates to the ongoing process of adjustment and reform in
emerging economies. In the day-to-day flurry of headlines, it is easy to lose
sight of the fact that emerging countries are presently in a significantly
better position than only a decade ago. That Asia has recovered so impressively
and Latin America has avoided the old cycle of shocks-cum-hyperinflation is a
testament to the important economic advances that these regions have achieved
over the past decade. Encouragingly, we enter 2000 with no signs that "reform
fatigue" has set in.

However, the path of "convergence" will not be linear. There will always be
bumps along the way. The short-term outlook is an important case in point. We
have recently entered into a period of uncertainty over the short-term behavior
of U.S. financial markets. Indeed, if the Federal Reserve commences a period of
monetary tightening over the next few months, highly leveraged emerging
economies will be adversely affected. Moreover, should the tightening cause a
slowdown in U.S. growth rates, emerging economies will lose an important
export-growth market. As such, and following the very strong November/December
rally in emerging markets debt prices, we have adopted a less aggressive stance
by switching into shorter duration assets of countries that are less correlated
with overall market movements. Over a medium term horizon, however, we remain on
the look out for resumed stability in global financial markets. In any event, we
feel there should be significant scope for emerging market assets to resume
their upward price path.

January 2000

<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

EMERGING MARKETS DEBT PORTFOLIO

STATEMENT OF NET ASSETS

DECEMBER 31, 1999

FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------------
<S> <C>

DEBT INSTRUMENTS (91.6%)
ALGERIA (0.7%)
SOVEREIGN (0.7%)
U.S. $ 100 Republic of Algeria Loan Agreements,
6.813%, 3/31/00 ........................................ $ 77
200 Republic of Algeria Loan Agreements,
Tranche 3, 6.813%, 3/31/00 ............................. 144
-------
221
-------
ARGENTINA (18.5%)
CORPORATE (1.6%)
(e)100 Cablevision S.A., 13.75%, 5/1/09 ........................ 98
ARP (e)480 Cia International
Telecommunications, 10.375%, 8/1/04 ................... 398
------
496
------
SOVEREIGN (16.9%)
(v)263 Republic of Argentina, (Floating Rate)
Global Bond, 2.868%, 4/1/07 ........................... 182
U.S.$ (v)1,850 Republic of Argentina,
Global Bond, 11.75%, 4/7/09 ........................... 1,847
1,850 Republic of Argentina, Global Bond,
Series BGL5, 11.375%, 1/30/17 ......................... 1,844
(v)1,593 Republic of Argentina, Global Bond,
Series L, (Floating Rate), (Bearer),
6.813%, 3/31/05 ....................................... 1,458
-------
5,331
-------
5,827
-------
BRAZIL (25.9%)
SOVEREIGN (25.9%)
(v)1,482 Federative Republic of Brazil,
14.50%, 10/15/09 ..................................... 1,646
(v)5,429 Federative Republic of Brazil,
C Bond, PIK, 8.00%, 4/15/14 ......................... 4,085
(v)1,210 Federative Republic of Brazil, Debt
Conversion Bond, Series L, (Floating Rate),
7.00%, 4/15/12 ...................................... 898
(v)729 Federative Republic of Brazil, Debt
Conversion Bond, Series RG, (Floating Rate),
7.00%, 4/15/12 ...................................... 541
(v)1,230 Federative Republic of Brazil,
Series NMB L, (Floating Rate), 7.00%, 4/15/09 ....... 992
-------
8,162
-------
BULGARIA (3.6%)
SOVEREIGN (3.6%)
(v)680 Republic of Bulgaria, Discount Bond,
Series A, (Floating Rate), 6.50%, 7/28/24 ........... 546

FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------------
<S> <C>
U.S. $ (n)(v)325 Republic of Bulgaria,
Front Loaded Interest Reduction Bond, Series
A, 2.75%, 7/28/12 ................................... $235
(v)440 Republic of Bulgaria, PDI Bond,
(Floating Rate), 6.50%, 7/28/11 ...................... 348
-------
1,129
-------
COLOMBIA (1.8%)
CORPORATE (0.3%)
(n)150 Occidente Y Caribe Cellular, Series B,
0.00%, 3/15/04 ...................................... 83
-------
SOVEREIGN (1.5%)
200 Republic of Colombia, Global Bond,
8.375%, 2/15/27 ..................................... 155
350 Republic of Colombia, Global Bond, 9.75%,
4/23/09 ............................................. 327
-------
482
-------
565
-------
ECUADOR (0.5%)
SOVEREIGN (0.5%)
(b,v)400 Republic of Ecuador, Discount Bond,
(Floating Rate), 6.75%, 2/28/25 ..................... 155
-------
INDONESIA (1.2%)
CORPORATE (1.2%)
160 Indah Kiat International Finance, Series
B, 11.875%, 6/15/02 ................................ 143
280 Tjiwi Kimia International BV, Global
Bond, 13.25%, 8/1/01 ............................... 249
-------
392
-------
JORDAN (0.8%)
SOVEREIGN (0.8%)
(v)335 Government of Jordan, Discount Bond,
(Floating Rate), 7.00%, 12/23/23 .................... 240
-------
MEXICO (14.4%)
CORPORATE (2.6%)
(e)200 Nuevo Grupo Iusacell S.A., 14.25%,
12/1/06 ............................................. 209
(e)400 Sanluis Corp. S.A., 8.875%, 3/18/08 .................... 359
300 Tv Azteca S.A., Series B, 10.50%, 2/15/07 .............. 262
-------
830
-------
SOVEREIGN (11.8%)
(v)1,000 United Mexican States, Discount
Bond, Series A, (Floating Rate), 6.933%,
12/31/19 ............................................ 936
(v)450 United Mexican States, Discount Bond,
Series D, (Floating Rate), 6.903%, 12/31/19 ......... 421

</TABLE>

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

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

EMERGING MARKETS DEBT PORTFOLIO

STATEMENT OF NET ASSETS (CONT.)

DECEMBER 31, 1999

<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------------
<S> <C>
U.S. $ (v)800 United Mexican States,
Discount Bond, Series B, (Floating Rate),
6.943%, 12/31/19 ................................... $748
725 United Mexican States, Global Bond,
11.375%, 9/15/16 ................................... 823
750 United Mexican States, Global Bond,
Series XW, 10.375%, 2/17/09 ........................ 802
-------
3,730
-------
4,560
-------
MOROCCO (2.3%)
SOVEREIGN (2.3%)
810 Government of Morocco, Reconstruction &
Consolidation Agreement, Series A, (Floating
Rate), 6.844%, 1/1/09 .............................. 739
-------
NETHERLANDS (0.6%)
CORPORATE (0.6%)
(e)200 Netia Holdings II B.V., 13.125%,
6/15/09 ............................................ 201
-------
PANAMA (0.8%)
SOVEREIGN (0.8%)
150 Republic of Panama, Global Bond,
8.875%, 9/30/27 .................................... 126
(v)162 Republic of Panama, PDI, (Floating
Rate), 6.50%, 7/17/16 .............................. 128
-------
254
-------
PERU (2.8%)
SOVEREIGN (2.8%)
(v)700 Republic of Peru, Front Loaded
Interest Reduction Bond, (Floating Rate),
3.75%, 3/7/17 ...................................... 435
(n)(v)650 Republic of Peru, PDI Bond,
(Floating Rate), 4.50%, 3/7/17 ..................... 453
-------
888
-------
PHILIPPINES (1.8%)
CORPORATE (0.8%)
(e)300 Bayan Telecommunications, 13.50%,
7/15/06 ............................................ 264
-------
SOVEREIGN (1.0%)
300 Republic of Philippines, Global Bond,
9.875%, 1/15/19 .................................... 298
-------
562
-------
POLAND (0.6%)
CORPORATE (0.6%)
(e)200 Polska Telefonica Cyfrowa
International Finance, 11.25%, 12/1/09 ............. 196
-------
RUSSIA (8.0%)
SOVEREIGN (8.0%)
(e)270 Russian Federation, 8.75%, 7/24/05 ................... 169

FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------------
<S> <C>
U.S. $ 300 Russian Federation, (Registered)
10.00%, 6/26/07 .................................... $183
100 Russian Federation (Registered),
11.00%, 7/24/18 .................................... 60
(e)1,760 Russian Federation, 11.00%, 7/24/18 .................. 1,065
350 Russian Interest Arrears Note,
(Floating Rate), 6.906%, 12/15/15 .................. 64
6,141 Russian Principal Loans, (Floating
Rate), 6.906%, 12/15/20 ............................ 994
-------
2,535
-------
SOUTH KOREA (0.5%)
SOVEREIGN (0.5%)
150 Republic of Korea, 8.875%, 4/15/08 ................... 158
-------
TURKEY (1.2%)
CORPORATE (1.2%)
(e)350 Cellco Finance NV, 15.00%, 8/1/05 .................... 380
-------
VENEZUELA (5.6%)
SOVEREIGN (5.6%)
1,500 Government of Venezuela, 9.25%, 9/15/27 .............. 1,005
(v)952 Republic of Venezuela, Debt Conversion
Bond, Series DL, (Floating Rate), 7.00%,
12/18/07 ........................................... 752
-------
1,757
-------
TOTAL FOREIGN DEBT INSTRUMENTS (COST $26,733) .......................... 28,921
-------
NO. OF
RIGHTS
- -----------------
<S> <C>
RIGHTS (0.0%)
MEXICO (0.0%)
(a)3,462,000 United Mexican States, Value
Recovery Rights, Expiring 6/30/03(Cost $0) ......... --
-------
NO. OF
WARRANTS
- ------------------
<S> <C>
WARRANTS (0.0%)
ARGENTINA (0.0%)
(a)850 Republic of Argentina, Expiring
2/25/00 ............................................ 2
-------
COLOMBIA (0.0%)
(a)5,970 Occidente Y Caribe, Expiring
3/15/04 ............................................ 9
-------
TOTAL WARRANTS (COST $4) ............................................... 11
-------
FACE
AMOUNT
(000)
- ------------------
<S> <C>
SHORT-TERM INVESTMENTS (6.7%)
TURKEY (2.8%)
TREASURY BILLS (2.8%)
TRL 442,186,000 57.05%, 2/9/00 ....................................... 750
81,471,000 57.94%, 3/15/00 ...................................... 132
-------
882
-------
</TABLE>

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

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

EMERGING MARKETS DEBT PORTFOLIO

STATEMENT OF NET ASSETS (CONT.)

DECEMBER 31, 1999

FACE
AMOUNT AMOUNT
(000) (000)
- ----------------------------------------------------------------------------------
<S> <C>
UNITED STATES (3.9%)
REPURCHASE AGREEMENT (3.9%)
U.S.$ 1,217 Chase Securities, Inc., 2.60%,
dated 12/31/99, due 1/3/00, to be repurchased
at $1,217, collateralized by U.S. Treasury
Notes, 6.125%, due 12/31/01, valued at $1,242 ...... $ 1,217
-------
TOTAL SHORT-TERM INVESTMENTS (COST $2,393) ............................. 2,099
-------
FOREIGN CURRENCY (0.0%)
ARP 5 Argentina Peso(Cost $5) ................................ 5
-------
TOTAL INVESTMENTS (98.3%) (COST $29,135) ............................... 31,036
-------
OTHER ASSETS (2.8%)
Interest Receivable ..................................... $ 800
Receivable for Portfolio Shares Sold .................... 64
Due From Adviser ........................................ 6 870
-------
LIABILITIES (-1.1%)
Bank Overdraft Payable .................................. (192)
Payable for Foreign Taxes ............................... (42)
Professional Fees Payable ............................... (20)
Custodian Fees Payable .................................. (13)
Administrative Fees Payable ............................. (7)
Other Liabilities ....................................... (74) (348)
------- --------
NET ASSETS (100%) ......................................... $ 31,558
========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 4,570,007 outstanding $0.001 par value shares
(authorized 500,000,000 Shares) ........................... $6.91
========
NET ASSETS CONSIST OF:
Paid in Capital ........................................... $ 40,849
Distribution in Excess of Net Investment Income ........... (4)
Accumulated Net Realized Loss ............................. (11,149)
Unrealized Appreciation on Investments and Foreign Currency
Translations (Net of Foreign Taxes of $38) ............. 1,862
--------
NET ASSETS ................................................ $ 31,558
========
- ------------------------------------------------------------------------------------

</TABLE>

(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 December 31, 1999. 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.
ARP -- Argentine Peso
TRL -- Turkish Lira
PDI -- Past Due Interest
PIK -- Payment-in-Kind -- Income may be paid in additional securities or cash
at the discretion of the issuer.
Floating Rate Security -- Interest rate changes on these instruments are based
upon a designated base rate. The rates shown are those in effect at
December 31, 1999.

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

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

EMERGING MARKETS DEBT PORTFOLIO

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
(000)
- -----------------------------------------------------------------------------------------------------
<S> <C>

INVESTMENT INCOME:
Interest $4,302
------
EXPENSES:
Investment Advisory Fees 226
Less: Fees Waived (101)
------
Net Investment Advisory Fees 125
Shareholder Reports 113
Administrative Fees 76
Interest Expense 35
Custodian Fees 28
Professional Fees 21
Directors' Fees and Expenses 1
Other 4
------
Net Expenses 403
------
NET INVESTMENT INCOME 3,899
------
NET REALIZED GAIN (LOSS) ON:
Investments Sold 794
Foreign Currency Transactions (38)
------
Net Realized Gain 756
------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 2,710
------
Net Realized Gain and Change in Unrealized Appreciation/Depreciation 3,466
------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,365
------
------
- ------------------------------------------------------------------------------------------------------
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

Net Realized Gain (Loss) 756 (11,855)

Change in Unrealized Appreciation/(Depreciation) 2,710 (376)
------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations 7,365 (9,257)
------- --------
DISTRIBUTIONS
Net Investment Income (3,847) (2,849)

In Excess of Net Investment Income (4) --
------- --------
Total Distributions (3,851) (2,849)
------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 68,819 55,835

Distributions Reinvested 3,199 2,290

Redeemed (68,906) (47,465)
------- --------

Net Increase in Net Assets Resulting from Capital Share Transactions 3,112 10,660
------- --------
Total Increase/(Decrease) in Net Assets 6,626 (1,446)

NET ASSETS:
Beginning of Period 24,932 26,378
------- --------
End of Period (Including distributions in excess of net investment
income of $(4) and $(77), respectively) $ 31,558 $ 24,932
------- --------
------- --------
- -------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 10,196 7,204
Shares Issued on Distributions Reinvested 473 376
Shares Redeemed (10,189) (6,217)
------- --------
Net Increase in Capital Shares Outstanding 480 1,363
------- --------
------- --------
- -------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

EMERGING MARKETS DEBT PORTFOLIO

FINANCIAL HIGHLIGHTS

YEAR ENDED DECEMBER 31, PERIOD FROM
-------------------------- JUNE 16, 1997*
1999 1998 TO DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.10 $ 9.67 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.97 0.85 0.28
Net Realized and Unrealized Gain (Loss) 0.80 (3.60) (0.22)
------- ------- -------
Total from Investment Operations 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 $ 6.91 $ 6.10 $ 9.67
------- ------- -------
------- ------- -------
TOTAL RETURN 29.37% (28.38)% 0.76%
------- ------- -------
------- ------- -------

RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $31,558 $24,932 $26,378
Ratio of Expenses to Average Net Assets 1.43% 1.52% 1.35%**
Ratio of Expenses to Average Net Assets Excluding Interest Expense 1.30% 1.30% 1.30%**
Ratio of Net Investment Income to Average Net Assets 13.79% 10.94% 8.10%**
Portfolio Turnover Rate 396% 449% 173%
- -----------------------------
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income $0.03 $0.04 $0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.78% 2.05% 2.06%**
Net Investment Income to Average Net Assets 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.

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1999

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.

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.

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.

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

NOTES TO FINANCIAL STATEMENTS (CONT.)

DECEMBER 31, 1999

larly, 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. 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

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

NOTES TO FINANCIAL STATEMENTS (CONT.)

DECEMBER 31, 1999

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 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.

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>

MSDW Investment Management has agreed to reduce fees payable to it and to
reimburse the Portfolio, if necessary, to the extent that the annual operating
expenses expressed as a percentage of average daily net assets, exceed the
maximum ratio of 1.30%.

C. ADMINISTRATOR: MSDW Investment Management (the "Administrator") also
provides the Portfolio with administrative services pursuant to an
administrative agreement for a monthly fee which on an annual basis equals
0.25% of the average daily net assets of the Portfolio, plus reimbursement of
out-of-pocket expenses. Under an agreement between the Administrator and
Chase Global Funds Services Company ("CGFSC"), a corporate affiliate of The
Chase Manhattan Bank, 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: During December 1999, the Fund, along with an affiliated
open-end fund (collectively the "Funds"), entered into 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 year ended December 31, 1999, there
were no amounts drawn down on the Facility.

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

NOTES TO FINANCIAL STATEMENTS (CONT.)

DECEMBER 31, 1999

F. OTHER: At December 31, 1999, cost and unrealized appreciation (depreciation)
for U.S. Federal income tax purposes of the investments of the Portfolio were:

<TABLE>
<CAPTION>
NET
COST APPRECIATION DEPRECIATION APPRECIATION
a (000) (000) (000) (000)
- --------- ------------ ------------ -------------
<S> <C> <C> <C>

$29,932 $2,082 $(983) $1,099
</TABLE>

For the year ended December 31, 1999, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $105,116,000 and $103,663,000,
respectively. There were no purchases and sales of U.S. Government securities
for the year ended December 31, 1999.

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 intends to defer 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 December 31, 1999, 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 during the year ended December 31,
1999, the Portfolio's investments were 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.

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of
Morgan Stanley Dean Witter Universal Funds, Inc.--
Emerging Markets Debt Portfolio

In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of Morgan Stanley Dean Witter Universal Funds, Inc.--Emerging Markets Debt
Portfolio (the "Portfolio") at December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the two years in the period then ended and for the period June 16,1997
(commencement of operations) through December 31, 1997, in conformity with
accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolio's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

February 11, 2000

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

<TABLE>
<CAPTION>
DIRECTORS Officers
<S> <C>
Barton M. Biggs Stefanie V. Chang
CHAIRMAN OF THE BOARD VICE PRESIDENT
Chairman and Director, Morgan Stanley Dean Witter
Investment Management Inc. and Morgan Stanley Dean Witter
Investment Management Limited; Managing James A. Gallo
Director, Morgan Stanley & Co. Incorporated VICE PRESIDENT

Michael F. Klein
DIRECTOR AND PRESIDENT Harold J. Schaaff, Jr.
Managing Director, Morgan Stanley Dean Witter Investment VICE PRESIDENT
Management Inc. and Morgan Stanley & Co.
Incorporated
Richard J. Shoch
John D. Barrett II VICE PRESIDENT
Chairman and Director,
Barrett Associates, Inc.
Joseph P. Stadler
Gerard E. Jones VICE PRESIDENT
Partner, Richards & O'Neil LLP
Andrew McNally IV
River Road Partners Mary E. Mullin
SECRETARY
Samuel T. Reeves
Chairman of the Board and Chief Executive Officer
Pinnacle Trading L.L.C Karl O. Hartmann
ASSISTANT SECRETARY
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation Belinda A. Brady
TREASURER
Frederick O. Robertshaw
Of Counsel, Copple, Chamberlin & Boehm, P.C.
Robin L. Conkey
ASSISTANT TREASURER
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020

Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, PA 19428-2899

DISTRIBUTOR
Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas
New York, New York 10020

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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
- -------------------------------------------------------------------------------
</TABLE>

FOR ADDITIONAL INFORMATION. INCLUDING INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE PORTFOLIO, PLEASE VISIT OUR WEBSITE AT
www.msdw.com/institutional/investmentmanagement.

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

EMERGING MARKETS EQUITY PORTFOLIO

ANNUAL REPORT
DECEMBER 31, 1999

<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO

INVESTMENT OVERVIEW

COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- --------------------------------------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Argentina (0.8%)
Brazil (8.0%)
Chile (0.2%)
China (3.2%)
Czech Republic (0.4%)
Egypt (1.0%)
Greece (1.0%)
Hungary (0.8%)
India (8.7%)
Indonesia (1.2%)
Israel (6.2%)
Malaysia (0.4%)
Mexico (10.1%)
Pakistan (0.2%)
Poland (1.1%)
Russia (2.5%)
Singapore (0.5%)
South Africa (5.1%)
South Korea (19.5%)
Taiwan (11.6%)
Thailand (2.0%)
Turkey (7.6%)
Other (7.9%)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
PERCENT OF
SECURITY COUNTRY NET ASSETS
- -------- ------- ----------
<S> <C> <C>
Samsung Electronics South Korea 6.6%
SK Telecom Co. South Korea 4.5
Telmex Mexico 3.6
Yapi Ve Kredi Bankasi Turkey 2.6
Infosys India 2.6
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- ------ ----- ----------
<S> <C> <C>
Services $55,690 29.8%
Capital Equipment 46,645 24.9
Consumer Goods 25,453 13.6
Finance 20,797 11.1
Materials 12,494 6.7
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE COMPARED TO THE MSCI EMERGING MARKETS FREE INDEX(1) AND IFC GLOBAL
TOTAL RETURN COMPOSITE INDEX(2)
- ------------------------------------------------------------------------------
TOTAL RETURNS (3)
----------------------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION(4)
---------- -------------------
<S> <C> <C>
PORTFOLIO ........................ 95.68% 12.31%
MSCI EMERGING
MARKETS FREE INDEX(1) ............ 66.41 2.63
IFC GLOBAL TOTAL
RETURN COMPOSITE
INDEX(2) ......................... 62.69 2.30
</TABLE>

1. The Morgan Stanley Capital International (MSCI) Emerging Markets Free Index
is a market capitalization weighted index comprised 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 (includes dividend.)

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
<TABLE>
<CAPTION>
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
10/1/96* 12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C>
Emerging Markets
Equity Portfolio $10,000 _____ _____ _____ $14,580
IFC Global Total Return
Composite Index $10,000 _____ _____ _____ $10,878
MSCI Index $10,000 _____ _____ _____ $10,765
</TABLE>

* Commencement of operations

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.

CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. THE INFORMATION CONTAINED IN THIS
OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES
MENTIONED. THE 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. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE
OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK
CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.

The 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 year ended December 31, 1999, the Portfolio had a total return of 95.68%
compared to 66.41% for the Morgan Stanley Capital International (MSCI) Emerging
Markets Free Index (the "Index") and 62.69% for the IFC Global Total Return
Composite Index. For the period from inception on October 1, 1996 through
December 31, 1999, the Portfolio had an average annual total return of 12.31%
compared with 2.63% for the Index and 2.30% for the IFC Global Total Return
Composite Index.

1
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS,INC.
EMERGING MARKETS EQUITY PORTFOLIO

INVESTMENT OVERVIEW (CONT.)

Outperformance versus the Index was attributable to both strong stock selection
and country allocation. Stock selection in India, South Korea and Taiwan
contributed markedly to performance. Other notable contributors were equity
selections in India, Israel, Taiwan and Thailand. Our overweight position in
Indonesia (+93.5%) and Turkey (+252.4%) coupled with our underweight stance in
Argentina (+34.3%), Chile (+39.0%) and Greece (+49.6%) contributed positively to
performance. Detracting from performance was poor stock selection in Greece,
Indonesia, South Africa and Russia and country allocation in Tai wan (+52.7%).

The emerging markets rallied in 1999, boosted by a supportive global
environment, dissipating concerns over Y2K and heartier investor risk appetites.
Continued strength in commodity prices and improving economic fundamentals,
coupled with positive election results (India, Mexico and Russia) and IMF
agreements (Russia and Turkey), further boosted the emerging markets. Although
emerging markets faced great adversities during the year, including heightened
political tensions (Indonesia), scandals (Indonesia and South Korea) and
earthquakes (Greece, Turkey, Taiwan and Mexico), many emerging markets proved
their buoyancy by year-end. During the fourth quarter, Taiwan and Turkey
evidenced their resilience in light of the earthquakes they suffered during the
third quarter, and investors rewarded countries such as India and Turkey for
their commitment to reforms.

Latin American markets advanced 58.9% in 1999, led by the large liquid markets
of Brazil and Mexico. Driving the performance within the region were increased
global risk appetite, commodity price strength, improving liquidity conditions,
a turnaround in regional economic growth and benign political outcomes in
elections in Argentina, Chile and Mexico. However, Latin America remains the
most vulnerable to a significant change in U.S. interest rates as it has large
external financing needs while likely. While likely to marginally add to Brazil
and Mexico, we will continue to be underweight the Latin American region in the
near term, as we believe other regions within the emerging markets presently
offer more exciting investment opportunities. Brazilian equities advanced 67.2%
during the year, reflecting the economy's resilience in light of the devaluation
of the Brazilian currency in January. Fiscal figures continued to surprise on
the upside and the Brazilian real strengthened during the fourth quarter,
reflecting in part its undervaluation as well as the government's newfocus
oftargeting inflation. Both locals and foreign institutions returned to the
market towards year-end, further boosting the market. Investors will focus their
attention on the extraordinary session at the beginning of the year in which
votes regarding tax reform and fiscal reform will take place. During the fourth
quarter, we increased our exposure to Brazilian banks based on attractive
valuations and our expectations that interest rates will continue to trend
downward in the coming quarter.

Mexico is our favorite market within Latin America, and Mexican equities rose
80.1% during 1999 on the back of a strong U.S. market and solid domestic
fundamentals. GDP growth was better than expected, inflation was well behaved,
oil prices remained buoyant and the PRI presidential primary result in November
indicated a relatively calm political environment. Mexico signed a trade
agreement with the EU improving its trade prospects and, over the longer term,
diversifying its reliance from the U.S. economy. We believe that rating agencies
will raise Mexico to investment grade after the presidential elections in July
2000, thereby lowering financing costs to Mexican corporates and lending overall
support to the market. Although domestic fundamentals remain strong, we are
cautiously monitoring the risk of a slowdown in the U.S. economy and are also
wary of a sell off in the Mexican peso, which we presently believe to be
over-valued. During the fourth quarter, we reduced some of our significant
overweight in beverage company Femsa and added to one of our larger overweights,
Cemex (cement), as the company remains attractively valued given its solid
operating fundamentals and superior underlying profitability.

Asian equities gained 69.4% during the year. We continue to focus on Asia, a
region benefiting from trade surpluses, export growth and export market
competitiveness vis-a-vis yen strength versus the U.S. dollar. South Korea
(+92.4%) remains our largest overweight within Asia, based on the aforementioned
positive trends coupled with neutral interest rates, strong local retail
investor interest in equities and increasing clarity on the restructuring of
failed chaebol Daewoo. We have added to non-chaebol related companies that
possess technological expertise in specialized markets, strong management
qualities and sound business models as well as increasing our exposure to the
banking sector.

Taiwanese equities advanced 52.7% during 1999, boosted by robust exports, trends
in global outsourcing (notably in electronics and semiconductor-related arenas)
and investor optimism that the Sino-U.S. trade agreement would also hasten Tai
wan's membership into the World Trade Organization (WTO). We maintain our
overweight stance in Taiwan, and purchases during the fourth quarter included
Chartered Semiconductor, the third largest foundry globally, and various niche
technology-related and communications stocks.

2
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS,INC.
EMERGING MARKETS EQUITY PORTFOLIO

INVESTMENT OVERVIEW (CONT.)

During the year Chinese equities gained 13.3%, and on November 16, China
announced a trade agreement with the U.S. that bodes well for China's entry into
the WTO. Although increased trade should bring positive longer-term
consequences, including increased FDI inflows and reforms, the reform process
will take time to implement and not all areas of the economy will benefit
equally. Additions to our holdings in China during the year included
telecommunications company China Telecom and TCL International, China's third
largest color TV manufacturer and the only home electronics manufacturer
providing Internet content via WebTV, cable modem and cable set top boxes.
Philippine equities (+3.3%) finished the year relatively flat, and we sold our
Philippine assets, as we find the valuations relatively expensive and are unable
to find a catalyst that will move this market forward.

Indian equities gained 87.3% during the year, boosted by continued indications,
including industrial production trends, that cyclical recovery remains on track.
November's Parliamentary elections yielded a sizable majority for the BJP party,
and this bodes well for more cohesive policies and a willingness to focus on
reforms to help meet India's large fiscal problems. We maintain our overweight
stance in India and during the fourth quarter we added more cyclically related
companies such as Gujurat Ambuja (cement) and State Bank of India.

We are modestly underweight Emerging Europe and the Middle East, a region that
advanced 79.6% during 1999, although posting mixed returns. Russia and Turkey,
rising 247.1% and 252.4%, respectively, were the star performing markets of this
region. We maintain our underweight stance in Greek equities, which gained
49.6%, yet modestly reduced our significant underweight in Greek banks as we
believe they should benefit from future reductions in interest rates and reserve
requirements. Optimism over low inflation, the prospects for future rate cuts
and strong corporate earnings helped Israeli equities gain 59.7%. We added to
our overweight stance in Israel through purchases in niche-oriented
telecommunications and software-related stocks, including Gilat Satellite
Networks, Amdocs, Comverse and ECI Telecom.

The gains by Russian equities were fueled by robust oil prices, positive
economic fundamentals and greater political stability. In December, the Duma
(Russia's Lower House of parliament) held elections. The election results
(Centrist-oriented majority) coupled with President Yeltsin's surprise
resignation on December 31 (with Putin appointed as acting president until
elections on March 26) have accentuated the uncertainty in Russia with regard to
Yeltsin's probable successor and his ability to push reform through the Duma.
The remarkable performance by Turkish equities during the year, in light of a
devastating earthquake in August, was supported by the passage of key reform
bills (social security and international arbitration), IMF and World Bank
agreements, and government measures, including banking legislation and efforts
to control inflation. Positive investor sentiment regarding the prospect of
significant inflation and interest rate reductions was further enhanced in
December when Turkey was named an official candidate for the European Union.
Turkey remains one of our most significant overweight positions and within
Turkey we are focusing on domestic themes, adding to those companies' best
positioned to take advantage of a lower interest rate and inflation environment
and higher consumer spending.

South African equities rose 57.2% during the year, buoyed by commodity price
strength, foreign exchange inflows from the listing of South African companies
in London, falling inflation and fiscal discipline. During the year we increased
holdings in some commodity stocks, including Billiton and Anglo American, which
mine aluminum and platinum, respectively, in addition to stocks in South
Africa's information technology sector. We remain underweight South Africa based
on its mild attractiveness compared to other emerging markets.

Amidst the backdrop of global growth and sustainable commodity prices, we
believe those emerging markets benefiting from improving economic fundamentals
and structural reforms should fare well in 2000.

January 2000

3
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO

BRAZIL (8.0%)
5,192,559 Celular Crt .................................................. 905
33,390,436 CEMIG (Preferred) ............................................ 749
6,117 CEMIG ADR .................................................... 138
48,862 Companhia Vale do Rio Doce (Preferred), Class A .............. 1,352
287,200 Coteminas .................................................... 18
(d)(e)2,700 Coteminas ADR ................................................ 8
3,681,750 CRT (Preferred) .............................................. 1,141
14,043 CVRD ADR ..................................................... 388
(a)(d)2,311,000 Lojas Arapua (Preferred) ..................................... --@
(a)(e)1,305 Lojas Arapua GDR ............................................. --@
4,860,195 Petrobras (Preferred) ........................................ 1,238
22,445 Petroleo Brasileiro S.A. ADR ................................. 576
(a)51,098,736 Tele Celular Sul Participacoes S.A.
(Preferred) ................................................ 170
5,281 Tele Celular Sul Participacoes S.A. ADR ...................... 168
1,250,087 Tele Centro Oeste Celular Particpacoes
S.A. (Preferred) ........................................... 3
48,358,853 Tele Centro Sul Participacoes S.A.
(Preferred) ................................................ 883
2,831 Tele Centro Sul Participacoes S.A. ADR ....................... 257
30,813,936 Tele Nordeste Celular Participacoes
S.A.(Preferred) ............................................ 80
375 Tele Nordeste Celular Participacoes
S.A. ADR ................................................... 19
15,514,136 Tele Norte Leste Participacoes S.A.
(Preferred) ................................................ 416
18,582 Tele Norte Leste Participacoes S.A. ADR ...................... 474
38,071,585 Tele Sudeste Celular Participacoes
S.A.(Preferred) ............................................ 281
16,347 Tele Sudeste Celular Participacoes
S.A. ADR ................................................... 634
5,780 Telecomunicacoes Brasileiras S.A. ADR ........................ 743
72,510,036 Telemig Celular Participacoes S.A.
(Preferred) ................................................ 159
1,191 Telemig Celular Participacoes S.A. ADR ....................... 55
1,318,000 Telerj Celular S.A. (Preferred) Class B ...................... 36
33,081,736 Telesp Celular Participacoes S.A.
(Preferred) ................................................ 586
19,385 Telesp Celular Participacoes S.A. ADR ........................ 821
3,442,683 Telesp Celular S.A. Participacoes
(Preferred)Class B ......................................... 273
6,081,936 Telesp Participacoes S.A. (Preferred) ........................ 147
16,670 Telesp Participacoes S.A. ADR ................................ 407
60,979 Unibanco (Preferred) GDR ..................................... 1,837
--------------------
14,962
--------------------
CHILE (0.2%)
8,140 Endesa ADR ................................................... 115
7,435 Enersis ADR .................................................. 175
(a)993 Santa Isabel ADR ............................................. 10
--------------------
300

CHINA (3.2%)
365,000 China Telecom Ltd. (Hong Kong) ............................... 2,282
(a)9,300 China Telecom Ltd. (Hong Kong) ADR ........................... 1,196
300 China.com Corp., Class A (Hong Kong) ......................... 23
(a)759,000 Great Wall Technology Co., Ltd ............................... 737
111,000 Guangdong Kelon Electrical Holdings
Co., Ltd ................................................... 84
131,000 Legend Holdings Ltd. ......................................... 326
(a)1,078,000 TCL International Holdings, Ltd. ............................. 756
(a)170,000 Timeless Software Ltd. ....................................... 98
10,483 Yanzhou Coal Mining Co. ADR .................................. 148
(a)106,000 Yue Yuen Industrial Holdings ................................. 254
474,500 Zhenhai Refining and Chemical Co., Ltd.,
Class H .................................................... 84
--------------------
5,988
--------------------
COLOMBIA (0.0%)
2,661 Bancolombia S.A. (Preferred) ................................. 3
--------------------

CZECH REPUBLIC (0.4%)
33,280 SPT Telcom a.s. .............................................. 536
(a)7,871 SPT Telecona a.s. GDR ........................................ 126
--------------------
662
--------------------
EGYPT (1.0%)
(a)13,476 Al-Ahram Beverages Co. GDR ................................... 265
4,124 Eastern Tobacco .............................................. 108
925 Egypt Gas Co. ................................................ 57
30,197 Egyptian Co. ................................................. 1,384
--------------------
1,814
--------------------
GREECE (1.0%)
3,870 Alpha Credit Bank ............................................ 305
22,328 Hellenic Telecommunication
Organization S.A. .......................................... 532
20,856 Hellenic Telecommunication
Organization S.A. ADR ...................................... 249
4,250 National Bank of Greece S.A. ................................. 314
(a)10,960 National Bank of Greece S.A. ADR ............................. 154
12,360 Panafon Hellenic Telecom S.A. GDR ............................ 166
(a)17,060 Panafon Hellenic Telecom S.A. ................................ 230
--------------------
1,950
--------------------
HUNGARY (0.8%)
23,603 Magyar Tavkozlesi Rt. ADR .................................... 850
29,959 Matav Rt ..................................................... 210
3,900 Matav Rt. ADR ................................................ 140
2,131 OTP Bank Rt. ................................................. 125
(a)1,537 OTP Bank Rt. GDR ............................................. 89
--------------------
1,414
--------------------
</TABLE>

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

4
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO

STATEMENT OF NET ASSETS
DECEMBER 31, 1999

<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDIA (8.7%)
36,500 Associated Cement Cos., Ltd .................................. $ 208
20,000 Bank of Baroda ............................................... 29
145,000 Bharat Heavy Electricals Ltd ................................. 700
96,664 Container Corp. of India Ltd ................................. 544
32,000 Corporation Bank ............................................. 82
7,550 Dabur India Ltd. ............................................. 205
(a)66,300 Gujarat Ambuja Cements Ltd. .................................. 497
10,000 Gujarat Ambuja Cements Ltd. GDR .............................. 79
(a)(d)5,100 HCL Technologies Ltd. ........................................ 68
43,227 Hero Honda Motors Ltd. ....................................... 1,122
14,600 Hindustan Lever Ltd. ......................................... 755
37,200 Housing Development Finance Corp., Ltd. ...................... 264
(a)66,500 Indo Gulf Corp., Ltd. ........................................ 96
14,479 Infosys Technology Ltd. ...................................... 4,832
49,222 Larsen & Toubro Ltd. ......................................... 629
5,000 Larson & Toubro Ltd. GDR ..................................... 166
(a)15,000 Lupin Laboratories Ltd. ...................................... 198
(c)35,500 Morgan Stanley Dean Witter India
Investment Fund, Inc. ...................................... 586
7,250 NIIT Ltd. .................................................... 553
(a)52,507 Oriental Bank of Commerce .................................... 56
89,900 Reliance Industries Ltd. ..................................... 483
5,500 Reliance Industries Ltd. GDR ................................. 77
26,700 Satyam Computer Services Ltd. ................................ 1,350
55,250 State Bank of India .......................................... 285
7,500 State Bank of India GDR ...................................... 91
(a)(d)2,500 Strides Arcolab Ltd. ......................................... 23
93,000 Tata Engineering & Locomotive Co., Ltd. ...................... 430
(a)15,000 Tata Engineering & Locomotive Co., GDR
(Europe) ................................................... 79
(a)18,000 Tata Tea Ltd. ................................................ 217
5,000 Videsh Sanchar Nigam Ltd. .................................... 208
(a)3,000 Videsh Sanchar Nigam Ltd. GDR ................................ 74
51,500 Zee Telefilms Ltd. ........................................... 1,294
--------------------
16,280
--------------------
INDONESIA (1.2%)
546,900 Indah Kiat Pulp & Paper Corp ................................. 215
291,000 Indofood Sukses Makmur (Foreign) ............................. 365
292,616 PT Gudang Garam .............................................. 787
(a)226,500 PT Semen Fresik .............................................. 359
43,905 Telekomunikasi Indonesia ADR ................................. 483
--------------------
2,209
--------------------
ISRAEL (6.2%)
(a)20,227 Amdocs Ltd. .................................................. 698
(a)6,477 BATM Advanced Communications Ltd. ............................ 536
(a)5,889 Check Point Software Technologies Ltd. ....................... 1,171
(a)6,190 Comverse Technology, Inc. .................................... 896
(a)6,739 DSP Group, Inc. .............................................. 627
76,817 ECI Telecom Ltd. ............................................. 2,429
1 Elbit Systems Ltd. ........................................... --
(a)8,096 Galileo Technology Ltd. ...................................... 195
(a)24,280 Gilat Satellite Networks Ltd. ................................ 2,883
(a)2,164 Jacada Ltd. .................................................. 60
(a)2,788 NICE System Ltd. ............................................. 136
(a)8,279 NICE Systems Ltd. ADR ........................................ 407
(a)8,345 Orbotech Ltd. ................................................ 647
(a)4,410 Orckit Communications Ltd. ................................... 151
(a)2,700 RADWARE Ltd. ................................................. 116
(a)9,090 Sapiens International Corp. .................................. 149
(a)5,040 Tecnomatix Technologies Ltd. ................................. 145
(a)7,880 TTI Team Telecom International Ltd. .......................... 143
(a)3,490 Zoran Corp. .................................................. 195
--------------------
11,584
--------------------
MALAYSIA (0.4%)
22,200 British American Tobacco Bhd ................................. 169
3,000 Commerce Asset Holding Bhd ................................... 8
57,200 Malayan Banking Bhd .......................................... 203
15,000 Nestle (Malaysia) Bhd ........................................ 65
38,000 Public Bank .................................................. 33
10,000 Sime Darby Bhd ............................................... 13
82,000 Telekom Malaysia Bhd ......................................... 317
--------------------
808
--------------------
MEXICO (10.1%)
(a)63,547 Alfa, S.A. de C.V., Class A .................................. 298
(a)323,307 Cemex CPO S.A. ............................................... 1,807
(a)37,772 Cemex CPO S.A. ADR ........................................... 1,053
(a)100,921 Cifra S.A. de C.V. ........................................... 202
(a)49,498 Cifra S.A., Class C .......................................... 94
(a)6,294 Cifra, Class VADR ............................................ 126
18,049 Fomento Economico Mexicano, S.A. de
C.V. ADR ................................................... 803
381,391 Fomento Economico Mexicano, S.A. de
C.V.-UBD ................................................... 1,702
(a)68,014 Grupo Carso S.A. de C.V., Class A1 ........................... 339
259,551 Grupo Financiero Banamex Accival, S.A
de C.V. .................................................... 1,040
(a)18,695 Grupo Financiero Bancomer ADS ................................ 157
(a)894,022 Grupo Financiero Bancomer, S.A. de C.V.,
O Shares ................................................... 373
(a)55,375 Grupo Televisa S.A. GDR ...................................... 3,780
113,953 Kimberly-Clark Corp., Class A ................................ 445
2,400 Panamerican Beverages, Inc. .................................. 49
59,182 Telmex Class L, ADR .......................................... 6,658
2,100 Vitro S.A. ADR ............................................... 12
--------------------
18,938
--------------------
PAKISTAN (0.2%)
23,553 Pakistan State Oil Co., Ltd. ................................. 84
871,600 Pakistan Telecommunications
Corp., Class A ............................................ 349
--------------------
433
--------------------
</TABLE>

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

5
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS,INC.
EMERGING MARKETS EQUITY PORTFOLIO

STATEMENT OF NET ASSETS (CONT.)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
POLAND (1.1%)
(a)30,443 Elektrim ..................................................... $ 302
(a)24,470 Polski Koncern Naftowy GDR ................................... 306
4,303 Prokom Software GDR .......................................... 67
212,288 Telekomunikacja Polska S.A. GDR .............................. 1,380
13,559 Wielkopolski Bank Kredytowy S.A. ............................. 92
--------------------
2,147
--------------------
RUSSIA (2.5%)
28,489 Lukoil Holding ADR ........................................... 1,439
(a)(d)985,428 Mustcom ...................................................... 194
1,600 RAO Unified Engery System ADR ................................ 14
(a)15,800 Rostelecom ADR ............................................... 267
(a)110,232 Surgutneftegaz ADR ........................................... 1,915
(a)37,360 Unified Energy Systems GDR ................................... 495
(a)6,870 Vimpel-Communications SP ADR ................................. 306
--------------------
4,630
--------------------
SINGAPORE (0.5%)
(a)47,000 Chartered Semiconductor
Manufacturing Ltd. ......................................... 257
(a)200 Chartered Semiconductor
Manufacturing Ltd. ADR ..................................... 15
60,000 Natsteel Electronics Ltd. .................................... 317
26,000 Venture Manufacturing Ltd .................................... 298
--------------------
887
--------------------
SOUTH AFRICA (5.1%)
89,209 ABSA Group Ltd ............................................... 400
14,746 Anglo American plc ........................................... 448
900 AngloGold Ltd ................................................ 46
829,214 B.O.E. Corp. Ltd., Class N ................................... 630
145,148 Bidvest Group Ltd ............................................ 1,419
24,546 Billiton plc ................................................. 145
88,400 Billiton plc ................................................. 508
45,066 Camparex Holdings Ltd ........................................ 316
6,438 DeBeers ADR .................................................. 186
50,439 DeBeers Centenary AG ......................................... 1,468
(a)92,604 Dimension Data Holdings Ltd. ................................. 581
134,700 Education Investment Corp. (The) Ltd ......................... 113
(a)71,666 Ellerine Holdings Ltd ........................................ 379
419,910 FirstRand Ltd ................................................ 601
92,910 M-Cell Ltd ................................................... 360
20,352 Nedcor Ltd ................................................... 453
(a)366,170 New Africa Investments Ltd., Class N ......................... 204
63,813 Rembrandt Group Ltd .......................................... 608
32,300 Sappi Ltd. ................................................... 319
53,000 Sasol Ltd. ................................................... 435
--------------------
9,619
--------------------
SOUTH KOREA (19.5%)
7,960 Cheil Jedang Corp ............................................ 918
(a)2,500 Dacom Corp ................................................... 1,288
21,163 Daewoo Securities Co ......................................... 240
(a)12,235 Daou Technology, Inc ......................................... 426
(a)820 Digital Chosun Co. Ltd ....................................... 164
68,400 Good Morning Securities Co., Ltd ............................. 327
15,100 H & CB ....................................................... 479
26,520 Hana Bank .................................................... 207
9,610 Hankuk Glass Industry Co., Ltd ............................... 182
126,750 Hanvit Bank .................................................. 429
(a)31,000 Hanvit Bank GDR .............................................. 200
(a)22,540 Humax Co., Ltd ............................................... 381
31,086 Hyundai Electronics Industries Co ............................ 660
(a)12,010 Hyundai Securities Co. ....................................... 235
(a)8,000 Insung Information ........................................... 273
46,377 Kookmin Bank ................................................. 727
40,436 Korea Electric Power Corp. ADR ............................... 677
(a)20,780 Korea Technology Banking ..................................... 201
190 KoreaTelecom Corp. ........................................... 30
45,960 Korea Telecom Corp., SP ADR .................................. 3,436
(a)11,190 L.G. Securities Co. .......................................... 190
10,610 LG Electronics, Inc .......................................... 439
(a)38,870 Mirae Co ..................................................... 302
(a)21,230 Pantech Co., Ltd ............................................. 477
(d)5,242 Pohang Iron & Steel Co., Ltd ................................. 598
10,126 Samsung Electro-Mechanics Co ................................. 673
52,761 Samsung Electronics Co. ...................................... 12,360
7,160 Samsung Securities Co., Ltd .................................. 217
(a)930 Serome Technology, Inc ....................................... 198
51,301 SK Telecom Co. Ltd. ADR ...................................... 1,969
1,802 SK Telecom Co., Ltd .......................................... 6,459
(a)20,940 Telson Electronics Co. Ltd ................................... 409
(a)6,843 Trigem Computer, Inc ......................................... 759
--------------------
36,530
--------------------
TAIWAN (11.4%)
(a)293,000 Accton Technology Corp ....................................... 994
(a)211,904 Acer Peripherals, Inc ........................................ 878
(a)(d)9,936 Acer Peripherals, Inc. GDR ................................... 419
412,950 Acer, Inc .................................................... 1,243
(a)180,836 Advanced Semiconductor
Engineering, Inc ........................................... 645
(a)21,000 Ambit Microsystems Corp ...................................... 156
(a)4,100 ASE Test Ltd. ................................................ 100
145,700 Asustek Computer, Inc ........................................ 1,537
(a)135,600 Chinatrust Commercial Bank ................................... 158
116,425 Compal Electronics, Inc ...................................... 391
(a)108,000 Compeq Manufacturing Co., Ltd ................................ 589
126,000 D-Link Corp .................................................. 273
150,000 Delta Electronic Industrial .................................. 650
(a)498,000 Dialer and Business .......................................... 889
(a)445,370 Far Eastern Textile Ltd ...................................... 1,064
(a)(e)6,600 Far Eastern Textile Ltd. GDR ................................. 158
(a)149,920 Hon Hai Precision Industry ................................... 1,118
(a)11,600 Hon Hai Precision Industry GDR ............................... 224
123,200 International Commercial Bank of China ....................... 138
122,000 President Chain Store Corp. .................................. 538
</TABLE>

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

6
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS,INC.
EMERGING MARKETS EQUITY PORTFOLIO

STATEMENT OF NET ASSETS (CONT.)
DECEMBER 31, 1999

<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a)28,000 Ritek Corp. .................................................. $ 170
(a)21,700 Ritek Corp. GDR .............................................. 251
(a)240,334 Siliconware Precision Industries Co .......................... 613
(a)214,480 Taishin International Bank ................................... 120
865,510 Taiwan Semiconductor Manufacturing
Co. Ltd .................................................... 4,605
(a)3,300 Taiwan Semiconductor Manufacturing
Co. Ltd. ADR ............................................... 149
(a)808,000 United Microelectronics Corp., Ltd ........................... 2,883
(a)64,000 Universal Scientific Industrial Co. .......................... 202
(a)83,000 Wyse Technology Taiwan Ltd. .................................. 161
--------------------
21,316
--------------------
THAILAND (1.9%)
47,500 Advanced Info Service PCL (Foreign) .......................... 797
(d)44,500 BEC World PCL (Foreign) ...................................... 314
52,615 Delta Electronics (Thailand) PCL (Foreign) ................... 626
51,400 Shinawatra Computer Co. PCL
(Foreign) .................................................. 486
134,900 Siam Cement PCL (Foreign) .................................... 724
348,200 Thai Farmers Bank PCL (Foreign) .............................. 582
--------------------
3,529
--------------------
TURKEY (7.6%)
86,515,400 Dogan Sirketler Grubu Holdings A.S. .......................... 2,552
(a)46,584,000 Dogan Yayin Holdings ......................................... 687
10,492,000 Ege Biracilik ................................................ 803
(a)2,114,800 Erciyas Biracilik ............................................ 101
(a)8,840,000 Eregli Demir Ve Celik Fabrikalari T.A.S. ..................... 367
19,219,000 Haci Omer Sabanci Holdings A.S. .............................. 1,116
316,100 Migros Turk T.A.S ............................................ 204
(a)54,261,000 Turkiye Garanti Bankasi A.S. ADR ............................. 820
29,970,400 Turkiye Is Bankasi, Class C .................................. 1,437
3,152,000 Turpras-Turkiye Petrol Rafinerileri A.S. ..................... 355
(a)3,439,105 Vestel Elektronik Sanayi Ve Ticaret A.S. ..................... 824
157,606,712 Yapi Ve Kredi Bankasi A.S. ................................... 4,867
(a)3,500 Yapi Ve Kredi Bankasi GDR .................................... 103
--------------------
14,236
--------------------
OTHER (0.0%)
(a)(c)1,865 Morgan Stanley Dean Witter Africa
Investment Fund, Inc ....................................... 19
--------------------
TOTAL COMMON STOCKS (COST $119,972) ............................................ 171,701
--------------------
PREFERRED STOCK (0.2%)
TAIWAN (0.2%)
659,150 China Steel Corp (COST $500) ................................. 487
--------------------
<CAPTION>
NO. OF
WARRANTS
- ---------------
WARRANTS (0.1%)
THAILAND (0.1%)
8,833 Siam Commercial Bank, (foreign)
expiring 6/22/04 ........................................... 4
--------------------
369,000 Siam Commercial Bank,
expiring 5/10/02 ........................................... 171
--------------------
TOTAL WARRANTS (COST $0) ....................................................... 175
--------------------
<CAPTION>
NO. OF
RIGHTS
- ---------------
<S> <C> <C>
RIGHTS (0.0%)
SOUTH KOREA (0.0%)
301 Serome Technology, Inc.,
expiring 1/26/00 (COST $0) ................................. 43
--------------------
TOTAL FOREIGN SECURITIES (92.1%) (COST $120,472) ............................... 172,406
--------------------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<S> <C> <C>
SHORT-TERM INVESTMENT (6.0%)
REPURCHASE AGREEMENT (6.0%)
$ 11,163 Chase Securities, Inc., 2.60%, dated
12/31/99, due 1/3/00, to be repurchased
at $11,165, collateralized by U.S.
Treasury Notes, 6.125%, due 12/31/01,
valued at $11,392
(COST $11,163) ............................................. 11,163
--------------------
FOREIGN CURRENCY (0.4%)
BRL 56 Brazilian Real 31
GRD 6,002 Greek Drachma 19
HUF 89 Hungarian Forint --@
INR 281 Indian Rupee 6
MYR 32 Malaysian Ringgit 8
MXP 20 Mexican Peso 2
PKR 789 Pakistan Rupees 15
KWN 730 South Korean Won 1
ZAR 2,665 South African Rand 435
TRL 90,586,450 Turkish Lira 168
--------------------
TOTAL FOREIGN CURRENCY (COST $687) 685
--------------------
</TABLE>

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

7
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO

STATEMENT OF NET ASSETS (CONT.)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
(000)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (98.5%) (COST $132,322) ...................................... $184,254
--------------------
OTHER ASSETS (3.2%)
Cash .................................................... $ 1,746
Receivable for Portfolio Shares Sold .................... 3,697
Deferred Organization Costs ............................. 180
Dividends Receivable .................................... 149
Receivable for Investments Sold ......................... 127
Foreign Withholding Tax Reclaim Receivable .............. 5
Interest Receivable ..................................... 1
Other Assets ............................................ 39 5,944
--------------------
LIABILITIES (-1.7%)
Deferred Foreign Taxes Payable .......................... (1,454)
Payable for Investments Purchased ....................... (765)
Payable for Portfolio Shares Redeemed ................... (418)
Custodian Fees Payable .................................. (185)
Investment Advisory Fees Payable ........................ (87)
Administrative Fees Payable ............................. (37)
Professional Fees Payable ............................... (34)
Unrealized Loss on Foreign Currency
Exchange Contracts .................................... (1)
Other Liabilities ....................................... (93) (3,074)
-------------------- --------------------
NET ASSETS (100%) .............................................................. $187,124
--------------------
--------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 13,451,089 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $ 13.91
--------------------
--------------------
NET ASSETS CONSIST OF:
Paid in Capital $134,773
Distributions in Excess of Net Investment Income (60)
Accumulated Net RealizedGain 2,027
Unrealized Appreciation on Investments, Foreign Currency
Translations (Net of deferred foreign taxes of $1,535) 50,384
--------------------
NET ASSETS $187,124
--------------------
--------------------
- ------------------------------------------------------------------------------------------------------
</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

- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:

Under the terms of foreign currency exchange contracts open at December 31,
1999, 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>
U.S.$ 554 $555 1/5/00 ZAR 3,411 $554 $ (1)
GRD 30,272 92 1/3/00 U.S.$ 92 92 --
---- ---- ----
$647 $646 $ (1)
---- ---- ----
---- ---- ----
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY SECTOR CLASSIFICATION
<TABLE>
<CAPTION>
MARKET
VALUE % OF NET
SECTOR (000) ASSETS
- ------ ------ --------
<S> <C> <C>
Services $ 55,690 29.8%
Capital Equipment 46,646 24.9
Consumer Goods 25,453 13.6
Finance 20,797 11.1
Materials 12,494 6.7
Energy 8,564 4.6
Multi-Industry 2,716 1.4
Gold Mines 46 --
-------- ----
Total Foreign Securities $172,406 92.1%
-------- ----
-------- ----
</TABLE>

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

8
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS,INC.
EMERGING MARKETS EQUITY PORTFOLIO

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
(000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 1,020
Interest 183
Less: Foreign Taxes Withheld (40)
-------
Total Income 1,163
-------
EXPENSES:
Investment Advisory Fees 1,019
Less: Fees Waived (685)
-------
Net Investment Advisory Fees 334
Custodian Fees 480
Shareholder Reports 233
Administrative Fees 219
Amortization of Organizational Costs 102
Professional Fees 58
Foreign Tax Expense 29
Directors' Fees and Expenses 2
Interest Expense 2
Other 8
-------
Net Expenses 1,467
-------
NET INVESTMENT LOSS (304)
-------
NET REALIZED GAIN (LOSS) ON:
Investments Sold (net of foreign taxes of $330) 12,117
Foreign Currency Transactions (198)
Swap Agreements (15)
-------
Net Realized Gain 11,904
-------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (Net of deferred foreign taxes of $1,532 on unrealized appreciation) 55,657
Foreign Currency Translations 107
Swap Agreements (10)
-------
Change in Unrealized Appreciation/Depreciation 55,754
-------
Net Realized Gain and Change in Unrealized Appreciation/Depreciation 67,658
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $67,354
-------
-------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
(000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (304) $ 299
Net Realized Gain (Loss) 11,904 (8,981)
Change in Unrealized Appreciation/Depreciation 55,754 (1,534)
------- -------
Net Increase (Decrease) in Net Assets Resulting from Operations 67,354 (10,216)
------- -------
DISTRIBUTIONS
Distributions in Excess of Net Investment Income (20) (198)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 161,280 29,230
Distributions Reinvested 20 197
Redeemed (77,823) (16,798)
------- -------
Net Increase in Net Assets Resulting from Capital Share Transactions 83,477 12,629
------- -------
Total Increase in Net Assets 150,811 2,215
------- -------
NET ASSETS:
Beginning of Period 36,313 34,098
------- -------
End of Period (distributions in excess of net investment income of $(60) and
$(101), respectively) 187,124 36,313
------- -------
------- -------
- --------------------------------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 16,291 3,556
Shares Issued on Distributions Reinvested 2 28
Shares Redeemed (7,948) (2,088)
------- ------
Net Increase in Capital Shares Outstanding 8,345 1,496
------- -------
------- -------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

9
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS,INC.
EMERGING MARKETS EQUITY PORTFOLIO

FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
----------------------------------------------- OCTOBER 1, 1996*
1999 1998 1997 TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.11 $ 9.45 $ 9.78 $10.00
-------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.01) 0.06 0.04 0.01
Net Realized and Unrealized Gain (Loss) 6.81 (2.36) -- (0.21)
-------- ------- ------- -------
Total from Investment Operations 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 $13.91 $7.11 $9.45 $9.78
-------- ------- ------- -------
-------- ------- ------- -------
TOTAL RETURN 95.68% (24.34)% 0.52% (2.03)%
-------- ------- ------- -------
-------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $187,124 $36,313 $34,098 $11,789
Ratio of Expenses to Average Net Assets 1.79% 1.95% 1.80% 1.79%**
Ratio of Expenses to Average Net Assets Excluding Interest 1.75% 1.75% 1.75% 1.75%**
Expense and Foreign Tax Expense
Ratio of Net Investment Income (Loss) to Average Net (0.37)% 0.83% 0.47% 0.32%**
Assets
Portfolio Turnover Rate 113% 100% 87% 9%
- ------------------
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income $0.05 $0.11 $0.17 $0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.62% 3.45% 4.12% 6.17%**
Net Investment Loss to Average Net Assets (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 integral part of the financial statements.

10
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS,INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999

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.

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.

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 counter party to
the agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.

- 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.

11
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS,INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999

larly, 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) 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.

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
agree-

12
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS,INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999

ment. 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. 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 Dean Witter Investment Management,
Inc. 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.

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
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>

C. ADMINISTRATOR: MSDW Investment Management (the "Administrator") also provides
the Portfolio with administrative services pursuant to an administrative
agreement for a monthly fee which on an annual basis equals 0.25% of the average
daily net assets of the Portfolio, plus reimbursement of out-of-pocket
expenses. Under an agreement between the Administrator and Chase Global Funds
Services Company ("CGFSC"), a corporate affiliate of The Chase Manhattan Bank
("Chase"), CGFSC provides certain administrative services to the Fund. For such
services, the Administrator pays CGFSC a portion of the fee the Administrator
receives from the Fund. Certain employees of CGFSC are officers of the Fund. In
addition, the Fund incurs local administration fees in connection with doing
business in certain emerging market countries.

13
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS,INC.
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999

D. CUSTODIAN: The Chase Manhattan Bank serves as custodian for the Fund in
accordance with a custodian agreement.

E. CREDIT FACILITY: During December 1999, the Fund, along with an affiliated
open-end fund (collectively the "Funds"), entered into 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 year
ended December 31, 1999, there were no amounts drawn down on the Facility.

F. OTHER: At December 31, 1999, cost and unrealized appreciation (depreciation)
for U.S. Federal income tax purposes of the investments of the Portfolio were:

<TABLE>
<CAPTION>
NET
COST APPRECIATION DEPRECIATION APPRECIATION
(000) (000) (000) (000)
-------- ------------ ------------ ------------
<S> <C> <C> <C>
$133,075 $55,673 $(5,222) $50,451
</TABLE>

For the year ended December 31, 1999, purchases and sales of investment
securities for the Portfolio, other than long-term U.S. Government securities
and short-term investments, were approximately $159,491,000 and $88,713,000,
respectively. There were no purchases and sales of U.S. Government securities
for the year ended December 31, 1999.

During the year ended December 31, 1999, the Portfolio utilized capital loss
carryforwards for U.S. Federal income tax purposes of approximately $6,888,000.

For the year ended December 31, 1999, the Portfolio intends to defer to January
1, 2000, for U.S. Federal income tax purposes, post-October currency losses of
$54,000.

At December 31, 1999, 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.

14
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS,INC.
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of
Morgan Stanley Dean Witter Universal Funds, Inc.-
Emerging Markets Equity Portfolio

In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Morgan Stanley Dean Witter Universal Funds, Inc.--Emerging Markets Equity
Portfolio (the "Portfolio") at December 31, 1999, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the three
years in the period then ended and for the period October 1, 1996 (commencement
of operations) through December 31, 1996, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Portfolio's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

February 11, 2000

15
<PAGE>

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS,INC.
FEDERAL TAX INFORMATION (UNAUDITED)

For the year ended December 31, 1999, the percentage of distributions taxable as
ordinary income for the Portfolio, as reported on Form 1099-DIV, that qualify
for the dividends received deduction for corporations is 0.58%.

For the year ended December 31, 1999, the Portfolio intends to pass through to
shareholders foreign tax credits of approximately $384,000 and has derived gross
income from sources within foreign countries in the amount of approximately
$1,042,000.

16
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