MORGAN STANLEY UNIVERSAL FUNDS INC, 497, 1997-09-19

MORGAN STANLEY UNIVERSAL FUNDS INC
497, 1997-09-19

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<PAGE>

SUPPLEMENT DATED SEPTEMBER 19, 1997
TO THE PROSPECTUS DATED MAY 1, 1997

MONEY MARKET PORTFOLIO
FIXED INCOME PORTFOLIO
HIGH YIELD PORTFOLIO
CORE EQUITY PORTFOLIO
EQUITY GROWTH PORTFOLIO
VALUE PORTFOLIO
MID CAP GROWTH PORTFOLIO
MID CAP VALUE PORTFOLIO
U.S. REAL ESTATE PORTFOLIO
INTERNATIONAL FIXED INCOME PORTFOLIO
EMERGING MARKETS DEBT PORTFOLIO
GLOBAL EQUITY PORTFOLIO
INTERNATIONAL MAGNUM PORTFOLIO
EMERGING MARKETS EQUITY PORTFOLIO
ASIAN EQUITY PORTFOLIO
BALANCED PORTFOLIO
MULTI-ASSET-CLASS PORTFOLIO

PORTFOLIOS OF

MORGAN STANLEY UNIVERSAL FUNDS, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798

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

The Prospectus is being amended and supplemented to: (i) reflect changes to the
parent of the Fund's investment advisers, administrators and distributor; (ii)
provide unaudited financial highlights for eleven portfolios for periods ended
June 30, 1997; (iii) reflect a change in the name of a country in which the
Emerging Markets Debt Portfolio invests; (iv) reflect changes in investment
policies with respect to the International Magnum and Emerging Markets Equity
Portfolios; (v) reflect revised investment policies with respect to certain
derivative instruments; (vi) update and revise certain information concerning
principal holders of securities of the Fund; and (vii) reflect a change in the
portfolio managers for the Money Market Portfolio and the Emerging Markets
Equity Portfolio. The Prospectus is amended and supplemented as follows:

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

On May 31, 1997, Morgan Stanley Group Inc. ("MSGI") and Dean Witter, Discover &
Co. merged to form Morgan Stanley, Dean Witter, Discover & Co. Prior thereto,
Morgan Stanley Group Inc. was the parent of Morgan Stanley Asset Management
Inc. and Miller Anderson & Sherrerd, LLP (the "Advisers") and Morgan Stanley &
Co. Incorporated ("Morgan Stanley"). The Advisers and Morgan Stanley are now
subsidiaries of Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD").

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

The following paragraph and tables are added after the first paragraph under
the heading "Financial Highlights" on page 3 of the Prospectus:

The following tables provide financial highlights for the Fixed Income, High
Yield, Equity Growth, Mid Cap Value, Value, Global Equity and International
Magnum Portfolios for the period January 2, 1997 through June 30, 1997, for the
U.S. Real Estate and Asian Equity Portfolios for the period March 3, 1997
through June 30, 1997, for the Emerging Markets Debt Portfolio for the period
June 16, 1997 through June 30, 1997 and for the Emerging Markets Equity
Portfolio for the period October 1, 1996 through December 31, 1996 and for the
six months ended June 30, 1997, and are part of the Fund's unaudited financial
statements which are included in the Fund's current Statement of Additional
Information and in the Fund's Semi-Annual Report to Shareholders for the six
months ended June 30, 1997.
<PAGE>

<TABLE>
<CAPTION>
FIXED INCOME HIGH YIELD
PORTFOLIO PORTFOLIO
------------------- -------------------
PERIOD FROM PERIOD FROM
JANUARY 2, 1997* TO JANUARY 2, 1997* TO
JUNE 30, 1997 JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) (UNAUDITED)
- ---------------------------------- ------------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $10.00 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................. 0.25 0.35
Net Realized and Unrealized Gain....... 0.10 0.23
------ ------
Total From Investment Operations....... 0.35 0.58
------ ------
NET ASSET VALUE, END OF PERIOD........... $10.35 $10.58
====== ======
TOTAL RETURN............................. 3.50% 5.80%
====== ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)........ $9,033 $9,282
Ratio of Expenses to Average Net Assets.. 0.70%** 0.80%**
Ratio of Net Investment Income to Average
Net Assets.............................. 5.27%** 7.41%**
Portfolio Turnover Rate.................. 100% 63%
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income................................ $ 0.04 $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 1.59%** 1.30%**
Net Investment Income to Average Net
Assets................................ 4.38%** 6.91%**
</TABLE>
- -------
*Commencement of operations
**Annualized

<TABLE>
<CAPTION>
EQUITY MID CAP
GROWTH PORTFOLIO VALUE PORTFOLIO
------------------- -------------------
PERIOD FROM PERIOD FROM
JANUARY 2, 1997* TO JANUARY 2, 1997* TO
JUNE 30, 1997 JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) (UNAUDITED)
- ---------------------------------- ------------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............... 0.03 0.02
Net Realized and Unrealized Gain.... 1.50 1.89
------- -------
Total From Investment Operations.... 1.53 1.91
------- -------
NET ASSET VALUE, END OF PERIOD........ $ 11.53 $ 11.91
======= =======
TOTAL RETURN.......................... 15.30% 19.10%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)..... $ 3,959 $ 4,922
Ratio of Expenses to Average Net
Assets............................... 0.85%** 1.05%**
Ratio of Net Investment Income to
Average Net Assets................... 0.60%** 0.43%**
Portfolio Turnover Rate............... 95% 76%
Average Commission Rate Per Share..... $0.0510 $0.0429
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income (Loss)...................... $ 0.85 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets...... 5.55%** 2.45%**
Net Investment Loss to Average Net
Assets............................. (4.11)%** (0.97)%**
</TABLE>
- -------
*Commencement of operations
**Annualized

<PAGE>

<TABLE>
<CAPTION>
U.S. REAL
ESTATE PORTFOLIO VALUE PORTFOLIO
---------------- -------------------
PERIOD FROM
MARCH PERIOD FROM
3, 1997* TO JANUARY 2, 1997* TO
JUNE 30, 1997 JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) (UNAUDITED)
- ---------------------------------- ---------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................. 0.10 0.07
Net Realized and Unrealized Gain....... 0.27 1.48
------- -------
Total From Investment Operations....... 0.37 1.55
------- -------
NET ASSET VALUE, END OF PERIOD........... $ 10.37 $ 11.55
======= =======
TOTAL RETURN............................. 3.70% 15.50%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)........ $ 6,025 $ 5,264
Ratio of Expenses to Average Net Assets.. 1.10%** 0.85%**
Ratio of Net Investment Income to Average
Net Assets.............................. 3.52%** 1.82%**
Portfolio Turnover Rate.................. 56% 22%
Average Commission Rate Per Share........ $0.0576 $0.0585
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income................................ $ 0.08 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 3.71%** 2.35%**
Net Investment Income to Average Net
Assets................................ 0.90%** 0.32%**
</TABLE>
- -------
*Commencement of operations
**Annualized

<TABLE>
<CAPTION>
EMERGING MARKETS
DEBT PORTFOLIO
----------------
PERIOD FROM
JUNE 16,
1997* TO
JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED)
- ---------------------------------- ----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................ 0.03
Net Realized and Unrealized Loss ............................ (0.03)
-------
Total From Investment Operations............................. --
-------
NET ASSET VALUE, END OF PERIOD................................. $ 10.00
=======
TOTAL RETURN................................................... 0.00%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).............................. $10,049
Ratio of Expenses to Average Net Assets........................ 1.30%**
Ratio of Net Investment Income to Average Net Assets........... 6.48%**
Portfolio Turnover Rate........................................ 14%
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income .................. $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................... 2.77%**
Net Investment Income to Average Net Assets.................. 5.01%**
</TABLE>
- -------
*Commencement of operations
**Annualized
<PAGE>

<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL
EQUITY PORTFOLIO MAGNUM PORTFOLIO
------------------- -------------------
PERIOD FROM PERIOD FROM
JANUARY 2, 1997* TO JANUARY 2, 1997* TO
JUNE 30, 1997 JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) (UNAUDITED)
- ---------------------------------- ------------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............... 0.08 0.09
Net Realized and Unrealized Gain.... 1.41 1.58
------- -------
Total From Investment Operations.... 1.49 1.67
------- -------
NET ASSET VALUE, END OF PERIOD........ $ 11.49 $ 11.67
======= =======
TOTAL RETURN.......................... 14.90% 16.70%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)..... $ 7,326 $14,643
Ratio of Expenses to Average Net
Assets............................... 1.15%** 1.15%**
Ratio of Net Investment Income to
Average Net Assets................... 1.81%** 1.96%**
Portfolio Turnover Rate............... 3% 19%
Average Commission Rate:
Per Share........................... $0.0225 $0.0170
As a Percentage of Trade Amount..... 0.17% 0.17%
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income............................. $ 0.06 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets...... 2.46%** 2.38%**
Net Investment Income to Average Net
Assets............................. 0.50%** 0.73%**
</TABLE>
- -------
*Commencement of operations
**Annualized
<TABLE>
<CAPTION>
EMERGING MARKETS EQUITY PORTFOLIO
-------------------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 1997 OCTOBER 1, 1996*
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) TO DECEMBER 31, 1996
- ---------------------------------- ---------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 9.78 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 0.05 0.01
Net Realized and Unrealized Gain
(Loss)............................... 2.20 (0.21)
------- -------
Total From Investment Operations...... 2.25 (0.20)
------- -------
DISTRIBUTIONS
Net Investment Income................. -- (0.02)
------- -------
Total Distributions................... -- (0.02)
------- -------
NET ASSET VALUE, END OF PERIOD.......... $ 12.03 $ 9.78
======= =======
TOTAL RETURN............................ 23.01% (2.03)%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)....... $20,308 $11,789
Ratio of Expenses to Average Net
Assets................................. 1.75%** 1.75%**
Ratio of Net Investment Income to
Average Net Assets..................... 1.03%** 0.32%**
Portfolio Turnover Rate................. 38% 9%
Average Commission Rate:
Per Share............................. $0.0012 $0.0013
As a Percentage of Trade Amount....... 0.40% 0.45%
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income (Loss)........................ $ 0.12 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ 4.49%** 6.17%**
Net Investment Loss to Average Net
Assets............................... (1.67)%** (4.06)%**
</TABLE>
- -------
*Commencement of operations
**Annualized
<PAGE>

<TABLE>
<CAPTION>
ASIAN
EQUITY PORTFOLIO
-----------------
PERIOD FROM
MARCH 3, 1997* TO
JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED)
- ---------------------------------- -----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................................... 0.03
Net Realized and Unrealized Gain............................ 0.63
-------
Total From Investment Operations............................ 0.66
-------
NET ASSET VALUE, END OF PERIOD............................... $ 10.66
=======
TOTAL RETURN................................................. 6.60%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)............................ $10,946
Ratio of Expenses to Average Net Assets...................... 1.20%**
Ratio of Net Investment Income to Average Net Assets......... 1.06%**
Portfolio Turnover Rate...................................... 49%
Average Commission Rate:
Per Share.................................................. $0.0170
As a Percentage of Trade Amount............................ 0.56%
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Loss................... $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................. 2.55%**
Net Investment Loss to Average Net Assets.................. (0.22)%**
</TABLE>
- -------
*Commencement of operations
**Annualized

--------------
Under the heading "THE PORTFOLIOS' INVESTMENTS," the list of countries on page
12 is amended as follows:

"Zaire" is deleted and "Democratic Republic of Congo" is inserted between
"Czech Republic" and "Dominican Republic."
--------------

Under the heading "THE PORTFOLIOS' INVESTMENTS," the second paragraph under
"INTERNATIONAL MAGNUM PORTFOLIO" on page 13 is deleted and replaced with the
following:

The countries in which the Portfolio will invest are those comprising the
Morgan Stanley Capital International EAFE Index (the "EAFE Index"), which
includes Australia, Japan, New Zealand, most nations located in Western Europe
and certain developed countries in Asia, such as Hong Kong and Singapore (each
an "EAFE country," and collectively the "EAFE countries"). The Portfolio may
invest up to 5% of its total assets in the securities of issuers domiciled in
non-EAFE countries. Under normal circumstances, at least 65% of the total
assets of the Portfolio will be invested in Equity Securities of issuers in at
least three different EAFE countries.
--------------

Under the heading "THE PORTFOLIOS' INVESTMENTS," the first sentence in the
third paragraph under "EMERGING MARKETS EQUITY PORTFOLIO" on page 14 is deleted
and replaced with the following:

When deemed appropriate by the Adviser, the Portfolio may also invest up to 20%
of its total assets (measured at the time of the investment) in Fixed Income
Securities that are not Investment Grade Securities (commonly referred to as
High Yield Securities or junk bonds).

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

As a result of changes to the descriptions of certain derivative instruments
invested in by the Fund, the Prospectus is amended and supplemented as follows:

The section entitled "DERIVATIVES" on pages 20-21 is deleted.
The section entitled "FUTURES" on pages 23-24 is deleted.
The section entitled "OPTIONS" on page 28 is deleted.
The section entitled "STRUCTURED NOTES" on page 30 is deleted.
The section entitled "SWAPS" on page 30 is deleted.

After the section entitled "ZERO COUPONS: PAY-IN-KIND OR DEFERRED PAYMENT
SECURITIES" on page 31, the following sections are inserted:

DERIVATIVES. The Portfolios are permitted to invest in various Derivatives for
both hedging and non-hedging purposes. Derivatives include Options, Futures,
Structured Notes, Caps, Floors, Collars and Swaps. Additionally, the Portfolios
may invest in other Derivatives that are developed over time if their use would
be consistent with the objectives of the Portfolios. Each of the Equity Growth,
U.S. Real Estate, Emerging Markets Debt, Global Equity, International Magnum,
Emerging Markets Equity and Asian Equity Portfolios will limit its use of
Derivatives to 33 1/3% of its total assets measured by the aggregate notional
amount of outstanding Derivatives. The Fixed Income, High Yield, Core Equity,
Value, Mid Cap Growth, Mid Cap Value, International Fixed Income, Balanced and
Multi-Asset-Class
<PAGE>

Portfolios will not enter into Futures to the extent that each Portfolio's
outstanding obligations to purchase securities under these contracts, in
combination with its outstanding obligations with respect to Options, would
exceed 50% of its total assets. The Portfolios' investments in forward foreign
currency contracts and Derivatives used for hedging purposes are not subject to
the foregoing limits.

The Portfolios may use Derivatives under a number of different circumstances to
further their investment objectives. The Portfolios may use Derivatives when
doing so provides more liquidity than the direct purchase of the securities
underlying such Derivatives. For example, a Portfolio may purchase Derivatives
to quickly gain exposure to a market in response to changes in the Portfolio's
asset allocation policy or upon the inflow of investable cash when the
Derivative provides greater liquidity than the underlying securities market. A
Portfolio may also use Derivatives when it is restricted from directly owning
the underlying securities due to foreign investment restrictions or other
reasons or when doing so provides a price advantage over purchasing the
underlying securities directly, either because of lower transaction costs
associated with the Derivatives transaction. Derivatives may also be used by a
Portfolio for hedging purposes and under other circumstances in which a
Portfolio's portfolio managers believe it advantageous to do so consistent with
the Portfolio's investment objective. The Portfolios will not, however, use
Derivatives in a manner that creates leverage, except to the extent that the
use of leverage is expressly permitted by a particular Portfolio's investment
policies, and then only in a manner consistent with such policies.

Some of the Derivatives in which the Portfolios may invest and the risks
related thereto are described in more detail below.

CAPS, FLOORS AND COLLARS. The Portfolios may invest in Caps, Floors and
Collars, which are instruments analogous to Options. In particular, a Cap is
the right to receive the excess of a reference rate over a given rate and is
analogous to a put Option. A floor is the right to receive the excess of a
given rate over a reference rate and is analogous to a call Option. Finally, a
Collar is an instrument that combines a Cap and a Floor. That is, the buyer of
a Collar buys a Cap and writes a Floor, and the writer of a Collar writes a Cap
and buys a Floor. The risks associated with Caps, Floors and Collars are
similar to those associated with Options. In addition, Caps, Floors and Collars
are subject to risk of default by the counterparty because they are privately
negotiated instruments.

FUTURES. The Portfolios may purchase and sell futures contracts and options on
futures contracts, including but not limited to securities index futures,
foreign currency exchange futures, interest rate futures contracts and other
financial futures (collectively, "Futures"). Futures contracts provide for the
sale by one party and purchase by another party of a specified amount of a
specific security, instrument or basket thereof, at a specific future date and
at a specified price. An option on a futures contract is a legal contract that
gives the holder the right to buy or sell a specified amount of futures
contracts at a fixed or determinable price upon the exercise of the option.

The Portfolios may sell securities index futures contracts and/or options
thereon in anticipation of or during a market decline to attempt to offset the
decrease in market value of investments in its portfolio, or purchase
securities index futures in order to gain market exposure. Subject to
applicable laws, the Portfolios may engage in transactions in securities index
futures contracts (and options thereon) which are traded on a recognized
securities or futures exchange, or may purchase or sell such instruments in the
over-the-counter market. There currently are limited securities index futures
and options on such futures in many countries, particularly emerging countries.
The nature of the strategies adopted by the Adviser, and the extent to which
those strategies are used, may depend on the development of such markets.

The Portfolios may engage in transactions involving foreign currency exchange
futures contracts. Such contracts involve an obligation to purchase or sell a
specific currency at a specified future date and at a specified price. The
Portfolios may engage in such transactions to hedge their respective holdings
and commitments against changes in the level of future currency rates or to
adjust their exposure to a particular currency. For more information, see
"Foreign Currency Transactions" above.

The Portfolios may engage in transactions in interest rate futures
transactions. Interest rate futures contracts involve an obligation to purchase
or sell a specific debt security, instrument or basket thereof at a specified
future date at a specified price. The value of the contract rises and falls
inversely with changes in interest rates. The Portfolios may engage in such
transactions to hedge their holdings of debt instruments against future changes
in interest rates.

Financial futures are futures contracts relating to financial instruments, such
as U.S. Government securities, foreign currencies, and certificates of deposit.
Such contracts involve an obligation to purchase or sell a specific security,
instrument or basket thereof at a specified future date at a specified price.
Like interest rate futures contracts, the value of financial futures contracts
rises and falls inversely with changes in interest rates. The Portfolios may
engage in financial futures contracts for hedging and non-hedging purposes.

Under rules adopted by the Commodity Futures Trading Commission, each Portfolio
may enter into futures contracts and options thereon for both hedging and non-
hedging purposes, provided that not more than 5% of such Portfolio's total
assets at the time of entering the transaction are required as margin and
option premiums to secure obligations under such contracts relating to non-
hedging activities.

<PAGE>

Gains and losses on futures contracts and options thereon depend on the
Adviser's ability to predict correctly the direction of securities prices,
interest rates and other economic factors. Other risks associated with the use
of futures and options are (i) imperfect correlation between the change in
market value of investments held by a Portfolio and the prices of futures and
options relating to investments purchased or sold by the Portfolio, and (ii)
possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position. The risk that a Portfolio will
be unable to close out a futures position or options contract will be minimized
by only entering into futures contracts or options transactions for which there
appears to be a liquid exchange or secondary market. The risk of loss in
trading on futures contracts in some strategies can be substantial, due both to
the low margin deposits required and the extremely high degree of leverage
involved in futures pricing.

OPTIONS. The Portfolios may seek to increase their returns or may hedge their
portfolio investments through Options transactions with respect to securities,
instruments, indices or baskets thereof in which such Portfolios may invest, as
well as with respect to foreign currency. Purchasing a put Option gives a
Portfolio the right to sell a specified security, currency or basket of
securities or currencies at the exercise price until the expiration of the
Option. Purchasing a call Option gives a Portfolio the right to purchase a
specified security, currency or basket of securities or currencies at the
exercise price until the expiration of the Option.

Each Portfolio also may write (i.e., sell) put and call Options on investments
held in its portfolio, as well as with respect to foreign currency. A Portfolio
that has written an Option receives a premium, which increases the Portfolio's
return on the underlying security or instrument in the event the Option expires
unexercised or is closed out at a profit. However, by writing a call Option, a
Portfolio will limit its opportunity to profit from an increase in the market
value of the underlying security or instrument above the exercise price of the
Option for as long as the Portfolio's obligation as writer of the Option
continues. The Portfolios may only write Options that are "covered." A covered
call Option means that so long as the Portfolio is obligated as the writer of
the Option, it will earmark or segregate sufficient liquid assets to cover its
obligations under the Option or own (i) the underlying security or instrument
subject to the Option, (ii) securities or instruments convertible or
exchangeable without the payment of any consideration into the security or
instrument subject to the Option, or (iii) a call Option on the same underlying
security with a strike price no higher than the price at which the underlying
instrument was sold pursuant to a short Option position.

By writing (or selling) a put Option, a Portfolio incurs an obligation to buy
the security or instrument underlying the Option from the purchaser of the put
at the Option's exercise price at any time during the Option period, at the
purchaser's election. The Portfolios may also write Options that may be
exercisable by the purchaser only on a specific date. A Portfolio that has
written a put Option will earmark or segregate sufficient liquid assets to
cover its obligations under the Option or will own a put Option on the same
underlying security with an equal or higher strike price.

The Portfolios may engage in transactions in Options which are traded on
recognized exchanges or over-the-counter. There currently are limited Options
markets in many countries, particularly emerging countries such as Latin
American countries, and the nature of the strategies adopted by the Adviser and
the extent to which those strategies are used will depend on the development of
such Options markets. The primary risks associated with the use of Options are
(i) imperfect correlation between the change in market value of investments
held, purchased or sold by a Portfolio and the prices of Options relating to
such investments, and (ii) possible lack of a liquid secondary market for an
Option.

STRUCTURED NOTES. Structured Notes are Derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Portfolios may use Structured Notes to tailor
their investments to the specific risks and returns the Adviser wishes to
accept while avoiding or reducing certain other risks.

SWAPS. Swap Contracts ("Swaps") are Derivatives in the form of a contract or
other similar instrument in which two parties agree to exchange the returns
generated by a security, instrument, basket thereof or index for the returns
generated by another security, instrument, basket thereof or index. The payment
streams are calculated by reference to a specific security, index or instrument
and an agreed upon notional amount. The relevant indices include but are not
limited to, currencies, fixed interest rates, prices and total return on
interest rate indices, fixed income indices, stock indices and commodity
indices (as well as amounts derived from arithmetic operations on these
indices). For example, a Portfolio may agree to swap the return generated by a
fixed income index for the return generated by a second fixed income index. The
currency Swaps in which the Portfolios may enter will generally involve an
agreement to pay interest streams in one currency based on a specified index in
exchange for receiving interest streams denominated in another currency. Such
Swaps may involve initial and final exchanges that correspond to the agreed
upon notional amount.

A Portfolio will usually enter into Swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on
<PAGE>

the payment date or dates specified in the instrument, with a Portfolio
receiving or paying, as the case may be, only the net amount of the two
returns. A Portfolio's obligations under a Swap agreement will be accrued daily
(offset against any amounts owing to the Portfolio) and any accrued, but
unpaid, net amounts owed to a Swap counterparty will be covered by the
maintenance of a segregated account consisting of cash or liquid securities. A
Portfolio will not enter into any Swap agreement unless the counterparty meets
the rating requirements set forth in guidelines established by the Fund's Board
of Directors.

Interest rate and total rate of return Swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of
loss with respect to interest rate and total rate of return Swaps is limited to
the net amount of payments that a Portfolio is contractually obligated to make.
If the other party to an interest rate or total rate of return Swap defaults, a
Portfolio's risk of loss consists of the net amount of payments that a
Portfolio is contractually entitled to receive. In contrast, currency Swaps may
involve the delivery of the entire principal value of one designated currency
in exchange for the other designated currency. Therefore, the entire principal
value of a currency Swap may be subject to the risk that the other party to the
Swap will default on its contractual delivery obligations. If there is a
default by the counterparty, a Portfolio may have contractual remedies pursuant
to the agreements related to the transaction. The Swaps market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
Swap documentation. As a result, the Swaps market has become relatively liquid.
Swaps that include Caps, Floors and Collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than "traditional" Swaps.

The use of Swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Portfolios would be less favorable than it would have been if this
investment technique were not used.

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

Kenneth R. Holley no longer serves as portfolio manager for the Money Market
Portfolio. Abigail Jones Feder, Daniel M. Niland, Ellen D. Harvey, Christian G.
Roth and Scott F. Richard now share primary responsibility for managing the
assets of the Money Market Portfolio. Accordingly, under the section
"INVESTMENT MANAGEMENT," the discussion under "MONEY MARKET PORTFOLIO" on page
32 is deleted and replaced with the following:

MONEY MARKET PORTFOLIO -- Abigail Jones Feder, Daniel M. Niland, Ellen D.
Harvey, Christian G. Roth, and Scott F. Richard. Abigail Jones Feder is a
Principal of Morgan Stanley and shares responsibility for managing short-term
taxable and tax-exempt portfolios. Ms. Feder joined Morgan Stanley's Corporate
Finance Department in 1985. In 1987 she joined MSAM as a Marketing Analyst and
was promoted to a Marketing Director in 1988. She joined the Fixed Income Group
as a Portfolio Manager in 1989 and she became a Vice President in 1992. Ms.
Feder holds a B.A. from Vassar College. Ms. Feder has had primary
responsibility for managing the Portfolio's assets since its inception. Daniel
M. Niland joined MSAM in July 1997 as a Vice President and shares
responsibility for managing short-term taxable portfolios. Prior to joining
MSAM, Mr. Niland managed liquidity and short duration fixed income portfolios
for institutional and private accounts at Citibank Global Asset Management.
Before joining Citibank, Mr. Niland worked at J.P. Morgan as a portfolio
manager investing $20 billion in short-term securities for that firm's
securities lending program. Mr. Niland holds a B.A. from Iona College and an
M.B.A. from Fordham University. Mr. Niland has shared primary responsibility
for managing the Portfolio's assets since its inception. Ellen D. Harvey joined
MSAM in 1996 and has been a portfolio manager with MAS since 1984. She assumed
responsibility for the MAS-advised Cash Reserves Portfolio in 1990, the Limited
Duration Portfolio in 1992 and the Intermediate Duration Portfolio in 1994. Ms.
Harvey holds an A.B. in economics from Princeton University and an M.A. in
economics from George Washington University. Christian G. Roth joined MSAM in
1996 and has been a portfolio manager with MAS since 1991. He served as Senior
Associate, Dean Witter Capital Corporation from 1987 to 1991. He assumed
responsibility for the MAS-advised Limited Duration and Intermediate Duration
Portfolios in 1994. Mr. Roth holds a B.S. from The Wharton School of the
University of Pennsylvania. Scott F. Richard joined MSAM in 1996 and has been a
portfolio manager with MAS since 1992. He served as Vice President, Head of
Fixed Income Research & Model Development for Goldman, Sachs & Co. from 1987 to
1991 and as Head of Mortgage Research in 1992. He assumed responsibility for
the MAS-advised Mortgage-Backed Securities Portfolio in 1992 and the Limited
Duration, Intermediate Duration, Municipal and PA Municipal Portfolios in 1994.
Mr. Richard holds a B.S. from Massachusetts Institute of Technology and a
D.B.A. from Harvard Graduate School of Business Administration. Ms. Harvey, Mr.
Roth and Mr. Richard have shared primary responsibility for managing the
Portfolio's assets since its inception.

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

Marianne L. Hay no longer serves as portfolio manager for the Emerging Markets
Equity Portfolio. Madhav Dhar and Robert L. Meyer now share primary
responsibility for managing the assets of the Emerging Markets Equity
Portfolio. Accordingly, under the section "INVESTMENT MANAGEMENT," the
discussion under "EMERGING MARKETS
<PAGE>

EQUITY PORTFOLIO" on page 35 is deleted and replaced with the following:

EMERGING MARKETS EQUITY PORTFOLIO--Madhav Dhar and Robert L. Meyer. Madhav Dhar
joined the Adviser in 1984. He is a Managing Director of the Adviser and of
Morgan Stanley. He is a member of the Adviser's executive committee, head of
the Adviser's emerging markets group and chief investment officer of the
Adviser's global emerging market equity portfolios. He holds a B.S. (honors)
from St. Stephen's College, Delhi University India and an M.B.A. from Carnegie-
Mellon University. Mr. Dhar has been primarily responsible for managing the
Portfolio's assets since it commenced operations. Robert L. Meyer joined the
Adviser in 1989. He is a Managing Director of the Adviser and of Morgan Stanley
and co-manager of the Adviser's emerging markets group and head of the
Adviser's Latin American team. He was born in Argentina and graduated from Yale
University with a B.A. in Economics and Political Science. He received a J.D.
from Harvard Law School. In addition, he is also a Chartered Financial Analyst.
Mr. Meyer has assisted Mr. Dhar in managing the Portfolio's assets since it
commenced operations.

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

The discussion under "PERSONS CONTROLLING CERTAIN PORTFOLIOS" on page 41, is
deleted and replaced with the following:

As of August 8, 1997, MSDWD owned more than 25% of the outstanding voting
securities of the Fixed Income, High Yield, Equity Growth, Value, Mid Cap
Value, U.S. Real Estate, Global Equity, International Magnum, Emerging Markets
Debt and Asian Equity Portfolios. Also, as of that date, the New York Life and
Annuity Corporation owned more than 25% of the Emerging Markets Equity
Portfolio and American General Life Insurance Company owned more than 25% of
the Mid Cap Value, Value and Equity Growth Portfolios pursuant to variable
annuity contracts and variable life insurance policies it has issued to the
public.

As currently required under law, the New York Life and Annuity Corporation,
American General Life Insurance Company and other insurance companies vote
their shares of the Portfolios in accordance with instructions received from
their variable annuity contract and variable life insurance policy owners.
MSDWD will vote the shares of each Portfolio that it owns in the same
proportions as shares of the Portfolio are voted by the insurance companies.
Accordingly, neither MSDWD nor the insurance companies are deemed to be in
control of the Portfolios.

For more information, see "Control Persons and Principal Holders of Securities"
in the SAI.

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

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE

<PAGE>

SUPPLEMENT DATED SEPTEMBER 19, 1997
TO THE PROSPECTUS DATED MAY 1, 1997

U.S. REAL ESTATE PORTFOLIO
GLOBAL EQUITY PORTFOLIO
INTERNATIONAL MAGNUM PORTFOLIO
EMERGING MARKETS EQUITY PORTFOLIO
ASIAN EQUITY PORTFOLIO

PORTFOLIOS OF

MORGAN STANLEY UNIVERSAL FUNDS, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798

--------------
The Prospectus is being amended and supplemented to: (i) reflect changes to the
parent of the Fund's investment adviser, administrator and distributor; (ii)
provide unaudited financial highlights for the portfolios for periods ended
June 30, 1997; (iii) reflect changes in investment policies with respect to the
International Magnum and Emerging Markets Equity Portfolios; (iv) reflect
revised investment policies with respect to certain derivative instruments; (v)
reflect a change in the portfolio manager for the Emerging Markets Equity
Portfolio; and (vi) update and revise certain information concerning principal
holders of securities of the Fund. The Prospectus is amended and supplemented
as follows:

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

On May 31, 1997, Morgan Stanley Group Inc. ( "MSGI") and Dean Witter, Discover
& Co. merged to form Morgan Stanley, Dean Witter, Discover & Co. Prior thereto,
Morgan Stanley Group Inc. was the direct parent of Morgan Stanley Asset
Management Inc. (the "Adviser") and Morgan Stanley & Co. Incorporated ("Morgan
Stanley"). The Adviser and Morgan Stanley are now subsidiaries of Morgan
Stanley, Dean Witter, Discover &Co. ("MSDWD").

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

The following paragraph and tables are added after the first paragraph under
the heading "Financial Highlights" on page 3 of the Prospectus:

The following tables provide financial highlights for the U.S. Real Estate and
Asian Equity Portfolios for the period March 3, 1997 through June 30, 1997, for
the Global Equity and International Magnum Portfolios for the period January 2,
1997 through June 30, 1997, and for the Emerging Markets Equity Portfolio for
the period October 1, 1996 through December 31, 1996 and for the six months
ended June 30, 1997, and are part of the Fund's unaudited financial statements
which are included in the Fund's current Statement of Additional Information
and in the Fund's Semi-Annual Report to Shareholders for the six months ended
June 30, 1997.

<TABLE>
<CAPTION>
U.S. REAL
ESTATE PORTFOLIO
-----------------
PERIOD FROM
MARCH 3, 1997* TO
JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED)
- ---------------------------------- -----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................ 0.10
Net Realized and Unrealized Gain............................. 0.27
-------
Total From Investment Operations............................. 0.37
-------
NET ASSET VALUE, END OF PERIOD................................. $ 10.37
=======
TOTAL RETURN................................................... 3.70%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).............................. $ 6,025
Ratio of Expenses to Average Net Assets........................ 1.10%**
Ratio of Net Investment Income to Average Net Assets........... 3.52%**
Portfolio Turnover Rate........................................ 56%
Average Commission Rate Per Share.............................. $0.0576
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income................... $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................... 3.71%**
Net Investment Income to Average Net Assets.................. 0.90%**
</TABLE>
- -------
*Commencement of operations
**Annualized
<PAGE>

<TABLE>
<CAPTION>
INTERNATIONAL
GLOBAL EQUITY MAGNUM
PORTFOLIO PORTFOLIO
---------------------- ----------------------
PERIOD FROM JANUARY 2, PERIOD FROM JANUARY 2,
1997* TO JUNE 30, 1997 1997* TO JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) (UNAUDITED)
- ---------------------------------- ---------------------- ----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............ 0.08 0.09
Net Realized and Unrealized
Gain............................ 1.41 1.58
------- -------
Total From Investment
Operations...................... 1.49 1.67
------- -------
NET ASSET VALUE, END OF PERIOD..... $ 11.49 $ 11.67
======= =======
TOTAL RETURN....................... 14.90% 16.70%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).. $ 7,326 $14,643
Ratio of Expenses to Average Net
Assets............................ 1.15%** 1.15%**
Ratio of Net Investment Income to
Average Net Assets................ 1.81%** 1.96%**
Portfolio Turnover Rate............ 3% 19%
Average Commission Rate:
Per Share........................ $0.0225 $0.0170
As a Percentage of Trade Amount.. 0.17% 0.17%
Effect of Voluntary Expense
Limitation During the Period:
Per Share Benefit to Net
Investment Income............... $ 0.06 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets... 2.46%** 2.38%**
Net Investment Income to Average
Net Assets...................... 0.50%** 0.73%**
</TABLE>
- -------
*Commencement of operations
**Annualized

<TABLE>
<CAPTION>
EMERGING MARKETS
EQUITY PORTFOLIO
------------------------------------- ---
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 1997 OCTOBER 1, 1996*
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) TO DECEMBER 31, 1996
- ---------------------------------- ---------------- --------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $ 9.78 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................ 0.05 0.01
Net Realized and Unrealized Gain
(Loss).............................. 2.20 (0.21)
------- -------
Total From Investment Operations..... 2.25 (0.20)
------- -------
DISTRIBUTIONS
Net Investment Income................ -- (0.02)
------- -------
Total Distributions.................. -- (0.02)
------- -------
NET ASSET VALUE, END OF PERIOD......... $ 12.03 $ 9.78
======= =======
TOTAL RETURN........................... 23.01% (2.03)%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)...... $20,308 $11,789
Ratio of Expenses to Average Net
Assets................................ 1.75%** 1.75%**
Ratio of Net Investment Income to
Average Net Assets.................... 1.03%** 0.32%**
Portfolio Turnover Rate................ 38% 9%
Average Commission Rate:
Per Share............................ $0.0012 $0.0013
As a Percentage of Trade Amount...... 0.40% 0.45%
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income (Loss)....................... $ 0.12 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets....... 4.49%** 6.17%**
Net Investment Loss to Average Net
Assets.............................. (1.67)%** (4.06)%**
</TABLE>
- -------
*Commencement of operations
**Annualized
<PAGE>

<TABLE>
<CAPTION>
ASIAN EQUITY
PORTFOLIO
----------------------
PERIOD FROM MARCH 3,
1997* TO JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED)
- ---------------------------------- ----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................... 0.03
Net Realized and Unrealized Gain........................ 0.63
-------
Total From Investment Operations........................ 0.66
-------
NET ASSET VALUE, END OF PERIOD............................ $ 10.66
=======
TOTAL RETURN.............................................. 6.60%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)......................... $10,946
Ratio of Expenses to Average Net Assets................... 1.20%**
Ratio of Net Investment Income to Average Net Assets...... 1.06%**
Portfolio Turnover Rate................................... 49%
Average Commission Rate:
Per Share............................................... $0.0170
As a Percentage of Trade Amount......................... 0.56%
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Loss................ $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets.......................... 2.55%**
Net Investment Loss to Average Net Assets............... (0.22)%**
</TABLE>
- -------
*Commencement of operations
**Annualized

--------------
Under the heading "THE PORTFOLIOS' INVESTMENTS," the second paragraph under
"INTERNATIONAL MAGNUM PORTFOLIO" on page 6 is deleted and replaced with the
following:

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

Under the heading "THE PORTFOLIOS' INVESTMENTS," the first sentence in the
third paragraph under "EMERGING MARKETS EQUITY PORTFOLIO" on page 7 is deleted
and replaced with the following:

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

As a result of changes to the descriptions of certain derivative instruments
invested in by the Fund, the Prospectus is amended and supplemented as follows:

The section entitled "DERIVATIVES" on page 11 is deleted.
The section entitled "FUTURES" on pages 14-15 is deleted.
The section entitled "OPTIONS" on pages 18-19 is deleted.
The section entitled "STRUCTURED NOTES" on page 20 is deleted.
The section entitled "SWAPS" on page 20 is deleted.

After the section entitled "ZERO COUPONS: PAY-IN-KIND OR DEFERRED PAYMENT
SECURITIES" on pages 21-22, the following sections are inserted:

provides greater liquidity than the underlying securities market. A Portfolio
may also use Derivatives when it is restricted from directly owning the
underlying securities due to foreign investment restrictions or other reasons
or when doing so provides a price advantage over purchasing the underlying
securities directly, either because of lower transaction costs associated with
the Derivatives transaction. Derivatives may also be used by a Portfolio for
hedging purposes and under other circumstances in which a Portfolio's portfolio
managers believe it advantageous to do so consistent with the Portfolio's
investment objective. The Portfolios will not, however, use Derivatives in a
manner that creates leverage, except to the extent that the use of leverage is
expressly permitted by a particular Portfolio's investment policies, and then
only in a manner consistent with such policies.

Some of the derivative instruments in which the Portfolios may invest and the
risks related thereto are described in more detail below.

CAPS, FLOORS AND COLLARS. The Portfolios may invest in Caps, Floors and
Collars, which are instruments analogous to Options. In particular, a Cap is
the right to receive the excess of a reference rate over a given rate and is
analogous to a put Option. A Floor is the right to receive the excess of a
given rate over a reference rate and is analogous to a call Option. Finally, a
Collar is an instrument that combines a Cap and a Floor. That is, the buyer of
a Collar buys a Cap and writes a Floor, and the writer of a Collar writes a Cap
and buys a Floor. The risks associated with Caps, Floors and Collars are
similar to those associated with Options. In addition, Caps, Floors and Collars
are subject to risk of default by the counterparty because they are privately
negotiated instruments.

The Portfolios may sell securities index futures contracts and/or options
thereon in anticipation of or during a market decline to attempt to offset the
decrease in market value of investments in its portfolio, or purchase
securities index futures in order to gain market exposure. Subject to
applicable laws, the Portfolios may engage in transactions in securities index
futures contracts (and options thereon) which are traded on a recognized
securities or futures exchange, or may purchase or sell such instruments in the
over-the-counter market. There currently are limited securities index futures
and options on such futures in many countries, particularly emerging countries.
The nature of the strategies adopted by MSAM, and the extent to which those
strategies are used, may depend on the development of such markets.

Gains and losses on futures contracts and options thereon depend on MSAM's
ability to predict correctly the direction of securities prices, interest rates
and other economic factors. Other risks associated with the use of futures and
options are (i) imperfect correlation between the change in market value of
investments held by a Portfolio and the prices of futures and options relating
to investments purchased or sold by the Portfolio, and (ii) possible lack of a
liquid secondary market for a futures contract and the resulting inability to
close a futures position. The risk that a Portfolio will be unable to close out
a futures position or options contract will be minimized by only entering into
futures contracts or options transactions for which there appears to be a
liquid exchange or secondary market. The risk of loss in trading on futures
contracts in some strategies can be substantial, due both to the low margin
deposits required and the extremely high degree of leverage involved in futures
pricing.
<PAGE>

Each Portfolio also may write (i.e., sell) put and call Options on investments
held in its portfolio, as well as with respect to foreign currency. A Portfolio
that has written an Option receives a premium, which increases the Portfolio's
return on the underlying security or instrument in the event the Option expires
unexercised or is closed out at a profit. However, by writing a call Option, a
Portfolio will limit its opportunity to profit from an increase in the market
value of the underlying security or instrument above the exercise price of the
Option for as long as the Portfolio's obligation as writer of the Option
continues. The Portfolios may only write Options that are "covered". A covered
call Option means that so long as the Portfolio is obligated as the writer of
the Option, it will earmark or segregate sufficient liquid assets to cover its
obligations under the Option or own (i) the underlying security or instrument
subject to the Option, (ii) securities or instruments convertible or
exchangeable without the payment of any consideration into the security or
instrument subject to the Option, or (iii) a call Option on the same underlying
security with a strike price no higher than the price at which the underlying
instrument was sold pursuant to a short Option position.

The Portfolios may engage in transactions in Options which are traded on
recognized exchanges or over-the-counter. There currently are limited Options
markets in many countries, particularly emerging countries such as Latin
American countries, and the nature of the strategies adopted by MSAM and the
extent to which those strategies are used will depend on the development of
such Options markets. The primary risks associated with the use of Options are
(i) imperfect correlation between the change in market value of investments
held, purchased or sold by a Portfolio and the prices of Options relating to
such investments, and (ii) possible lack of a liquid secondary market for an
Option.

STRUCTURED NOTES. Structured Notes are Derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Portfolios may use Structured Notes to tailor
their investments to the specific risks and returns MSAM wishes to accept while
avoiding or reducing certain other risks.

A Portfolio will usually enter into Swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Portfolio receiving or paying, as the case
may be, only the net amount of the two returns. A Portfolio's obligations under
a Swap agreement will be accrued daily (offset against any amounts owing to the
Portfolio) and any accrued, but unpaid, net amounts owed to a Swap counterparty
will be covered by the maintenance of a segregated account consisting of cash
or liquid securities. A Portfolio will not enter into any Swap agreement unless
the counterparty meets the rating requirements set forth in guidelines
established by the Fund's Board of Directors.

Therefore, the entire principal value of a currency Swap may be subject to the
risk that the other party to the Swap will default on its contractual delivery
obligations. If there is a default by the counterparty, a Portfolio may have
contractual remedies pursuant to the agreements related to the transaction. The
Swaps market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized Swap documentation. As a result, the Swaps market has
become relatively liquid. Swaps that include Caps, Floors and Collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than "traditional" Swaps.

The use of Swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If MSAM is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Portfolios would be less favorable than it would have been if this
investment technique were not used.

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

EMERGING MARKETS EQUITY PORTFOLIO--Madhav Dhar and Robert L. Meyer. Madhav Dhar
joined the Adviser in 1984. He is a Managing Director of the Adviser and of
Morgan Stanley. He is a member of the Adviser's executive committee, head of
the Adviser's emerging markets group and chief investment officer of the
Adviser's global emerging market equity portfolios. He holds a B.S. (honors)
from St. Stephen's College, Delhi University India and an M.B.A. from Carnegie-
Mellon University. Mr. Dhar has been primarily responsible for managing the
Portfolio's assets since it commenced operations. Robert L. Meyer joined the
Adviser in 1989. He is a Managing Director of the Adviser and of Morgan Stanley
and co-manager of the Adviser's emerging markets group and head of the
Adviser's Latin American Team. He was born in Argentina and graduated from Yale
University with a B.A. in Economics and Political Science. He received a J.D.
from Harvard Law School. In addition, he is also a Chartered Financial Analyst.
Mr. Meyer has assisted Mr. Dhar in managing the Portfolio's assets since it
commenced operations.

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

The discussion under "PERSONS CONTROLLING CERTAIN PORTFOLIOS" on page 28, is
deleted and replaced with the following:

As of August 8, 1997, MSDWD owned more than 25% of the outstanding voting
securities of the U.S. Real Estate, Global Equity, International Magnum and
Asian Equity Portfolios. Also, as of that date, the New York Life and Annuity
Corporation owned more than 25% of the Emerging Markets Equity Portfolio
pursuant to variable annuity contracts and variable life insurance policies it
has issued to the public.

As currently required under law, the New York Life and Annuity Corporation and
other insurance companies vote their shares of the Portfolios in accordance
with instructions received from their variable annuity contract and variable
life insurance policy owners. MSDWD will vote the shares of each Portfolio that
it owns in the same proportions as shares of the Portfolio are voted by the
insurance companies. Accordingly, neither MSDWD nor the insurance companies are
deemed to be in control of the Portfolios.

For more information, see "Control Persons and Principal Holders of Securities"
in the SAI.

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

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE

<PAGE>

SUPPLEMENT DATED SEPTEMBER 19, 1997
TO THE PROSPECTUS DATED MAY 1, 1997

FIXED INCOME PORTFOLIO
HIGH YIELD PORTFOLIO
EQUITY GROWTH PORTFOLIO
VALUE PORTFOLIO
MID CAP VALUE PORTFOLIO
GLOBAL EQUITY PORTFOLIO
INTERNATIONAL MAGNUM PORTFOLIO
EMERGING MARKETS EQUITY PORTFOLIO
ASIAN EQUITY PORTFOLIO

PORTFOLIOS OF

MORGAN STANLEY UNIVERSAL FUNDS, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798

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

The Prospectus is being amended and supplemented to: (i) reflect changes to the
parent of the Fund's investment advisers, administrators and distributor; (ii)
provide unaudited financial highlights for the portfolios for periods ended
June 30, 1997; (iii) reflect changes in investment policies with respect to the
International Magnum and Emerging Markets Equity Portfolios; (iv) reflect
revised investment policies with respect to certain derivative instruments; (v)
reflect the addition of a portfolio manager for the Mid Cap Value Fund and the
change of a portfolio manager for the Emerging Markets Equity Portfolio; and
(vi) update and revise certain information concerning principal holders of
securities of the Fund. The Prospectus is amended and supplemented as follows:

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

The following paragraph and tables are added after the first paragraph under
the heading "Financial Highlights" on page 3 of the Prospectus:

The following tables provide financial highlights for the Fixed Income, High
Yield, Equity Growth, Value, Mid Cap Value, Global Equity and International
Magnum Portfolios for the period January 2, 1997 through June 30, 1997, for the
Emerging Markets Equity Portfolio for the period October 1, 1996 through
December 31, 1996 and for the six months ended June 30, 1997, and for the Asian
Equity Portfolio for the period March 3, 1997 through June 30, 1997, and are
part of the Fund's unaudited financial statements which are included in the
Fund's current Statement of Additional Information and in the Fund's Semi-
Annual Report to Shareholders for the six months ended June 30, 1997.
<PAGE>

<TABLE>
<CAPTION>
EQUITY GROWTH MID CAP VALUE
PORTFOLIO PORTFOLIO
------------------- -------------------
PERIOD FROM PERIOD FROM
JANUARY 2, 1997* TO JANUARY 2, 1997* TO
JUNE 30, 1997 JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) (UNAUDITED)
- ---------------------------------- ------------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................. 0.03 0.02
Net Realized and Unrealized Gain....... 1.50 1.89
------- -------
Total From Investment Operations....... 1.53 1.91
------- -------
NET ASSET VALUE, END OF PERIOD........... $ 11.53 $ 11.91
======= =======
TOTAL RETURN............................. 15.30% 19.10%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)........ $ 3,959 $ 4,922
Ratio of Expenses to Average Net Assets.. 0.85%** 1.05%**
Ratio of Net Investment Income to Average
Net Assets.............................. 0.60%** 0.43%**
Portfolio Turnover Rate.................. 95% 76%
Average Commission Rate Per Share........ $0.0510 $0.0429
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income (Loss)......................... $ 0.85 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 5.55%** 2.45%**
Net Investment Loss to Average Net
Assets................................ (4.11)%** (0.97)%**
</TABLE>
- -------
*Commencement of operations
**Annualized
<PAGE>

<TABLE>
<CAPTION>
VALUE
PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED)
- ---------------------------------- -------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income...................................... 0.07
Net Realized and Unrealized Gain........................... 1.48
-------
Total From Investment Operations........................... 1.55
-------
NET ASSET VALUE, END OF PERIOD............................... $ 11.55
=======
TOTAL RETURN................................................. 15.50%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)............................ $ 5,264
Ratio of Expenses to Average Net Assets...................... 0.85%**
Ratio of Net Investment Income to Average Net Assets......... 1.82%**
Portfolio Turnover Rate...................................... 22%
Average Commission Rate Per Share............................ $0.0585
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income................. $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................. 2.35%**
Net Investment Income to Average Net Assets................ 0.32%**
</TABLE>
- -------
*Commencement of operations
**Annualized

<TABLE>
<CAPTION>
INTERNATIONAL
GLOBAL EQUITY MAGNUM
PORTFOLIO PORTFOLIO
------------------- -------------------
PERIOD FROM PERIOD FROM
JANUARY 2, 1997* TO JANUARY 2, 1997* TO
JUNE 30, 1997 JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) (UNAUDITED)
- ---------------------------------- ------------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................. 0.08 0.09
Net Realized and Unrealized Gain....... 1.41 1.58
------- -------
Total From Investment Operations....... 1.49 1.67
------- -------
NET ASSET VALUE, END OF PERIOD........... $ 11.49 $ 11.67
======= =======
TOTAL RETURN............................. 14.90% 16.70%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)........ $ 7,326 $14,643
Ratio of Expenses to Average Net Assets.. 1.15%** 1.15%**
Ratio of Net Investment Income to Average
Net Assets.............................. 1.81%** 1.96%**
Portfolio Turnover Rate.................. 3% 19%
Average Commission Rate:
Per Share.............................. $0.0225 $0.0170
As a Percentage of Trade Amount........ 0.17% 0.17%
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income................................ $ 0.06 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 2.46%** 2.38%**
Net Investment Income to Average Net
Assets................................ 0.50%** 0.73%**
</TABLE>
- -------
*Commencement of operations
**Annualized
<PAGE>

<TABLE>
<CAPTION>
EMERGING MARKETS
EQUITY PORTFOLIO
-------------------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 1997 OCTOBER 1, 1996*
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) TO DECEMBER 31, 1996
- ---------------------------------- ---------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 9.78 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................... 0.05 0.01
Net Realized and Unrealized Gain (Loss).. 2.20 (0.21)
------- -------
Total From Investment Operations......... 2.25 (0.20)
------- -------
DISTRIBUTIONS
Net Investment Income.................... -- (0.02)
------- -------
Total Distributions...................... -- (0.02)
------- -------
NET ASSET VALUE, END OF PERIOD............. $ 12.03 $ 9.78
======= =======
TOTAL RETURN............................... 23.01% (2.03)%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).......... $20,308 $11.789
Ratio of Expenses to Average Net Assets.... 1.75%** 1.75%**
Ratio of Net Investment Income to Average
Net Assets................................ 1.03%** 0.32%**
Portfolio Turnover Rate.................... 38% 9%
Average Commission Rate:
Per Share................................ $0.0012 $0.0013
As a Percentage of Trade Amount.......... 0.40% 0.45%
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income (Loss)........................... $ 0.12 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets........... 4.49%** 6.17%**
Net Investment Loss to Average Net
Assets.................................. (1.67)%** (4.06)%**
</TABLE>
- -------
*Commencement of operations
**Annualized

<TABLE>
<CAPTION>
ASIAN EQUITY
PORTFOLIO
-----------------
PERIOD FROM
MARCH 3, 1997* TO
JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED)
- ---------------------------------- -----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................ 0.03
Net Realized and Unrealized Gain............................. 0.63
-------
Total From Investment Operations............................. 0.66
-------
NET ASSET VALUE, END OF PERIOD................................. $ 10.66
=======
TOTAL RETURN................................................... 6.60%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).............................. $10,946
Ratio of Expenses to Average Net Assets........................ 1.20%**
Ratio of Net Investment Income to Average Net Assets........... 1.06%**
Portfolio Turnover Rate........................................ 49%
Average Commission Rate:
Per Share.................................................... $0.0170
As a Percentage of Trade Amount.............................. 0.56%
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Loss..................... $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................... 2.55%**
Net Investment Loss to Average Net Assets.................... (0.22)%**
</TABLE>
- -------
*Commencement of operations
**Annualized

--------------
<PAGE>

Under the heading "THE PORTFOLIOS' INVESTMENTS," the second paragraph under
"INTERNATIONAL MAGNUM PORTFOLIO" on page 8 is deleted and replaced with the
following:

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

Under the "THE PORTFOLIOS' INVESTMENTS," the first sentence in the third
paragraph under "EMERGING MARKETS EQUITY PORTFOLIO" on page 9 is deleted and
replaced with the following:

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

As a result of changes to the descriptions of certain derivative instruments
invested in by the Fund, the Prospectus is amended and supplemented as follows:

The section entitled "DERIVATIVES" on pages 14-15 is deleted.
The section entitled "FUTURES" on pages 17-18 is deleted.
The section entitled "OPTIONS" on page 22 is deleted.
The section entitled "STRUCTURED NOTES" on page 24 is deleted.
The section entitled "SWAPS" on page 24 is deleted.

After the section entitled "ZERO COUPONS: PAY-IN-KIND OR DEFERRED PAYMENT
SECURITIES" on page 25, the following sections are inserted:

DERIVATIVES. The Portfolios are permitted to invest in various Derivatives for
both hedging and non-hedging purposes. Derivatives include Options, Futures,
Structured Notes, Caps, Floors, Collars and Swaps. Additionally, the Portfolios
may invest in other Derivatives that are developed over time if their use would
be consistent with the objectives of the Portfolios. Each of the Equity Growth,
Global Equity, International Magnum, Emerging Markets Equity and Asian Equity
Portfolios will limit its use of Derivatives to 33 1/3% of its total assets
measured by the aggregate notional amount of outstanding Derivatives. The Fixed
Income, High Yield, Value and Mid Cap Value Portfolios will not enter into
Futures to the extent that each Portfolio's outstanding obligations to purchase
securities under these contracts, in combination with its outstanding
obligations with respect to Options, would exceed 50% of its total assets. The
Portfolios' investments in forward foreign currency contracts and Derivatives
used for hedging purposes are not subject to the foregoing limits.

Some of the derivative instruments in which the Portfolios may invest and the
risks related thereto are described in more detail below.

CAPS, FLOORS AND COLLARS. The Portfolios may invest in Caps, Floors and
Collars, which are instruments analogous to Options. In particular, a Cap is
the right to receive the excess of a reference rate over a given rate and is
analogous to a put Option. A Floor is the right to receive the excess of a
given rate over a reference rate and is analogous to a call Option. Finally, a
Collar is an instrument that combines a Cap and a Floor. That is, the buyer of
a Collar buys a Cap and writes a Floor, and the writer of a Collar writes a Cap
and buys a Floor. The risks associated with Caps, Floors and Collars are
similar to those associated with Options. In addition, Caps, Floors and Collars
are subject to risk of default by the counterparty because they are privately
negotiated instruments.

option on a futures contract is a legal contract that gives the holder the
right to buy or sell a specified amount of futures contracts at a fixed or
determinable price upon the exercise of the option.

Each Portfolio also may write (i.e., sell) put and call Options on investments
held in its portfolio, as well as with respect to foreign currency. A Portfolio
that has written an Option receives a premium, which increases the Portfolio's
return on the underlying security or instrument in the event the Option expires
unexercised or is closed out at a profit. However, by writing a call Option, a
Portfolio will limit its opportunity to profit from an increase in the market
value of the underlying security or instrument above the exercise price of the
Option for as long as the Portfolio's obligation as writer of the Option
continues. The Portfolios may only write Options that are "covered". A covered
call Option means that so long as the Portfolio is obligated as the writer of
the Option, it will earmark or segregate sufficient liquid assets to cover its
obligations under the Option or own (i) the underlying security or instrument
subject to the Option, (ii) securities or instruments convertible or
exchangeable without the payment of any consideration into the security or
instrument subject to the Option, or (iii) a call Option on the same underlying
security with a strike price no higher than the price at which the underlying
instrument was sold pursuant to a short Option position.

election. The Portfolios may also write Options that may be exercisable by the
purchaser only on a specific date. A Portfolio that has written a put Option
will earmark or segregate sufficient liquid assets to cover its obligations
under the Option or will own a put Option on the same underlying security with
an equal or higher strike price.

The Portfolios may engage in transactions in Options which are traded on
recognized exchanges or over-the-counter. There currently are limited Options
markets in many
countries, particularly emerging countries such as Latin American countries,
and the nature of the strategies adopted by the Adviser and the extent to which
those strategies are used will depend on the development of such Options
markets. The primary risks associated with the use of Options are (i) imperfect
correlation between the change in market value of investments held, purchased
or sold by a Portfolio and the prices of Options relating to such investments,
and (ii) possible lack of a liquid secondary market for an Option.

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

Bradley S. Daniels has been added as a portfolio manager for the Mid Cap Value
Portfolio. William B. Gerlach, Gary G. Schlarbaum and Bradley S. Daniels now
share primary responsibility for managing the assets of the Mid Cap Value
Portfolio. Accordingly, under the section "INVESTMENT MANAGEMENT," the
discussion under "MID CAP VALUE PORTFOLIO" on page 27 is deleted and replaced
with the following:
<PAGE>

MID CAP VALUE PORTFOLIO--William B. Gerlach, Gary G. Schlarbaum and Bradley S.
Daniels. William B. Gerlach, a Vice President of Morgan Stanley, joined MAS in
1991. He served as a Programmer in Applications Software Development at
Alphametrics Corporation from 1987 through 1991 and as a Data Analyst and
Inflation Economist at Wharton Econometric Forecasting Associates from 1984
through 1987. He holds a B.A. in Economics from Haverford College. Gary G.
Schlarbaum, a Managing Director of Morgan Stanley, joined MAS in 1987. He
assumed responsibility for the MAS Funds' Equity and Small Cap Value Portfolios
in 1987, the MAS Funds' Balanced Portfolio in 1992 and the MAS Funds' Multi-
Asset-Class and Mid Cap Value Portfolios in 1994. Mr. Schlarbaum holds a
B.A. from Coe College and a Ph.D. from University of Pennsylvania. Bradley S.
Daniels, a Vice President of Morgan Stanley, joined MAS in 1985. He assumed
responsibility for the MAS Funds' Small Cap Value Portfolio in 1986 and the MAS
Funds' Mid Cap Value Portfolio in 1994. Messrs. Gerlach, Schlarbaum and Daniels
have had primary responsibility for managing the Portfolio's assets since
inception.

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

EMERGING MARKETS EQUITY PORTFOLIO--Madhav Dhar and Robert L. Meyer. Madhav Dhar
joined the Adviser in 1984. He is a Managing Director of the Adviser and of
Morgan Stanley. He is a member of the Adviser's executive committee, head of
the Adviser's emerging markets group
and chief investment officer of the Adviser's global emerging market equity
portfolios. He holds a B.S. (honors) from St. Stephen's College, Delhi
University India and an M.B.A.
from Carnegie-Mellon University. Mr. Dhar has been primarily responsible for
managing the Portfolio's assets
since it commenced operations. Robert L. Meyer joined the Adviser in 1989. He
is a Managing Director of the Adviser
and of Morgan Stanley and co-manager of the Adviser's emerging markets group
and head of the Adviser's Latin
American team. He was born in Argentina and graduated from Yale University with
a B.A. in Economics and Political
Science. He received a J.D. from Harvard Law School. In addition, he is also a
Chartered Financial Analyst. Mr. Meyer has assisted Mr. Dhar in managing the
Portfolio's assets since it commenced operations.

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

The discussion under "PERSONS CONTROLLING CERTAIN PORTFOLIOS" on page 32, is
deleted and replaced with the following:

As of August 8, 1997, MSDWD owned more than 25% of the outstanding voting
securities of the Fixed Income, High Yield, Equity Growth, Value, Mid Cap
Value, Global Equity, International Magnum and Asian Equity Portfolios. Also,
as of that date, the New York Life and Annuity Corporation owned more than 25%
of the Emerging Markets Equity Portfolio and American General Life Insurance
Company owned more than 25% of the Mid Cap Value, Value and Equity Growth
Portfolios pursuant to variable annuity contracts and variable life insurance
policies it has issued to the public.

For more information, see "Control Persons and Principal Holders of Securities"
in the SAI.

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

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE

<PAGE>

SUPPLEMENT DATED SEPTEMBER 19, 1997
TO THE PROSPECTUS DATED MAY 1, 1997

EMERGING MARKETS EQUITY PORTFOLIO

A PORTFOLIO OF

MORGAN STANLEY UNIVERSAL FUNDS, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798

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

The Prospectus is being amended and supplemented to: (i) reflect changes to the
parent of the Fund's investment adviser, administrator and distributor; (ii)
provide unaudited financial highlights for the six months ended June 30, 1997;
(iii) reflect a change in the Portfolio's investment policies; (iv) reflect
revised investment policies with respect to certain derivative instruments; (v)
reflect a change in portfolio manager for the Emerging Markets Equity
Portfolio; and (vi) update and revise certain information regarding principal
holders of securities of the Fund. The Prospectus is amended and supplemented
as follows:

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

On May 31, 1997, Morgan Stanley Group Inc. ("MSGI") and Dean Witter, Discover &
Co. merged to form Morgan Stanley, Dean Witter, Discover & Co. Prior thereto,
Morgan Stanley Group Inc. was the direct parent of Morgan Stanley Asset
Management Inc. (the "Adviser") and Morgan Stanley & Co. Incorporated ("Morgan
Stanley"). The Adviser and Morgan Stanley are now subsidiaries of Morgan
Stanley, Dean Witter, Discover & Co. ("MSDWD").

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

The following paragraph and table are added after the first paragraph under the
heading "Financial Highlights" on page 3 of the Prospectus:

The following table provides financial highlights for the Emerging Markets
Equity Portfolio for the period October 1, 1996 through December 31, 1996 and
for the six months ended June 30, 1997, and are part of the Fund's unaudited
financial statements which are included in the Fund's current Statement of
Additional Information and in the Fund's Semi-Annual Report to Shareholders for
the six months ended June 30, 1997.
<TABLE>
<CAPTION>
EMERGING MARKETS EQUITY PORTFOLIO
-------------------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 1997 OCTOBER 1, 1996*
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) TO DECEMBER 31, 1996
- ---------------------------------- ---------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 9.78 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................... 0.05 0.01
Net Realized and Unrealized Gain (Loss).. 2.20 (0.21)
------- -------
Total From Investment Operations......... 2.25 (0.20)
------- -------
DISTRIBUTIONS
Net Investment Income.................... -- (0.02)
------- -------
Total Distributions...................... -- (0.02)
------- -------
NET ASSET VALUE, END OF PERIOD............. $ 12.03 $ 9.78
======= =======
TOTAL RETURN............................... 23.01% (2.03)%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).......... $20,308 $11,789
Ratio of Expenses to Average Net Assets.... 1.75%** 1.75%**
Ratio of Net Investment Income to Average
Net Assets................................ 1.03%** 0.32%**
Portfolio Turnover Rate.................... 38% 9%
Average Commission Rate:
Per Share................................ $0.0012 $0.0013
As a Percentage of Trade Amount.......... 0.40% 0.45%
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income (Loss)........................... $ 0.12 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets........... 4.49%** 6.17%**
Net Investment Loss to Average Net
Assets.................................. (1.67)%** (4.06)%**
</TABLE>
- -------
*Commencement of operations
**Annualized

--------------
<PAGE>

Under the heading "THE PORTFOLIO'S INVESTMENTS," the first sentence in the
third paragraph under "EMERGING MARKETS EQUITY PORTFOLIO" on page 4 is deleted
and replaced with the following:

When deemed appropriate by MSAM, the Portfolio may also invest up to 20% of its
total assets (measured at the time of the investment) in Fixed Income
Securities that are not Investment Grade Securities (commonly referred to as
High Yield Securities or junk bonds).

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

As a result of changes to the descriptions of certain derivative instruments
invested in by the Fund, the Prospectus is amended and supplemented as follows:

The section entitled "DERIVATIVES" on page 7 is deleted.
The section entitled "FUTURES" on pages 9-10 is deleted.
The section entitled "OPTIONS" on page 14 is deleted.
The section entitled "STRUCTURED NOTES" on pages 15-16 is deleted.
The section entitled "SWAPS" on page 16 is deleted.

After the section entitled "ZERO COUPONS, PAY-IN-KIND SECURITIES OR DEFERRED
PAYMENT SECURITIES" on page 17, the following sections are inserted:

DERIVATIVES. The Portfolio is permitted to invest in various Derivatives for
both hedging and non-hedging purposes. Derivatives include Options, Futures,
Structured Notes, Caps, Floors, Collars and Swaps. Additionally, the Portfolio
may invest in other Derivatives that are developed over time if their use would
be consistent with the objectives of the Portfolio. The Portfolio will limit
its use of Derivatives to 33 1/3% of its total assets measured by the aggregate
notional amount of outstanding Derivatives. The Portfolio's investments in
forward foreign currency contracts and Derivatives used for hedging purposes
are not subject to the foregoing limits.

The Portfolio may use Derivatives under a number of different circumstances to
further its investment objectives. The Portfolio may use Derivatives when doing
so provides more liquidity than the direct purchase of the securities
underlying such Derivatives. For example, the Portfolio may purchase
Derivatives to quickly gain exposure to a market in response to changes in the
Portfolio's asset allocation policy or upon the inflow of investable cash when
the Derivative provides greater liquidity than the underlying securities
market. The Portfolio may also use Derivatives when it is restricted from
directly owning the underlying securities due to foreign investment
restrictions or other reasons or when doing so provides a price advantage over
purchasing the underlying securities directly, either because of lower
transaction costs associated with the Derivatives transaction. Derivatives may
also be used by the Portfolio for hedging purposes and under other
circumstances in which the Portfolio's portfolio managers believe it
advantageous to do so consistent with the Portfolio's investment objective. The
Portfolio will not, however, use Derivatives in a manner that creates leverage,
except to the extent that the use of leverage is expressly permitted by the
Portfolio's investment policies, and then only in a manner consistent with such
policies.

Some of the Derivatives in which the Portfolio may invest and the risks related
thereto are described in more detail below.

CAPS, FLOORS AND COLLARS. The Portfolio may invest in Caps, Floors and Collars,
which are instruments analogous to Options. In particular, a Cap is the right
to receive the excess of a reference rate over a given rate and is analogous to
a put Option. A floor is the right to receive the excess of a given rate over a
reference rate and is analogous to a call Option. Finally, a Collar is an
instrument that combines a Cap and a Floor. That is, the buyer of a Collar buys
a Cap and writes a Floor, and the writer of a Collar writes a Cap and buys a
Floor. The risks associated with Caps, Floors and Collars are similar to those
associated with Options. In addition, Caps, Floors and Collars are subject to
risk of default by the counterparty because they are privately negotiated
instruments.

FUTURES. The Portfolio may purchase and sell futures contracts and options on
futures contracts, including but not limited to securities index futures,
foreign currency exchange futures, interest rate futures contracts and other
financial futures (collectively, "Futures"). Futures contracts provide for the
sale by one party and purchase by another party of a specified amount of a
specific security, instrument or basket thereof, at a specific future date and
at a specified price. An option on a futures contract is a legal contract that
gives the holder the right to buy or sell a specified amount of futures
contracts at a fixed or determinable price upon the exercise of the option.

The Portfolio may sell securities index futures contracts and/or options
thereon in anticipation of or during a market decline to attempt to offset the
decrease in market value of investments in its portfolio, or purchase
securities index futures in order to gain market exposure. Subject to
applicable laws, the Portfolio may engage in transactions in securities index
futures contracts (and options thereon) which are traded on a recognized
securities or futures exchange, or may purchase or sell such instruments in the
over-the-counter market. There currently are limited securities index futures
and options on such futures in many countries, particularly emerging countries.
The nature of the strategies adopted by MSAM, and the extent to which those
strategies are used, may depend on the development of such markets.

The Portfolio may engage in transactions involving foreign currency exchange
futures contracts. Such contracts involve an obligation to purchase or sell a
specific currency at a specified future date and at a specified price. The
Portfolio may engage in such transactions to hedge their respective holdings
and commitments against changes in the level of future currency rates or to
adjust their exposure to a particular currency. For more information, see
"Foreign Currency Transactions" above.

The Portfolio may engage in transactions in interest rate futures transactions.
Interest rate futures contracts involve an obligation to purchase or sell a
specific debt security,
<PAGE>

instrument or basket thereof at a specified future date at a specified price.
The value of the contract rises and falls inversely with changes in interest
rates. The Portfolio may engage in such transactions to hedge its holdings of
debt instruments against future changes in interest rates.

Financial futures are futures contracts relating to financial instruments, such
as U.S. Government securities, foreign currencies, and certificates of deposit.
Such contracts involve an obligation to purchase or sell a specific security,
instrument or basket thereof at a specified future date at a specified price.
Like interest rate futures contracts, the value of financial futures contracts
rises and falls inversely with changes in interest rates. The Portfolio may
engage in financial futures contracts for hedging and non-hedging purposes.

Under rules adopted by the Commodity Futures Trading Commission, each Fund may
enter into futures contracts and options thereon for both hedging and non-
hedging purposes, provided that not more than 5% of the Portfolio's total
assets at the time of entering the transaction are required as margin and
option premiums to secure obligations under such contracts relating to non-
hedging activities.

Gains and losses on futures contracts and options thereon depend on MSAM's
ability to predict correctly the direction of securities prices, interest rates
and other economic factors. Other risks associated with the use of futures and
options are (i) imperfect correlation between the change in market value of
investments held by the Portfolio and the prices of futures and options
relating to investments purchased or sold by the Portfolio, and (ii) possible
lack of a liquid secondary market for a futures contract and the resulting
inability to close a futures position. The risk that the Portfolio will be
unable to close out a futures position or options contract will be minimized by
only entering into futures contracts or options transactions for which there
appears to be a liquid exchange or secondary market. The risk of loss in
trading on futures contracts in some strategies can be substantial, due both to
the low margin deposits required and the extremely high degree of leverage
involved in futures pricing.

OPTIONS. The Portfolio may seek to increase its returns or may hedge its
portfolio investments through Options transactions with respect to securities,
instruments, indices or baskets thereof in which such Portfolio may invest, as
well as with respect to foreign currency. Purchasing a put Option gives the
Portfolio the right to sell a specified security, currency or basket of
securities or currencies at the exercise price until the expiration of the
option. Purchasing a call Option gives a Portfolio the right to purchase a
specified security, currency or basket of securities or currencies at the
exercise price until the expiration of the Option.

The Portfolio also may write (i.e., sell) put and call Options on investments
held in its portfolio, as well as with respect to foreign currency. When the
Portfolio has written an Option, it receives a premium which increases the
Portfolio's return on the underlying security or instrument in the event the
Option expires unexercised or is closed out at a profit. However, by writing a
call Option, the Portfolio will limit its opportunity to profit from an
increase in the market value of the underlying security or instrument above the
exercise price of the Option for as long as the Portfolio's obligation as
writer of the Option continues. The Portfolio may only write Options that are
"covered". A covered call Option means that so long as the Portfolio is
obligated as the writer of the Option, it will earmark or segregate sufficient
liquid assets to cover its obligations under the Option or own (i) the
underlying security or instrument subject to the Option, (ii) securities or
instruments convertible or exchangeable without the payment of any
consideration into the security or instrument subject to the Option, or (iii) a
call Option on the same underlying security with a strike price no higher than
the price at which the underlying instrument was sold pursuant to a short
Option position.

By writing (or selling) a put Option, the Portfolio incurs an obligation to buy
the security or instrument underlying the Option from the purchaser of the put
at the Option's exercise price at any time during the Option period, at the
purchaser's election. The Portfolio may also write Options that may be
exercisable by the purchaser only on a specific date. When the Portfolio has
written a put Option, it will earmark or segregate sufficient liquid assets to
cover its obligations under the Option or will own a put Option on the same
underlying security with an equal or higher strike price.

The Portfolio may engage in transactions in Options which are traded on
recognized exchanges or over-the-counter. There currently are limited Options
markets in many countries, particularly emerging countries such as Latin
American countries, and the nature of the strategies adopted by MSAM and the
extent to which those strategies are used will depend on the development of
such Options markets. The primary risks associated with the use of Options are
(i) imperfect correlation between the change in market value of investments
held, purchased or sold by the Portfolio and the prices of Options relating to
such investments, and (ii) possible lack of a liquid secondary market for an
Option.

STRUCTURED NOTES. Structured Notes are Derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Portfolio may use Structured Notes to tailor its
investments to the specific risks and returns MSAM wishes to accept while
avoiding or reducing certain other risks.

SWAPS. Swap contracts ("Swaps") are Derivatives in the form of a contract or
other similar instrument in which two parties agree to exchange the returns
generated by a security, instrument, basket thereof or index for the returns
generated by another security, instrument, basket thereof or index. The payment
streams are calculated by reference to a specific
<PAGE>

security, index or instrument and an agreed upon notional amount. The relevant
indices include but are not limited to, currencies, fixed interest rates,
prices and total return on interest rate indices, fixed income indices, stock
indices and commodity indices (as well as amounts derived from arithmetic
operations on these indices). For example, the Portfolio may agree to swap the
return generated by a fixed income index for the return generated by a second
fixed income index. The currency Swaps in which the Portfolio may enter will
generally involve an agreement to pay interest streams in one currency based on
a specified index in exchange for receiving interest streams denominated in
another currency. Such Swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.

The Portfolio will usually enter into Swaps on a net basis, i.e., the two
return streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the
case may be, only the net amount of the two returns. The Portfolio's
obligations under a Swap agreement will be accrued daily (offset against any
amounts owing to the Portfolio) and any accrued, but unpaid, net amounts owed
to a Swap counterparty will be covered by the maintenance of a segregated
account consisting of cash or liquid securities. The Portfolio will not enter
into any Swap agreement unless the counterparty meets the rating requirements
set forth in guidelines established by the Fund's Board of Directors.

Interest rate and total rate of return Swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of
loss with respect to interest rate and total rate of return Swaps is limited to
the net amount of payments that a portfolio is contractually obligated to make.
If the other party to an interest rate or total rate of return Swap defaults,
the Portfolio's risk of loss consists of the net amount of payments that the
Portfolio is contractually entitled to receive. In contrast, currency Swaps may
involve the delivery of the entire principal value of one designated currency
in exchange for the other designated currency. Therefore, the entire principal
value of a currency Swap may be subject to the risk that the other party to the
Swap will default on its contractual delivery obligations. If there is a
default by the counterparty, the Portfolio may have contractual remedies
pursuant to the agreements related to the transaction. The Swaps market has
grown substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
Swap documentation. As a result, the Swaps market has become relatively liquid.
Swaps that include Caps, Floors and Collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than "traditional" Swaps.

The use of Swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If MSAM is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Portfolio would be less favorable than it would have been if this
investment technique were not used.

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

Madhav Dhar and Robert L. Meyer. Madhav Dhar joined the Adviser in 1984. He is
a Managing Director of the Adviser and of Morgan Stanley & Co. Incorporated
("Morgan Stanley"). He is a member of the Adviser's executive committee, head
of the Adviser's emerging markets group and chief investment officer of the
Adviser's global emerging market equity portfolios. He holds a B.S. (honors)
from St. Stephen's College, Delhi University India and an M.B.A. from Carnegie-
Mellon University. Mr. Dhar has been primarily responsible for managing the
Portfolio's assets since it commenced operations. Robert L. Meyer joined the
Adviser in 1989. He is a Managing Director of the Adviser and of Morgan Stanley
and co-manager of the Adviser's emerging markets group and head of the
Adviser's Latin American team. He was born in Argentina and graduated from Yale
University with a B.A. in Economics and Political Science. He received a J.D.
from Harvard Law School. In addition, he is also a Chartered Financial Analyst.
Mr. Meyer has assisted Mr. Dhar in managing the Portfolio's assets since it
commenced operations.

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

The discussion under "PERSONS CONTROLLING THE PORTFOLIO" on pages 20-21, is
deleted and replaced with the following:

As of August 8, 1997, the New York Life and Annuity Corporation owned more than
25% of the Portfolio pursuant to variable annuity contracts and variable life
insurance policies it has issued to the public.

As currently required under law, the New York Life and Annuity Corporation and
other insurance companies vote their shares of the Portfolios in accordance
with instructions received from their variable annuity contract and variable
life insurance policy owners. MSDWD will vote the shares of the Portfolio that
it owns in the same proportions as shares of the Portfolio are voted by the
insurance companies. Accordingly, neither MSDWD, nor the insurance companies
are deemed to be in control of the Portfolios.

For more information, see "Control Persons and Principal Holders of Securities"
in the SAI.

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

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE

<PAGE>

SUPPLEMENT DATED SEPTEMBER 19, 1997
TO THE PROSPECTUS DATED MAY 1, 1997

FIXED INCOME PORTFOLIO
VALUE PORTFOLIO
MID CAP VALUE PORTFOLIO
U.S. REAL ESTATE PORTFOLIO
EMERGING MARKETS EQUITY PORTFOLIO

PORTFOLIOS OF

MORGAN STANLEY UNIVERSAL FUNDS, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798

--------------
The Prospectus is being amended and supplemented to: (i) reflect changes to the
parent of the Fund's investment advisers, administrators and distributor; (ii)
provide unaudited financial highlights for the portfolios for periods ended
June 30, 1997; (iii) reflect a change in investment policy with respect to the
Emerging Markets Equity Portfolio; (iv) reflect revised investment policies
with respect to certain derivative instruments; (v) reflect the addition of a
portfolio manager for the Mid Cap Value Fund and a change in portfolio manager
for the Emerging Markets Equity Portfolio; and (vi) update and revise certain
information concerning principal holders of securities of the Fund. The
Prospectus is amended and supplemented as follows:

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

The following paragraph and tables are added after the first paragraph under
the heading "Financial Highlights" on page 3 of the Prospectus.

The following tables provide financial highlights for the U.S. Real Estate
Portfolio for the period March 3, 1997 through June 30, 1997, for the Value,
Fixed Income and Mid Cap Value Portfolios for the period January 2, 1997
through June 30, 1997, and for the Emerging Markets Equity Portfolio for the
period October 1, 1996 through December 31, 1996 and for the six months ended
June 30, 1997, and are part of the Fund's unaudited financial statements which
are included in the Fund's current Statement of Additional Information and in
the Fund's Semi-Annual Report to Shareholders for the six months ended June 30,
1997.
<TABLE>
<CAPTION>
U.S. REAL
ESTATE PORTFOLIO VALUE PORTFOLIO
------------------ --------------------
PERIOD FROM PERIOD FROM
MARCH 3, 1997* TO JANUARY 2, 1997* TO
JUNE 30, 1997 JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) (UNAUDITED)
- ---------------------------------- ------------------ --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................. 0.10 0.07
Net Realized and Unrealized Gain....... 0.27 1.48
------- -------
Total From Investment Operations....... 0.37 1.55
------- -------
NET ASSET VALUE, END OF PERIOD........... $ 10.37 $ 11.55
======= =======
TOTAL RETURN............................. 3.70% 15.50%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)........ $ 6,025 $ 5,264
Ratio of Expenses to Average Net Assets.. 1.10%** 0.85%**
Ratio of Net Investment Income to Average
Net Assets.............................. 3.52%** 1.82%**
Portfolio Turnover Rate.................. 56% 22%
Average Commission Rate Per Share........ $0.0576 $0.0585
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income................................ $ 0.08 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets......... 3.71%** 2.35%**
Net Investment Income to Average Net
Assets................................ 0.90%** 0.32%**
</TABLE>
- -------
*Commencement of operations
**Annualized
<PAGE>

<TABLE>
<CAPTION>
FIXED INCOME
PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED)
- ---------------------------------- -------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income...................................... 0.25
Net Realized and Unrealized Gain........................... 0.10
------
Total From Investment Operations........................... 0.35
------
NET ASSET VALUE, END OF PERIOD............................... $10.35
======
TOTAL RETURN................................................. 3.50%
======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)............................ $9,033
Ratio of Expenses to Average Net Assets...................... 0.70%**
Ratio of Net Investment Income to Average Net Assets......... 5.27%**
Portfolio Turnover Rate...................................... 100%
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income................. $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................. 1.59%**
Net Investment Income to Average Net Assets................ 4.38%**
</TABLE>
- -------
*Commencement of operations
**Annualized

<TABLE>
<CAPTION>
MID CAP VALUE
PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED)
- ---------------------------------- -------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income...................................... 0.02
Net Realized and Unrealized Gain........................... 1.89
-------
Total From Investment Operations........................... 1.91
-------
NET ASSET VALUE, END OF PERIOD............................... $ 11.91
=======
TOTAL RETURN................................................. 19.10%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)............................ $ 4,922
Ratio of Expenses to Average Net Assets...................... 1.05%**
Ratio of Net Investment Income to Average Net Assets......... 0.43%**
Portfolio Turnover Rate...................................... 76%
Average Commission Rate Per Share............................ $0.0429
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income................. $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................. 2.45%**
Net Investment Income to Average Net Assets................ (0.97)%**
</TABLE>
- -------
*Commencement of operations
**Annualized
<PAGE>

<TABLE>
<CAPTION>
EMERGING MARKETS
EQUITY PORTFOLIO
-------------------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 1997 OCTOBER 1, 1996*
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) TO DECEMBER 31, 1996
- ---------------------------------- ---------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 9.78 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................... 0.05 0.01
Net Realized and Unrealized Gain (Loss).. 2.20 (0.21)
------- -------
Total From Investment Operations......... 2.25 (0.20)
------- -------
DISTRIBUTIONS
Net Investment Income.................... -- (0.02)
------- -------
Total Distributions...................... -- (0.02)
------- -------
NET ASSET VALUE, END OF PERIOD............. $ 12.03 $ 9.78
======= =======
TOTAL RETURN............................... 23.01% (2.03)%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).......... $20,308 $11,789
Ratio of Expenses to Average Net Assets.... 1.75%** 1.75%**
Ratio of Net Investment Income to Average
Net Assets................................ 1.03%** 0.32%**
Portfolio Turnover Rate.................... 38% 9%
Average Commission Rate:
Per Share................................ $0.0012 $0.0013
As a Percentage of Trade Amount.......... 0.40% 0.45%
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income (Loss)........................... $ 0.12 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets........... 4.49%** 6.17%**
Net Investment Loss to Average Net
Assets.................................. (1.67)%** (4.06)%**
</TABLE>
- -------
*Commencement of operations
**Annualized

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

Under the heading "THE PORTFOLIOS' INVESTMENTS," the first sentence in the
third paragraph under "EMERGING MARKETS EQUITY PORTFOLIO" on page 6 is deleted
and replaced with the following:

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

As a result of changes to the descriptions of certain derivative instruments
invested in by the Fund, the Prospectus is amended and supplemented as follows:

The section entitled "DERIVATIVES" on pages 11-12 is deleted.
The section entitled "FUTURES" on pages 14-15 is deleted.
The section entitled "OPTIONS" on page 19 is deleted.
The section entitled "STRUCTURED NOTES" on pages 20-21 is deleted.
The section entitled "SWAPS" on page 21 is deleted.

After the section entitled "ZERO COUPONS, PAY-IN-KIND SECURITIES OR DEFERRED
PAYMENT SECURITIES" on page 22, the following sections are inserted:

DERIVATIVES. The Portfolios are permitted to invest in various Derivatives for
both hedging and non-hedging purposes. Derivatives include Options, Futures,
Structured Notes, Caps, Floors, Collars and Swaps. Additionally, the Portfolios
may invest in other Derivatives that are developed over time if their use would
be consistent with the objectives of the Portfolios. Each of the U.S. Real
Estate and Emerging Markets Equity Portfolios will limit its use of Derivatives
to 33 1/3% of its total assets measured by the aggregate notional amount of
outstanding Derivatives. The Fixed Income,Value and Mid Cap Value Portfolios
will not enter into Futures to the extent that each Portfolio's outstanding
obligations to purchase securities under these contracts, in combination with
its outstanding obligations with respect to Options, would exceed 50% of its
total assets. The Portfolios' investments in forward foreign currency contracts
and Derivatives used for hedging purposes are not subject to the foregoing
limits.

transaction costs associated with the Derivatives transaction. Derivatives may
also be used by a Portfolio for hedging purposes and under other circumstances
in which a Portfolio's portfolio managers believe it advantageous to do so
consistent with the Portfolio's investment objective. The Portfolios will not,
however, use Derivatives in a manner that creates leverage, except to the
extent that the use of leverage is expressly permitted by a particular
Portfolio's investment policies, and then only in a manner consistent with such
policies.

Some of the Derivatives in which the Portfolios may invest and the risks
related thereto are described in more detail below.

<PAGE>

Each Portfolio also may write (i.e., sell) put and call Options on investments
held in its portfolio, as well as with respect to foreign currency. A Portfolio
that has written an Option receives a premium, which increases the Portfolio's
return on the underlying security or instrument in the event the Option expires
unexercised or is closed out at a profit. However, by writing a call Option, a
Portfolio will limit its opportunity to profit from an increase in the market
value of the underlying security or instrument above the exercise price of the
Option for as long as the Portfolio's obligation as writer of the Option
continues. The Portfolios may only write Options that are "covered". A covered
call Option means that so long as the Portfolio is obligated as the writer of
the Option, it will earmark or segregate sufficient liquid assets to cover its
obligations under the Option or own (i) the underlying security or instrument
subject to the Option, (ii) securities or instruments convertible or
exchangeable without the payment of any consideration into the security or
instrument subject to the Option, or (iii) a call Option on the same underlying
security with a strike price no higher than the price at which the underlying
instrument was sold pursuant to a short Option position.

delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency Swap may be subject to the risk that the other party to the Swap will
default on its contractual delivery obligations. If there is a default by the
counterparty, a Portfolio may have contractual remedies pursuant to the
agreements related to the transaction. The Swaps market has grown substantially
in recent years with a large number of banks and investment banking firms
acting both as principals and as agents utilizing standardized Swap
documentation. As a result, the Swaps market has become relatively liquid.
Swaps that include Caps, Floors and Collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than "traditional" Swaps.

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

MID CAP VALUE PORTFOLIO--William B. Gerlach, Gary G. Schlarbaum and Bradley S.
Daniels. William B. Gerlach, a Vice President of Morgan Stanley, joined MAS in
1991. He served as a Programmer in Applications Software Development at
Alphametrics Corporation from 1987 through 1991 and as a Data Analyst and
Inflation Economist at Wharton Econometric Forecasting Associates from 1984
through 1987. He holds a B.A. in Economics from Haverford College. Gary G.
Schlarbaum, a Managing Director of Morgan Stanley, joined MAS in 1987. He
assumed responsibility for the MAS Funds' Equity and Small Cap Value Portfolios
in 1987, the MAS Funds' Balanced Portfolio in 1992 and the MAS Funds' Multi-
Asset-Class and Mid Cap Value Portfolios in 1994. Mr. Schlarbaum holds a B.A.
from Coe College and a Ph.D. from University of Pennsylvania. Bradley S.
Daniels, a Vice President of Morgan Stanley, joined MAS in 1985. He assumed
responsibility for the MAS Funds' Small Cap Value Portfolio in 1986 and the MAS
Funds' Mid Cap Value Portfolio in 1994. Messrs. Gerlach, Schlarbaum and Daniels
have had primary responsibility for managing the Portfolio's assets since
inception.

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

EMERGING MARKETS EQUITY PORTFOLIO--Madhav Dhar and Robert L. Meyer. Madhav Dhar
joined the Adviser in 1984. He is a Managing Director of the Adviser and of
Morgan Stanley. He is a member of the Adviser's executive committee, head of
the Adviser's emerging markets group and chief investment officer of the
Adviser's global emerging market equity portfolios. He holds a B.S. (honors)
from St. Stephen's College, Delhi University India and an M.B.A. from Carnegie-
Mellon University. Mr. Dhar has been primarily responsible for managing the
Portfolio's assets since it commenced operations. Robert L. Meyer joined the
Adviser in 1989. He is a Managing Director of the Adviser and of Morgan Stanley
and co-manager of the Adviser's emerging markets group and head of the
Adviser's Latin American Team. He was born in Argentina and graduated from Yale
University with a B.A. in Economics and Political Science. He received a J.D.
from Harvard Law School. In addition, he is also a Chartered Financial Analyst.
Mr. Meyer has assisted Mr. Dhar in managing the Portfolio's assets since it
commenced operations.

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

The discussion under "PERSONS CONTROLLING CERTAIN PORTFOLIOS" on page 28, is
deleted and replaced with the following:

As of August 8, 1997, MSDWD owned more than 25% of the outstanding voting
securities of the Fixed Income, Value, Mid Cap Value and U.S. Real Estate
Portfolios. Also, as of that date, the New York Life and Annuity Corporation
owned more than 25% of the Emerging Markets Equity Portfolio and American
General Life Insurance Company owned more than 25% of the Mid Cap Value and
Value Portfolios pursuant to variable annuity contracts and variable life
insurance policies it has issued to the public.

For more information, see "Control Persons and Principal Holders of Securities"
in the SAI.

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

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>

SUPPLEMENT DATED SEPTEMBER 19, 1997
TO THE PROSPECTUS DATED MAY 1, 1997

FIXED INCOME PORTFOLIO
U.S. REAL ESTATE PORTFOLIO

PORTFOLIOS OF

MORGAN STANLEY UNIVERSAL FUNDS, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798

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

The following section is added on page 3 of the Prospectus:

FINANCIAL HIGHLIGHTS

The following table provides financial highlights for the U.S. Real Estate
Portfolio for the period March 3, 1997 through June 30, 1997, and for the Fixed
Income Portfolio for the period January 2, 1997 through June 30, 1997, and are
part of the Fund's unaudited financial statements which are included in the
Fund's current Statement of Additional Information and in the Fund's Semi-
Annual Report to Shareholders for the six months ended June 30, 1997.
<TABLE>
<CAPTION>
U.S. REAL ESTATE FIXED INCOME
PORTFOLIO PORTFOLIO
------------------ -------------------
PERIOD FROM PERIOD FROM
MARCH 3, 1997* TO JANUARY 2, 1997* TO
JUNE 30, 1997 JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) (UNAUDITED)
- ---------------------------------- ------------------ -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 10.00 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................... 0.10 0.25
Net Realized and Unrealized Gain........ 0.27 0.10
------- ------
Total From Investment Operations........ 0.37 0.35
------- ------
NET ASSET VALUE, END OF PERIOD............ $ 10.37 $10.35
======= ======
TOTAL RETURN.............................. 3.70% 3.50%
======= ======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)......... $ 6,025 $9,033
Ratio of Expenses to Average Net Assets... 1.10%** 0.70%**
Ratio of Net Investment Income to Average
Net Assets............................... 3.52%** 5.27%**
Portfolio Turnover Rate................... 56% 100%
Average Commission Rate Per Share......... $0.0576 N/A
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income................................. $ 0.08 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets.......... 3.71%** 1.59%**
Net Investment Income to Average Net
Assets................................. 0.90%** 4.38%**
</TABLE>
- -------
*Commencement of operations
**Annualized

--------------
<PAGE>

As a result of changes to the descriptions of certain derivative instruments
invested in by the Fund, the Prospectus is amended and supplemented as follows:

The section entitled "DERIVATIVES" on page 8 is deleted.
The section entitled "FUTURES" on pages 10-11 is deleted.
The section entitled "OPTIONS" on page 14 is deleted.
The section entitled "STRUCTURED NOTES" on page 16 is deleted.
The section entitled "SWAPS" on pages 16-17 is deleted.

After the section entitled "ZERO COUPONS, PAY-IN-KIND SECURITIES OR DEFERRED
PAYMENT SECURITIES" on page 17, the following sections are inserted:

DERIVATIVES. The Portfolios are permitted to invest in various Derivatives for
both hedging and non-hedging purposes. Derivatives include Options, Futures,
Structured Notes, Caps, Floors, Collars and Swaps. Additionally, the Portfolios
may invest in other Derivatives that are developed over time if their use would
be consistent with the objectives of the Portfolios. The U.S. Real Estate
Portfolio will limit its use of Derivatives to 33 1/3% of its total assets
measured by the aggregate notional amount of outstanding Derivatives. The Fixed
Income Portfolio will not enter into Futures to the extent that the Portfolio's
outstanding obligations to purchase securities under these contracts, in
combination with its outstanding obligations with respect to Options, would
exceed 50% of its total assets. The Portfolios' investments in forward foreign
currency contracts and Derivatives used for hedging purposes are not subject to
the foregoing limits.

Some of the Derivatives in which the Portfolios may invest and the risks
related thereto are described in more detail below.

CAPS, FLOORS AND COLLARS. The Portfolios may invest in Caps, Floors and
Collars, which are instruments analogous to Options. In particular, a Cap is
the right to receive the excess of a reference rate over a given rate and is
analogous to a put Option. A Floor is the right to receive the excess of a
given rate over a reference rate and is analogous to a call Option. Finally, a
Collar is an instrument that combines a Cap and a Floor. That is, the buyer of
a Collar buys a Cap and writes a Floor, and the writer of a Collar writes a Cap
and buys a Floor. The risks associated with Caps, Floors and Collars are
similar to those associated with Options. In addition, Caps, Floors and Collars
are subject to risk of default by the counterparty because they are privately
negotiated instruments.

<PAGE>

Each Portfolio also may write (i.e., sell) put and call Options on investments
held in its portfolio, as well as with respect to foreign currency. A Portfolio
that has written an Option receives a premium, which increases the Portfolio's
return on the underlying security or instrument in the event the Option expires
unexercised or is closed out at a profit. However, by writing a call Option, a
Portfolio will limit its opportunity to profit from an increase in the market
value of the underlying security or instrument above the exercise price of the
Option for as long as the Portfolio's obligation as writer of the Option
continues. The Portfolios may only write Options that are "covered". A covered
call Option means that so long as the Portfolio is obligated as the writer of
the Option, it will earmark or segregate sufficient liquid assets to cover its
obligations under the Option or own (i) the underlying security or instrument
subject to the Option, (ii) securities or instruments convertible or
exchangeable without the payment of any consideration into the security or
instrument subject to the Option, or (iii) a call Option on the same underlying
security with a strike price no higher than the price at which the underlying
instrument was sold pursuant to a short Option position.

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

The discussion under "PERSONS CONTROLLING CERTAIN PORTFOLIOS" on page 24, is
deleted and replaced with the following:

As of August 8, 1997, MSDWD owned more than 25% of the outstanding voting
securities of the Fixed Income and U.S. Real Estate Portfolios.

As currently required under law, insurance companies vote their shares of the
Portfolios in accordance with instructions received from their variable annuity
contract and variable life insurance policy owners. MSDWD will vote the shares
of each Portfolio that it owns in the same proportions as shares of the
Portfolio are voted by the insurance companies. Accordingly, neither MSDWD nor
the insurance companies are deemed to be in control of the Portfolios.

For more information, see "Control Persons and Principal Holders of Securities"
in the SAI.

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

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>

SUPPLEMENT DATED SEPTEMBER 19, 1997
TO THE PROSPECTUS DATED JULY 1, 1997

EMERGING MARKETS DEBT PORTFOLIO

A PORTFOLIO OF

MORGAN STANLEY UNIVERSAL FUNDS, INC. (THE "FUND")

P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798

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

The Prospectus is hereby amended and supplemented as follows: The following
section is added on page 3 of the Prospectus:

FINANCIAL HIGHLIGHTS

The following tables provide financial highlights for the shares of the
Emerging Markets Debt Portfolio for the period June 16, 1997 through June 30,
1997. These unaudited financial highlights are part of the Fund's financial
statements which appear in the Fund's June 30, 1997 Semi-Annual Report and
which are included in the Fund's Statement of Additional Information. The Semi-
Annual Report and the financial statements therein, along with the Statement of
Additional Information, are available at no cost from the Fund at the address
and toll-free number noted on the cover page to this Prospectus or from your
insurance company.

<TABLE>
<CAPTION>
EMERGING MARKETS
DEBT PORTFOLIO
----------------
PERIOD FROM
JUNE 16,
1997* TO
JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED)
- ---------------------------------- ----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................ $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income......................................... 0.03
Net Realized and Unrealized Loss.............................. (0.03)
-------
Total From Investment Operations.............................. --
-------
NET ASSET VALUE, END OF PERIOD.................................. $ 10.00
=======
TOTAL RETURN.................................................... 0.00%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)............................... $10,049
Ratio of Expenses to Average Net Assets......................... 1.30%**
Ratio of Net Investment Income to Average Net Assets............ 6.48%**
Portfolio Turnover Rate......................................... 14%
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income.................... $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets................................ 2.77%**
Net Investment Income to Average Net Assets................... 5.01%**
</TABLE>
- -------
*Commencement of operations
**Annualized

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

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>

SUPPLEMENT DATED SEPTEMBER 19, 1997
TO THE PROSPECTUS DATED JULY 15, 1997

EMERGING MARKETS DEBT PORTFOLIO
GLOBAL EQUITY PORTFOLIO
INTERNATIONAL MAGNUM PORTFOLIO
EMERGING MARKETS EQUITY PORTFOLIO

PORTFOLIOS OF

MORGAN STANLEY UNIVERSAL FUNDS, INC. (THE "FUND")

P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798

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

The Prospectus is being amended and supplemented to: (i) provide unaudited
financial highlights for the portfolios for the periods ended June 30, 1997;
and (ii) to reflect a change in investment policy with respect to the Emerging
Markets Equity Portfolio. The Prospectus is amended and supplemented as
follows:

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

The following paragraph and tables are added after the first paragraph under
the heading "Financial Highlights" on page 3 of the Prospectus:

The following tables provide financial highlights for the Emerging Markets Debt
Portfolio for the period June 16, 1997 through June 30, 1997, for the Global
Equity and International Magnum Portfolios for the period January 2, 1997
through June 30, 1997 and for the Emerging Markets Equity Portfolio for the
period October 1, 1996 through December 31, 1996 and for the six months ended
June 30, 1997, and are part of the Fund's unaudited financial statements which
are included in the Fund's current Statement of Additional Information and in
the Fund's Semi-Annual Report to Shareholders for the six months ended June 30,
1997.

<TABLE>
<CAPTION>
EMERGING MARKETS
DEBT PORTFOLIO
----------------
PERIOD FROM
JUNE 16, 1997*
TO
JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED)
- ---------------------------------- ----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................ $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income......................................... 0.03
Net Realized and Unrealized Loss.............................. (0.03)
-------
Total From Investment Operations.............................. --
-------
NET ASSET VALUE, END OF PERIOD.................................. $ 10.00
=======
TOTAL RETURN.................................................... 0.00%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)............................... $10,049
Ratio of Expenses to Average Net Assets......................... 1.30%**
Ratio of Net Investment Income to Average Net Assets............ 6.48%**
Portfolio Turnover Rate......................................... 14%
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income.................... $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets................................ 2.77%**
Net Investment Income to Average Net Assets................... 5.01%**
</TABLE>
- -------
*Commencement of operations
**Annualized
<PAGE>

<TABLE>
<CAPTION>
INTERNATIONAL
GLOBAL EQUITY MAGNUM
PORTFOLIO PORTFOLIO
------------------- ------------------
PERIOD FROM PERIOD FROM
JANUARY 2, 1997* TO JANUARY 2 1997* TO
JUNE 30, 1997 JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) (UNAUDITED)
- ---------------------------------- ------------------- ------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................... 0.08 0.09
Net Realized and Unrealized Gain........ 1.41 1.58
------- -------
Total From Investment Operations........ 1.49 1.67
------- -------
NET ASSET VALUE, END OF PERIOD............ $ 11.49 $ 11.67
======= =======
TOTAL RETURN.............................. 14.90% 16.70%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)......... $ 7,326 $14,643
Ratio of Expenses to Average Net Assets... 1.15%** 1.15%**
Ratio of Net Investment Income to Average
Net Assets............................... 1.81%** 1.96%**
Portfolio Turnover Rate................... 3% 19%
Average Commission Rate:
Per Share............................... $0.0225 $0.0170
As a Percentage of Trade Amount......... 0.17% 0.17%
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income................................. $ 0.06 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets.......... 2.46%** 2.38%**
Net Investment Income to Average Net
Assets................................. 0.50%** 0.73%**
</TABLE>
- -------
*Commencement of operations
**Annualized

<TABLE>
<CAPTION>
EMERGING MARKETS
EQUITY PORTFOLIO
-------------------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 1997 OCTOBER 1, 1996*
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) TO DECEMBER 31, 1996
- ---------------------------------- ---------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 9.78 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................... 0.05 0.01
Net Realized and Unrealized Gain (Loss).. 2.20 (0.21)
------- -------
Total From Investment Operations......... 2.25 (0.20)
------- -------
DISTRIBUTIONS
Net Investment Income.................... -- (0.02)
------- -------
Total Distributions...................... -- (0.02)
------- -------
NET ASSET VALUE, END OF PERIOD............. $ 12.03 $ 9.78
======= =======
TOTAL RETURN............................... 23.01% (2.03)%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).......... $20,308 $11,789
Ratio of Expenses to Average Net Assets.... 1.75%** 1.75%**
Ratio of Net Investment Income to Average
Net Assets................................ 1.03%** 0.32%**
Portfolio Turnover Rate.................... 38% 9%
Average Commission Rate:
Per Share................................ $0.0012 $0.0013
As a Percentage of Trade Amount.......... 0.40% 0.45%
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income (Loss)........................... $ 0.12 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets........... 4.49%** 6.17%**
Net Investment Loss to Average Net
Assets.................................. (1.67)%** (4.06)%**
</TABLE>
- -------
*Commencement of operations
**Annualized
--------------
<PAGE>

Under the heading "THE PORTFOLIOS' INVESTMENTS," the first sentence in the
third paragraph under "EMERGING MARKETS EQUITY PORTFOLIO" on page 7 is deleted
and replaced with the following:

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

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>

SUPPLEMENT DATED SEPTEMBER 19, 1997
TO
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1997

MORGAN STANLEY UNIVERSAL FUNDS, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MA 02208-2798

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

The Statement of Additional Information ("SAI") is being amended and
supplemented to: (i) reflect changes to the parent of the investment advisers,
administrators and distributor; (ii) reflect names of additional prospectuses
on the cover of the SAI; (iii) reflect changes in the Fund's policies regarding
investments in certain instruments; (iv) reflect changes in the Board of
Directors and officers of the Fund; (v) update and revise certain information
concerning principal holders of securities of the Fund; and (vi) provide
unaudited financial statements for the eleven active portfolios for periods
ended June 30, 1997. The SAI is amended and supplemented as follows:

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

The following sentences are added at the end of the second column on the first
page of the SAI:

Prospectus dated July 1, 1997 for the Emerging Markets Debt Portfolio.

Prospectus dated July 15, 1997 for the Emerging Markets Debt, Global Equity,
International Magnum and Emerging Markets Equity Portfolios.

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

The section entitled "RESTRICTIONS ON THE USE OF FUTURES CONTRACTS" on page 5
is deleted and replaced as follows:

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS: A Portfolio will not enter into
futures contract transactions to the extent that, immediately thereafter, the
sum of its initial margin deposits on open contracts exceeds 5% of the market
value of its total assets. Each of the Equity Growth, U.S. Real Estate,
Emerging Markets Debt, Global Equity, International Magnum, Emerging Markets
Equity and Asian Equity Portfolios will limit its use of futures contracts and
other derivative instruments to 33 1/3% of their total assets measured by the
aggregate notional amount of outstanding derivative instruments. Each of the
Fixed Income, High Yield, Core Equity, Value, Mid Cap Growth, Mid Cap Value,
International Fixed Income, Balanced and Multi-Asset-Class Portfolios may enter
into futures contracts to the extent that the notional value of its outstanding
obligations to purchase securities under such contracts, in combination with
its outstanding obligations with respect to options transactions (including
options to purchase securities or instruments) would not exceed 50% of its
total assets. All Portfolios will maintain assets sufficient to meet their
respective obligations under such contracts in a segregated account with the
custodian bank or will otherwise comply with the SEC's position on asset
coverage.

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

At the Fund's May 21, 1997 Board of Directors meeting, the Board elected
Michael F. Klein to serve as the Fund's Director and President. Also at the
meeting, Joanna Haigney resigned, effective May 21, 1997, as Assistant
Treasurer to serve as the Fund's Treasurer and Rene J. Feuerman was elected to
serve as Assistant Treasurer of the Fund. The Board also accepted, effective
May 31, 1997, the resignation of Warren J. Olsen and, effective May 21, 1997,
the resignation of James R. Rooney. Accordingly, the Statement of Additional
Information is amended and supplemented as follows:

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

Under the section entitled "MANAGEMENT OF THE FUND" on page 16, the information
on Warren J. Olsen is deleted and replaced with the following:

<TABLE>
<C> <C> <S>
Michael F. Klein* Director and Principal of Morgan Stanley Asset Manage-
1221 Avenue of President ment Inc. President and Director of three
the Americas investment companies and Officer of various
New York, NY 10020 other investment companies managed by Mor-
12/12/58 gan Stanley Asset Management Inc. Previ-
ously practiced law with the New York firm
of Rogers & Wells.

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

On page 17, the information on Michael F. Klein is deleted.

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

On page 17, the information on James R. Rooney is deleted and replaced with the
following:

Joanna Haigney Treasurer Assistant Vice President, Senior Manager of
73 Tremont Street Fund Administration and Compliance Servic-
Boston, MA 02108-3913 es, Chase Global Funds Services Company;
10/10/66 Officer of various investment companies
managed by Morgan Stanley Asset Management
Inc. Previously with Coopers & Lybrand LLP.

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

On page 18, the information on Joanna Haigney is deleted and replaced with the
following:

Rene J. Feuerman Assistant Manager of Fund Administration and Compli-
73 Tremont Street Treasurer ance Services, Chase Global Funds Services
Boston, MA 02108-3913 Company Previously Fund Administrator and
1/25/67 Senior Fund Accountant, Chase Global Funds
Services Company.
</TABLE>

--------------
<PAGE>

The first sentence of the discussion under "INVESTMENT ADVISORY AND
ADMINISTRATIVE AGREEMENTS" on page 19, is deleted and replaced with the
following:

MSAM is a wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover &
Co. ("MSDWD").

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

The information under "CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES" on
pages 21-22, is deleted and replaced with the following:

As of August 8, 1997, the following persons were record or beneficial owners of
5% or more of the outstanding shares of the following Portfolios:

<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
PORTFOLIO NAME OF BENEFICIAL OWNER SHARES
--------- ------------------------ -----------
<S> <C> <C>
Fixed Income Portfolio Morgan Stanley, Dean Witter, 90.33%
Discover & Co.
1585 Broadway
New York, NY 10036
American General Life 9.55%
Insurance Company
P.O. Box 1591
Houston, TX 77251
High Yield Portfolio Morgan Stanley, Dean Witter, 87.27%
Discover & Co.
1585 Broadway
New York, NY 10036
American General Life 12.73%
Insurance Company
P.O. Box 1591
Houston, TX 77251
Equity Growth Portfolio Morgan Stanley, Dean Witter, 52.75%
Discover & Co.
1585 Broadway
New York, NY 10036
American General Life 47.25%
Insurance Company
P.O. Box 1591
Houston, TX 77251
Value Portfolio American General Life 50.93%
Insurance Company
P.O. Box 1591
Houston, TX 77251
Morgan Stanley, Dean Witter, 49.07%
Discover & Co.
1585 Broadway
New York, NY 10036
Mid Cap Value Portfolio Morgan Stanley, Dean Witter, 54.11%
Discover & Co.
1585 Broadway
New York, NY 10036
American General Life 45.89%
Insurance Company
P.O. Box 1591
Houston, TX 77251
U.S. Real Estate Portfolio Morgan Stanley, Dean Witter, 80.75%
Discover & Co.
1585 Broadway
New York, NY 10036
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
PORTFOLIO NAME OF BENEFICIAL OWNER SHARES
--------- ------------------------ -----------
<S> <C> <C>
Ameritas Variable 11.78%
Life Insurance Company
P.O. Box 82550
Lincoln, NE 68501
Global Equity Portfolio Morgan Stanley, Dean Witter, 70.85%
Discover & Co.
1585 Broadway
New York, NY 10036
American General Life 12.94%
Insurance Company
P.O. Box 1591
Houston, TX 77251
Ameritas Variable 12.64%
Life Insurance Company
P.O. Box 82550
Lincoln, NE 68501
International Magnum Portfolio Morgan Stanley, Dean Witter, 71.34%
Discover & Co.
1585 Broadway
New York, NY 10036
American General Life 18.47%
Insurance Company
P.O. Box 1591
Houston, TX 77251
Ameritas Variable 8.41%
Life Insurance Company
P.O. Box 82550
Lincoln, NE 68501
Emerging Markets Equity Portfolio New York Life Insurance 63.04%
and Annuity Corporation
300 Interpace Parkway
Parsippany, NJ 07054
Penn Mutual Life 15.00%
Diversifier I
Independence Square
Philadelphia, PA 19172
Ameritas Variable 7.05%
Life Insurance Company
P.O. Box 82550
Lincoln, NE 68501
Penn Mutual Life 5.13%
Variable Annuity Account
Independence Square
Philadelphia, PA 19172
Asian Equity Portfolio Morgan Stanley, Dean Witter, 95.24%
Discover & Co.
1585 Broadway
New York, NY 10036
Emerging Markets Debt Morgan Stanley, Dean Witter, 84.16%
Discover & Co.
1585 Broadway
New York, NY 10036
Nationwide Life Insurance 13.99%
P.O. Box 182029
Columbus, OH 43218
</TABLE>

As currently required under law, the insurance companies vote their shares of
the Portfolios in accordance with
<PAGE>

instructions received from their variable annuity contract and variable life
insurance policy owners. MSDWD will vote the shares of each Portfolio that it
owns in the same proportions as shares of the Portfolio are voted by the
insurance companies. Accordingly, neither MSDWD nor the insurance companies are
deemed to be in control of the Portfolios.

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

Before the section entitled "GENERAL INFORMATION" which begins on page 26, the
following section is inserted:

GENERAL PERFORMANCE INFORMATION

Each Portfolio's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, average portfolio maturity,
the type of portfolio instruments acquired, changes in interest rates,
portfolio expenses and other factors. Performance is one basis investors may
use to analyze a Portfolio as compared to other funds and other investment
vehicles. However, performance of other funds and other investment vehicles may
not be comparable because of the foregoing variables, and differences in the
methods used in valuing their portfolio instruments, computing net asset value
and determining performance.

From time to time, a Portfolio's performance may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, a Portfolio may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on
the basis of risk-adjusted performance. Rankings that compare the performance
of the Funds to one another in appropriate categories over specific periods of
time may also be quoted in advertising.

Portfolio advertising may include data on historical returns of the capital
markets in the United States compiled or published by Ibbotson Associates of
Chicago, Illinois ("Ibbotson"), including returns on common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation
(based on the Consumer Price Index), and combinations of various capital
markets. The performance of these capital markets is based on the returns of
different indices. The Portfolios may use the performance of these capital
markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to
those of the Portfolios. The Portfolios may also compare their performance to
that of other compilations or indices that may be developed and made available
in the future.

The Portfolios may include in advertisements, charts, graphs or drawings which
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to, foreign securities, stocks, bonds,
treasury bills and shares of a Portfolio. In addition, advertisements may
include a discussion of certain attributes or benefits to be derived by an
investment in a Portfolio and/or other mutual funds, shareholder profiles and
hypothetical investor scenarios, timely information on financial management,
tax and retirement planning and various investment alternatives. Advertisements
may include lists of representative Morgan Stanley clients. The Portfolios may
also from time to time include discussions or illustrations of the effects of
compounding in advertisements. "Compounding" refers to the fact that, if
dividends or other distributions on a Portfolio investment are reinvested by
being paid in additional Portfolio shares, any future income or capital
appreciation of a Portfolio would increase the value, not only of the original
investment in the Portfolio, but also of the additional Portfolio shares
received through reinvestment.

The Portfolios may include in its advertisements, discussions or illustrations
of the potential investment goals of a prospective investor (including
materials that describe general principles of investing, such as asset
allocation, diversification, risk tolerance, goal setting, questionnaires
designed to help create a personal financial profile, worksheets used to
project savings needs based on assumed rates of inflation and hypothetical
rates of return and action plans offering investment alternatives), investment
management techniques, policies or investment suitability of a Portfolio (such
as value investing, market timing, dollar cost averaging, asset allocation,
constant ratio transfer, automatic account rebalancing, the advantages and
disadvantages of investing in tax-deferred and taxable investments).
Advertisements and sales materials relating to a Portfolio may include
information regarding the background and experience of its portfolio managers;
the resources, expertise and support made available to the portfolio managers
by Morgan Stanley; and the portfolio managers' goals, strategies and investment
techniques.

The Portfolio's advertisements may discuss economic and political conditions of
the United States and foreign countries, the relationship between sectors of
the U.S., a foreign, or the global economy and the U.S., a foreign, or the
global economy as a whole and the effects of inflation. The Portfolios may
include discussions and illustrations of the growth potential of various global
markets including, but not limited to, Africa, Asia, Europe, Latin America,
North America, South America, Emerging Markets and individual countries. These
discussions may include the past performance of the various markets or market
sectors; forecasts of population, gross national product and market
performance; and the underlying data which supports such forecasts. From time
to time, advertisements, sales literature, communications to shareholders or
other materials may summarize the substance of information contained in the
<PAGE>

Portfolios' shareholder reports (including the investment composition of a
Portfolio), as well as the views of Morgan Stanley as to current market,
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to a Portfolio.

The Portfolios may quote various measures of volatility and benchmark
correlation in advertising. The Portfolios may compare these measures to those
of other funds. Measures of volatility seek to compare the historical share
price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. A Portfolio may also advertise its current interest rate
sensitivity, duration, weighted average maturity or similar maturity
characteristics.

The Portfolio may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Portfolio at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard against
loss in a declining market, the investor's average cost per share can be lower
than if fixed numbers of shares are purchased at the same intervals. In
evaluating such a plan, investors should consider their ability to continue
purchasing shares during periods of low price levels.

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

The Statement of Additional Information for the Fund is hereby amended and
supplemented by the following unaudited financial statements for the Asian
Equity, Emerging Markets Equity, Global Equity, International Magnum, Equity
Growth, Mid Cap Value, U.S. Real Estate, Value, Emerging Markets Debt, Fixed
Income and High Yield Portfolios of the Fund for the periods ended June 30,
1997.
<PAGE>

MORGAN STANLEY UNIVERSAL FUNDS, INC.
ASIAN EQUITY PORTFOLIO

STATEMENT OF NET ASSETS

(UNAUDITED)

JUNE 30, 1997

<TABLE>
<CAPTION>
VALUE
SHARES (000)
------------ -------
<C> <S> <C>

COMMON STOCKS (97.2%)
CHINA (1.1%)
(a)35,000 First Tractor Co., Ltd., Class H........................ $ 23
44,000 Shenzhen Fangda Co., Ltd., Class B...................... 64
(a)159,000 Zhehuang Expressway Co., Ltd., Class H.................. 39
-------
126
-------
HONG KONG (30.7%)
80,000 Cheung Kong Holdings Ltd. .............................. 790
13,000 China Merchants Holdings International Co., Ltd. ....... 40
93,000 China Resources Enterprise Ltd. ........................ 456
13,000 Hang Seng Bank Ltd. .................................... 185
49,000 Henderson Land Development Co., Ltd. ................... 435
20,400 HSBC Holdings plc....................................... 613
36,000 New World Development Co., Ltd. ........................ 215
32,000 Ng Fung Hong Ltd. ...................................... 48
58,000 Shanghai Industrial Holdings Ltd. ...................... 361
18,000 Sun Hung Kai Properties Ltd. ........................... 217
-------
3,360
-------
INDONESIA (9.4%)
(a)142,000 Astra International (Foreign)........................... 584
(d)27,500 Bimantara Citra (Foreign)............................... 48
(d)44,000 Mayora Indah (Foreign).................................. 25
(a,d)113,500 Putra Surya Multidana (Foreign)......................... 181
(d)118,000 Telekomunikasi Indonesia (Foreign)...................... 193
-------
1,031
-------
KOREA (6.8%)
1,700 Hansol Paper Co. ....................................... 43
(d)2,600 Housing & Commercial Bank, Korea........................ 49
(a)5,037 Kookmin Bank GDR........................................ 106
3,400 Korea Electric Power Corp. ............................. 101
5,700 Korea Electric Power Corp. ADR.......................... 107
(a)82 Samsung Electronics GDR (New)........................... 5
(a)5,000 Samsung Electronics GDS (New)........................... 281
(d)3,330 Shinhan Bank Co., Ltd. ................................. 48
-------
740
-------
</TABLE>

<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------- -------
<C> <S> <C>

MALAYSIA (13.7%)
99,000 Berjaya Group Bhd......................................... $ 122
10,000 Berjaya Sports Toto Bhd................................... 47
40,000 Commerce Asset Holding Bhd................................ 105
28,000 Dialog Group Bhd.......................................... 405
19,000 Genting Bhd............................................... 91
14,000 Jaya Tiasa Holdings Bhd................................... 70
19,000 Leader Universal Holdings Bhd............................. 34
1,000 Lityan Holdings Bhd....................................... 12
14,000 Malayan Banking Bhd....................................... 147
7,000 Malaysian Pacific Industries Bhd.......................... 31
14,000 Malaysian Resources Corp. Bhd............................. 39
28,000 Multi-Purpose Holdings Bhd................................ 39
22,000 Rashid Hussain Bhd........................................ 140
36,000 Resorts World Bhd......................................... 108
15,000 United Engineers Ltd. .................................... 108
-------
1,498
-------
PHILIPPINES (4.7%)
144,000 Ayala Land, Inc., Class B................................. 132
(a)581,000 Digital Telecommunications Philippines, Inc. ............. 56
(a)154,000 DMCI Holdings, Inc. ...................................... 51
(a)87,000 Fil-Estate Land, Inc. .................................... 26
39,400 Manila Electric Co., Class B.............................. 194
183,000 SM Prime Holdings, Inc. .................................. 54
-------
513
-------
SINGAPORE (15.5%)
7,000 Development Bank of Singapore Ltd. (Foreign).............. 88
21,000 Electronic Resources Ltd.................................. 33
88,000 NatSteel Ltd. ............................................ 224
8,400 Oversea-Chinese Banking Corp. (Foreign)................... 87
(a)26,000 Pacific Century Regional Development...................... 36
19,000 Parkway Holdings Ltd. .................................... 85
11,000 Singapore Press Holdings (Foreign)........................ 221
61,000 Summit Holdings Ltd. ..................................... 46
(a)120,000 Super Coffeemix Manufacturing Ltd. ....................... 100
10,000 United Overseas Bank Ltd. (Foreign)....................... 103
(a)108,000 Want Want Holdings........................................ 359
110,000 Wing Tai Holdings Ltd. ................................... 317
-------
1,699
-------
</TABLE>

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

<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------- -------
<C> <S> <C>

TAIWAN (11.7%)
(a)39,000 Acer, Inc. ............................................... $ 140
(a)22,500 Asustek Computer, Inc. ................................... 298
14,000 Cathay Life Insurance Co., Ltd. .......................... 80
(a)24,000 China Development Corp. .................................. 124
41,600 Compal Electronics........................................ 164
99,000 Far Eastern Textile Ltd. ................................. 156
44,690 Formosa Plastics Corp. ................................... 108
(a)25,000 Kuoyang Construction...................................... 60
46,200 Siliconware Precision Industries Co. ..................... 156
-------
1,286
-------
THAILAND (3.6%)
16,200 Bangkok Bank PCL (Foreign)................................ 111
24,000 Big C Supercenter PCL..................................... 8
30,000 CVD Entertainment PCL..................................... 51
(a)9,400 Eastern Water Resources Development & Management PCL...... 11
3,400 I.C.C. International PCL.................................. 11
(d)7,000 Nation Multimedia Group PCL (Foreign)..................... 15
(d)55,600 National Petrochemical PCL (Foreign)...................... 57
(d)5,000 Post Publishing PCL (Foreign)............................. 5
9,000 Quality House PCL......................................... 3
(d)27,000 Robinson Department Store PCL (Foreign)................... 10
(a)4,000 Sino Thai Engineering & Construction PCL.................. 11
17,000 Thai Farmers Bank PCL (Foreign)........................... 72
1,000 Thai Rung Union Car PCL................................... 4
(a,d)4,000 Thai Stanley Electric PCL (Foreign)....................... 8
5,000 Thai Storage Battery PCL.................................. 5
5,800 Thai Theparos Food Product PCL (Foreign).................. 9
-------
391
-------
TOTAL COMMON STOCKS
(COST $9,873)........................................................ 10,644
-------
<CAPTION>
NO. OF
RIGHTS
----------
<C> <S> <C>

RIGHTS (0.1%)
MALAYSIA (0.0%)
(a)7,200 Commerce Asset Holding Bhd................................ --
(a)3,142 Rashid Hussain Bhd........................................ --
-------
--
-------
SINGAPORE (0.1%)
(a)10,500 Electronic Resources Ltd. Bhd............................. 7
-------
TOTAL RIGHTS
(COST $0)............................................................ 7
-------
</TABLE>
<TABLE>
<CAPTION>
NO. OF VALUE
WARRANTS (000)
---------- -------
<C> <S> <C>

WARRANTS (0.0%)
MALAYSIA (0.0%)
(a)4,500 Commerce Asset Holding Bhd, expiring 3/16/02 (Cost $0)... $ 1
-------
TOTAL FOREIGN SECURITIES (97.3%)
(COST $9,873)....................................................... 10,652
-------
<CAPTION>
FACE
AMOUNT
(000)
----------
<C> <S> <C>
SHORT-TERM INVESTMENT (6.3%)
REPURCHASE AGREEMENT (6.3%)
$ 693 Chase Securities, Inc. 5.70%, dated 6/30/97, due 7/1/97,
to be repurchased at $693, collateralized by U.S.
Treasury Notes, 5.625%, due 2/15/06, valued at $706
(Cost $693)............................................. 693
-------
FOREIGN CURRENCY (2.5%)
HKD 2 Hong Kong Dollar......................................... --
IDR 14,756 Indonesian Rupiah........................................ 6
MYR 2 Malaysian Ringgit........................................ 1
SGD 1 Singapore Dollar......................................... 1
TWD 7,342 Taiwan Dollar............................................ 264
-------
TOTAL FOREIGN CURRENCY
(COST $272)......................................................... 272
-------
TOTAL INVESTMENTS (106.1%)
(COST $10,838*)..................................................... 11,617
-------
</TABLE>

<TABLE>
<S> <C> <C>
OTHER ASSETS (1.8%)
Cash........................................................... $ 56
Receivable for Investments Sold................................ 126
Due from Adviser............................................... 8
Dividends Receivable........................................... 4
Receivable for Portfolio Shares Sold........................... 2 196
-----
LIABILITIES (-7.9%)
Payable for Investments Purchased.............................. (817)
Custodian Fees Payable......................................... (10)
Deferred Foreign Taxes Payable................................. (4)
Administrative Fees Payable.................................... (4)
Net Unrealized Loss on Foreign Currency Exchange Contracts..... (2)
Other Liabilities.............................................. (30) (867)
----- -------
NET ASSETS (100%).................................................... $10,946
=======
<CAPTION>
<S> <C> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 1,026,507 outstanding $0.001 par value shares
(authorized 500,000,000 shares)..................................... $ 10.66
=======
</TABLE>

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

<TABLE>
<S> <C> <C>
NET ASSETS AMOUNT
CONSIST OF: (000)
-------
Paid in Capital.. $10,277
Undistributed Net
Investment
Income.......... 35
Accumulated Net
Realized Loss... (139)
Unrealized
Appreciation on
Investments and
Foreign Currency
Translations
(Net of foreign
taxes of $4).... 773
-------
NET ASSETS....... $10,946
=======
</TABLE>

FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:

Under the terms of foreign currency exchange contracts open at June 30, 1997,
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.$ 1 $ 1 7/2/97 THB 19 $ 1 $ --
THB 6,876 261 8/18/97 U.S.$ 259 259 (2)
---- ---- ----
$262 $260 $ (2)
==== ==== ====
</TABLE>
- -------
(a)--Non-income producing security
(d)--Securities (totaling $639 or 5.8% of net assets at June 30, 1997) valued
at fair value--See Note A-1 to financial statements.
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
GDS--Global Depositary Shares
PCL--Public Company Limited
THB--Thai Baht
* At June 30, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the Asian Equity Portfolio
were:

<TABLE>
<CAPTION>
NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
(000) (000) (000) (000)
- ------- ------------ -------------- ------------
<S> <C> <C> <C>
$10,566 $1,182 $(403) $779
</TABLE>

For the period ended June 30, 1997, purchases and sales of investment
securities for the Asian Equity Portfolio, other than long-term U.S. Government
securities and short-term investments, were approximately $13,636,000 and
$3,636,000, respectively.

SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION

<TABLE>
<CAPTION>
VALUE % OF
SECTOR DIVERSIFICATION (000) NET ASSETS
---------------------- ------- ----------
<S> <C> <C>
Capital Equipment............................................ $ 1,139 10.4%
Consumer Products............................................ 2,503 22.9
Energy....................................................... 807 7.4
Finance...................................................... 4,719 43.1
Materials.................................................... 433 4.0
Multi-Industry............................................... 247 2.2
Services..................................................... 804 7.3
Other........................................................ 965 8.8
------- -----
Total Investments............................................ $11,617 106.1%
======= =====
</TABLE>

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO

STATEMENT OF NET ASSETS

(UNAUDITED)

JUNE 30, 1997

<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------- -------
<C> <S> <C>

COMMON STOCKS (86.6%)
ARGENTINA (2.0%)
(a)1,150 Nortel ADR............................................... $ 31
1,020 Telecom Argentina ADR.................................... 53
6,780 Telefonica Argentina ADR................................. 235
2,885 YPF ADR.................................................. 89
-------
408
-------
BRAZIL (15.1%)
3,874,000 Banco Bradesco (Preferred)............................... 39
423,000 Brahma (Preferred)....................................... 322
3,330 Brahma ADR (Preferred)................................... 51
(a)190 Celesc GDR, Class B (Preferred).......................... 26
6,008,000 CEMIG (Preferred)........................................ 310
2,710 CEMIG ADR (Preferred).................................... 136
(a)361,400 CRT (Preferred).......................................... 544
110,000 Coneminas (Preferred).................................... 43
573,000 Eletrobras............................................... 320
2,677 Eletrobras ADR........................................... 75
950 Eletrobras ADR, Class B (Preferred)...................... 28
103,000 Eletrobras, Class B (Preferred).......................... 61
174,000 Itaubanco (Preferred).................................... 98
89,000 Lightpar................................................. 35
1,159,000 Lojas Arapua (Preferred)................................. 19
1,305 Lojas Arupua ADR (Preferred)............................. 22
552,000 Lojas Renner (Preferred)................................. 28
(a)1,470 Pao de Acucar ADR (Preferred)............................ 34
634,000 Petrobras (Preferred).................................... 176
833,000 Telebras................................................. 113
1,977 Telebras ADR (Preferred)................................. 300
955,000 Telebras (Preferred)..................................... 145
(a)88,000 TELESP................................................... 26
27,836 TELESP (Preferred)....................................... 9
(a)2,955 Unibanco GDR (Preferred)................................. 110
-------
3,070
-------
CHILE (0.6%)
1,510 CCU ADR.................................................. 33
695 Enersis ADR.............................................. 25
1,700 Santa Isabel ADR......................................... 55
-------
113
-------
CHINA (0.1%)
64,000 Guangshen Railway Co. Ltd., Class H...................... 28
-------
COLOMBIA (0.2%)
86,000 Banco de Colombia........................................ 32
-------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------- -------
<C> <S> <C>

EGYPT (0.7%)
1,750 Commercial International Bank............................ $ 37
1,200 Eastern Tobacco.......................................... 30
1,000 Helwan Portland Cement Co. .............................. 21
650 North Cairo Flour Mills Co. ............................. 34
1,000 Tora Portland Cement..................................... 25
-------
147
-------
HONG KONG (2.5%)
7,000 Cheung Kong Holdings Ltd. ............................... 69
(a)30,000 China Everbright-IHD Holdings Ltd. ...................... 90
90,000 China Resources Beijing Land............................. 67
27,000 China Resources Enterprise Ltd. ......................... 132
4,000 Hutchison Whampoa Ltd. .................................. 35
5,000 New World Development Co., Ltd. ......................... 30
9,000 Shanghai Industrial Holdings Ltd. ....................... 56
64,000 Zhenhai Rifining and Chemical Co. Ltd., Class H.......... 23
-------
502
-------
HUNGARY (0.4%)
(a)950 MOL Magyar Olaj-es Gazipari Rt. GDR...................... 21
350 Pannonplast Rt. ......................................... 18
280 Richter Gedeon Rt. ...................................... 26
(a)1,200 Tisza Vegyi Kombinat Rt. GDR............................. 20
-------
85
-------
INDIA (6.8%)
2,500 Century Textiles and Industries Ltd. GDR................. 133
(a)60,000 Crompton Greaves Ltd. GDR................................ 177
25,000 Indian Petrochemicals Corp. Ltd. GDR..................... 353
(g)55,500 Morgan Stanley India Investment Fund, Inc. .............. 718
-------
1,381
-------
INDONESIA (4.6%)
60,000 Astra International (Foreign)............................ 247
(d)80,004 Bank International Indonesia (Foreign)................... 69
(d)171,000 Bank Negara Indonesia (Foreign).......................... 109
(d)37,000 Bimantara Citra (Foreign)................................ 65
(d)24,000 Gudang Garam (Foreign)................................... 101
(d)21,000 Hanjaya Mandala Sampoerna (Foreign)...................... 80
(d)64,000 Indah Kiat Pulp & Paper Corp. (Foreign).................. 37
(d)27,000 Indofood Sukses Makmur (Foreign)......................... 62
(d)59,000 Matahari Putra Prima (Foreign)........................... 119
(d)9,000 Mayora Indah (Foreign)................................... 5
</TABLE>

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

<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------- -------
<C> <S> <C>

INDONESIA--(CONTINUED)
(d)4,000 Putra Surya Multidana (Foreign)........................... $ 6
(d)22,000 Telekomunikasi Indonesia (Foreign)........................ 36
-------
936
-------
ISRAEL (2.9%)
(a)5,150 Blue Square-Israel Ltd. ADR............................... 89
6,467 Elbit Ltd. ............................................... 22
6,466 Elbit Medical Imaging Ltd. ............................... 46
6,466 Elbit Systems Ltd. ....................................... 77
160 First International Bank of Israel Ltd., Class 5.......... 123
940 Koor Industries Ltd. ..................................... 83
48,950 Supersol Ltd. ............................................ 157
-------
597
-------
KOREA (5.2%)
13,300 Cho Hung Bank Co. Ltd. GDR................................ 96
2,000 Hansol Paper.............................................. 51
(d)4,400 Housing & Commercial Bank, Korea.......................... 82
(d)1,227 Kookmin Bank.............................................. 23
6,409 Kookmin Bank GDR.......................................... 135
2,000 Korea Electric Power Corp................................. 60
2,600 Korea Electric Power Corp. ADR............................ 49
1,100 LG Information and Communication Ltd. .................... 136
990 Pohang Iron & Steel Co. Ltd. ADR.......................... 32
(a)5,896 Samsung Electronics GDR................................... 331
(d)4,040 Shinhan Bank Co., Ltd. ................................... 58
-------
1,053
-------
MALAYSIA
18,000 Commerce Asset Holding Bhd................................ 48
10,000 Genting Bhd............................................... 48
4,000 Rashid Hussain Bhd........................................ 25
13,000 Resorts World Bhd......................................... 39
4,000 United Engineers Ltd. .................................... 29
-------
189
-------
MEXICO (10.0%)
4,035 Apasco.................................................... 29
(a)37,979 Banacci, Class B.......................................... 98
(a)370 Bancomer ADR, Class B..................................... 4
(a)192,325 Bancomer, Class B......................................... 93
2,405 Carso ADR................................................. 34
9,260 Carso, Class A1........................................... 64
7,790 Cemex ADR, Class B........................................ 75
33,304 Cemex CPO................................................. 145
920 Cemex CPO ADR............................................. 8
6,300 Cemex, Class B............................................ 31
1,273 Cifra, Series A........................................... 2
10,410 Cifra, Series C........................................... 17
1,372 Desc ADR.................................................. 40
70,240 FEMSA, Class B............................................ 419
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------- -------
<C> <S> <C>

(a)3,303 Gruma, Class B............................................ $ 15
(a)418 Gruma GDR (Registered).................................... 8
27,255 Kimberly, Class A......................................... 109
10,005 Maseca, Class B........................................... 11
(a)10,285 Televisa CPO GDR.......................................... 312
10,810 Telmex ADR, Class L....................................... 516
-------
2,030
-------
PAKISTAN (3.0%)
84,000 Fauji Fertilizer Co., Ltd. ............................... 165
(a)7,600 Hub Power Co. ............................................ 8
15,000 Pakistan State Oil Co., Ltd. ............................. 121
406,700 Pakistan Telecommunications, Class A...................... 309
-------
603
-------
PERU (0.4%)
3,520 Tel Peru, Class A ADR..................................... 92
-------
POLAND (1.6%)
(a)2,425 Agros Holding S.A., Class C............................... 65
442 Agros Holding S.A., Class D............................... 9
(a)800 Bank Handlowy W Warszawie................................. 9
1,000 Bank Rozwoju Eksportu S.A. ............................... 21
450 Bank Slaski S.A. ......................................... 32
19,760 BIG S.A. ................................................. 24
1,550 Debica S.A. .............................................. 32
7,000 Elektrim S.A. ............................................ 61
(a)3,500 Exbud S.A. ............................................... 35
8,400 Polifarb Wroclaw S.A. .................................... 31
-------
319
-------
RUSSIA (7.5%)
(a)3,500 Gazprom ADR............................................... 58
(a)3,400 LUKoil Holding ADR........................................ 267
(a)2,800 Mosenergo ADR............................................. 119
(a)45,000 Rostelecom................................................ 175
3,400 Surgutneftegaz ADR........................................ 182
(a)800 Tatneft ADR............................................... 85
(a)800,000 Unified Energy Systems.................................... 289
(a)9,600 Unified Energy Systems GDR................................ 358
-------
1,533
-------
SOUTH AFRICA (8.1%)
4,100 Amalgamated Banks of South Africa......................... 29
10,500 Barlow Ltd. .............................................. 114
2,900 De Beers Centenary AG..................................... 107
13,000 Ellerine Holdings Ltd. ................................... 93
10,100 First National Bank Holdings Ltd. ........................ 87
35,000 Gencor Ltd. .............................................. 161
14,400 Illovo Sugar Ltd. ........................................ 33
10,000 Persetel Holdings Ltd. ................................... 70
56,500 Polfin Ltd. .............................................. 106
24,200 Rembrandt Group Ltd. ..................................... 258
27,600 Reunert Ltd. ............................................. 95
37,000 Sasol Ltd. ............................................... 485
-------
1,638
-------
</TABLE>

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

<TABLE>
<CAPTION>
VALUE
SHARES (000)
------------ -------
<C> <S> <C>

TAIWAN (3.9%)
(a)22,000 Acer, Inc. ............................................. $ 79
(a)19,500 Asustek Computer, Inc. ................................. 258
(a)9,000 China Development Corp. ................................ 47
(a)36,400 Compal Electronics...................................... 144
81,000 Far Eastern Textile Ltd. ............................... 127
14,170 Formosa Plastics Corp. ................................. 34
(a)18,300 Kuoyang Construction.................................... 44
17,640 Siliconware Precision Industries Co. ................... 60
-------
793
-------
THAILAND (5.1%)
6,800 Advanced Ino Service PCL................................ 59
12,000 Advanced Info Service PCL (Foreign)..................... 86
31,800 Bangkok Bank PCL (Foreign).............................. 219
1,000 Banpu PCL (Foreign)..................................... 15
7,300 Central Pattana PCL (Foreign)........................... 10
18,000 Industrial Finance (Foreign)............................ 23
5,000 Lanna Lignite PCL....................................... 35
5,000 National Finance and Securities PCL..................... 3
23,000 National Finance and Securities PCL (Foreign)........... 14
18,800 National Petrochemical PCL.............................. 19
8,000 Shinawatra Computer Co. PCL............................. 55
(d)11,600 Shinawatra Computer Co. PCL (Foreign)................... 80
1,500 Siam Cement PCL (Foreign)............................... 26
25,100 Siam Commercial Bank PCL (Foreign)...................... 103
47,100 Thai Farmers Bank PCL (Foreign)......................... 200
3,000 Tipco Asphalt PCL....................................... 16
16,900 United Communications Industry PCL...................... 70
-------
1,033
-------
TURKEY (3.8%)
1,131,000 Bossa................................................... 25
1,542,000 Eregli Demir Celik...................................... 257
(a)2,062,843 Garanti Bankasi A.S. ................................... 78
3,766,044 Turkiye Garanti Bankasi A.S. ........................... 142
370,000 Vestel Elektronik Sanayi ve Ticaret A.S. ............... 21
11,159,400 Yapi ve Kredi Bankasi A.S. ............................. 255
-------
778
-------
VENEZUELA (0.3%)
820 Cantv ADR............................................... 35
11,100 Electricidad de Caracas................................. 18
-------
53
-------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
----------- -------
<C> <S> <C>

ZIMBABWE (0.9%)
29,850 Delta Corp. Ltd. ....................................... $ 46
53,400 Meikles Africa Ltd. .................................... 131
177
-------
TOTAL COMMON STOCKS
(COST $15,348)...................................................... 17,590
-------
<CAPTION>
NO. OF
RIGHTS
-----------
<C> <S> <C>
RIGHTS (0.1%)
BRAZIL (0.0%)
(a,d)11,850 CRT..................................................... 3
-------
INDONESIA (0.1%)
(a,d)57,600 Indah Kiat Pulp & Paper Corp. (Foreign), expiring
8/18/97................................................ 10
-------
MALAYSIA(0.0%)
(a,d)3,600 Commerce Asset Holding Bhd, expiring 7/23/97............ --
-------
TOTAL RIGHTS
(COST $0)........................................................... 13
-------
<CAPTION>
NO. OF
WARRANTS
-----------
<C> <S> <C>
WARRANTS (0.0%)
HONG KONG (0.0%)
(a)2 Lai Sun Hotels Int, expiring 4/30/99.................... --
-------
INDONESIA (0.0%)
(a)7,112 Bank International Indonesia (Foreign), expiring
1/17/00................................................ 3
(a)10,240 Indah Kiat Pulp & Paper Corp. (Foreign), expiring
7/11/02................................................ 2
-------
5
-------
MALAYSIA (0.0%)
(a)2,250 Commerce Asset Holding Bhd, expiring 3/16/02............ --
-------
TOTAL WARRANTS
(COST $0)........................................................... 5
-------
TOTAL FOREIGN SECURITIES (86.7%)
(COST $15,348)...................................................... 17,608
-------
<CAPTION>
FACE
AMOUNT
(000)
-----------
<C> <S> <C>
SHORT-TERM INVESTMENT (10.8%)
REPURCHASE AGREEMENT (10.8%)
$2,188 Chase Securities, Inc. 5.70%, dated 6/30/97, due 7/1/97,
to be repurchased at $2,188, collateralized by U.S.
Treasury Notes, 5.625%, due 2/15/06, valued at $2,229
(Cost $2,188).......................................... 2,188
-------
</TABLE>

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

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

FOREIGN CURRENCY (1.3%)
BRC 21 Brazilian Real........................................... $ 20
COP 1,085 Colombian Pesos.......................................... 1
HKD 3 Hong Kong Dollar......................................... --
IDR 726 Indonesian Rupiah........................................ --
KRW 16,650 Korea Won................................................ 19
MYR 2 Malaysian Ringgit........................................ 1
MXP 25 Mexican Peso............................................. 3
PKR 5,092 Pakistani Rupee.......................................... 126
PHP 10 Philippines Peso......................................... --
PLZ 49 Polish Zloty............................................. 15
ZAR 69 South African Rand....................................... 15
TWD 1,551 Taiwan Dollar............................................ 56
TRL 444,838 Turkish Lira............................................. 3
-------
TOTAL FOREIGN CURRENCY
(COST $260).......................................................... 259
-------
TOTAL INVESTMENTS (98.8%)
(COST $17,796*)...................................................... 20,055
-------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (6.2%)
Cash............................................................ $ 423
Deferred Organization Costs..................................... 437
Receivable for Portfolio Shares Sold............................ 150
Receivable for Investments Sold................................. 138
Dividends Receivable............................................ 75
Due from Adviser................................................ 49 1,272
-----
LIABILITIES (-5.0%)
Payable for Investments Purchased............................... (840)
Professional Fees Payable....................................... (77)
Payable for Closed Foreign Currency Contracts................... (32)
Custodian Fees Payable.......................................... (31)
Administrative Fees Payable..................................... (10)
Payable for Portfolio Shares Redeemed........................... (4)
Deferred Foreign Taxes Payable.................................. (1)
Other Liabilities............................................... (24) (1,019)
----- -------
NET ASSETS (100%)............................................... $20,308
=======
</TABLE>

<TABLE>
<CAPTION>
AMOUNT
(000)
-------
<S> <C>

NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 1,688,498 outstanding $0.001 par value shares (authorized
500,000,000 shares)................................................... $ 12.03
=======
NET ASSETS CONSIST OF:
Paid in Capital........................................................ $17,343
Undistributed Net Investment Income.................................... 83
Accumulated Net Realized Gain.......................................... 654
Unrealized Appreciation on Investments and Foreign Currency
Translations (Net of foreign taxes of $1)............................. 2,228
-------
Net assets............................................................. $20,308
=======
</TABLE>

FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:

Under the terms of foreign currency exchange contracts open at June 30, 1997,
the Portfolio is obligated to deliver U.S. Dollars in exchange for foreign
currency as indicated below:

<TABLE>
<CAPTION>
NET
CURRENCY TO IN EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ----------- ----- ---------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
U.S.$46 $46 7/1/97 ZAR 209 $46 $ --
U.S.$26 26 7/2/97 THB 672 26 --
--- --- -----
$72 $72 $ --
=== === =====
</TABLE>
- -------
(a)--Non-income producing security
(d)--Security valued at fair value--See Note A-1 to financial statements.
(g)--The Fund is advised by an affiliate.
ADR--American Depositary Receipt
CPO--Certificate of Participation
GDR--Global Depositary Receipt
PCL--Public Company Limited
THB--Thai Baht
* At June 30, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the Emerging Markets Equity
Portfolio were:

<TABLE>
<CAPTION>
NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
(000) (000) (000) (000)
- ------- ------------ -------------- ------------
<S> <C> <C> <C>
$17,536 $3,255 $(995) $2,260
</TABLE>

For the period ended June 30, 1997, purchases and sales of investment
securities for the Emerging Markets Equity Portfolio, other than long-term U.S.
Government securities and short-term investments, were approximately $9,400,000
and $5,271,000, respectively.

SUMMARY OF INVESTMENTS BYINDUSTRY CLASSIFICATION

<TABLE>
<CAPTION>
VALUE % OF
SECTOR DIVERSIFICATION (000) NET ASSETS
---------------------- ------- ----------
<S> <C> <C>
Capital Equipment............................................ $ 1,819 9.0%
Consumer Goods............................................... 365 1.8
Consumer Products............................................ 2,638 13.0
Energy....................................................... 2,380 11.7
Finance...................................................... 3,014 14.8
Materials.................................................... 1,967 9.7
Multi-Industry............................................... 1,450 7.1
Services..................................................... 3,975 19.6
Other........................................................ 2,447 12.1
------- ----
Total Investments............................................ $20,055 98.8%
======= ====
</TABLE>

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
GLOBAL EQUITY PORTFOLIO

STATEMENT OF NET ASSETS

(UNAUDITED)

JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ ------
<C> <S> <C>

COMMON STOCKS (90.9%)
AUSTRALIA (0.8%)
14,300 CSR Ltd. ...................................................... $ 55
------
BELGIUM (1.3%)
1,220 Delhaize-Le Lion, S.A. ........................................ 64
600 G.I.B. Holdings Ltd. .......................................... 29
------
93
------
CANADA (1.4%)
1,350 Potash Corp. of Saskatchewan, Inc. ............................ 102
------
FRANCE (3.9%)
2,000 Banque Nationale de Paris...................................... 83
190 Bongrain S.A. ................................................. 74
400 Groupe Danone.................................................. 66
370 Peugeot S.A. .................................................. 36
700 Scor S.A. ..................................................... 28
------
287
------
GERMANY (6.6%)
1,300 BASF AG........................................................ 48
3,100 Bayer AG....................................................... 119
100 Karstadt AG.................................................... 36
1,500 VEBA AG........................................................ 85
50 Viag AG........................................................ 23
225 Volkswagen AG.................................................. 171
------
482
------
HONG KONG (1.4%)
28,000 Jardine Strategic Holdings, Inc. .............................. 106
------
IRELAND (2.3%)
3,600 Clondalkin Group plc (Units)................................... 35
26,500 Irish Life plc................................................. 136
------
171
------
JAPAN (10.4%)
11 East Japan Railway Co. ........................................ 56
4,000 Fuji Photo Film Ltd. .......................................... 161
5,000 Hitachi Ltd. .................................................. 57
5,000 Kao Corp. ..................................................... 69
5,000 Matsushita Electric Industries Co., Ltd. ...................... 101
4 Nippon Telegraph & Telephone Corp. ............................ 38
29,000 NKK Corp. ..................................................... 62
12,000 Sumitomo Marine & Fire Insurance Co. .......................... 99
1,000 TDK Corp. ..................................................... 73
2,200 Toyo Seikan Kaisha Ltd. ....................................... 49
------
765
------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------- ------
<C> <S> <C>

NETHERLANDS (2.8%)
200 Akzo Nobel N.V. ............................................ $ 27
2,100 ING Groep N.V. ............................................. 97
1,100 Philips Electronics N.V. ................................... 79
------
203
------
SPAIN (0.6%)
3,600 Iberdrola S.A. ............................................. 45
------
SWITZERLAND (4.5%)
(a)35 Ascom Holdings AG (Bearer).................................. 49
160 Forbo Holding AG (Registered)............................... 69
90 Holderbank Financiere Glarus AG, Class B (Bearer)........... 85
70 Nestle S.A. (Registered).................................... 93
40 Sulzer AG (Registered)...................................... 34
------
330
------
UNITED KINGDOM (12.6%)
5,800 Bass plc.................................................... 71
3,000 B.A.T. Industries plc....................................... 27
3,850 Burmah Castrol plc.......................................... 65
9,155 Christian Salvesen plc...................................... 43
6,500 Grand Metropolitan plc...................................... 62
10,400 Imperial Tobacco Group plc.................................. 67
20,000 Matthews (Bernard) plc...................................... 38
5,000 Peninsular & Oriental Steam Navigation Co. ................. 50
15,950 Racal Electronics plc....................................... 64
8,200 Reckitt & Colman plc........................................ 122
7,000 Rolls-Royce plc............................................. 27
3,600 Scottish Hydro-Electric plc................................. 25
12,900 Tate & Lyle plc............................................. 96
4,200 Unilever plc................................................ 120
1,600 WPP Group plc............................................... 47
------
924
------
UNITED STATES (42.3%)
2,100 Albertson's, Inc. .......................................... 77
(a)900 AMR Corp. .................................................. 83
2,004 Ascent Entertainment Group, Inc. ........................... 18
1,200 AT&T Corp. ................................................. 42
1,600 BankBoston Corp. ........................................... 115
2,000 Boise Cascade Corp. ........................................ 71
1,350 Borg-Warner Automotive, Inc. ............................... 73
3,800 Browning-Ferris Industries, Inc. ........................... 126
4,100 Comsat Corp. ............................................... 98
(a)5,200 Data General Corp. ......................................... 135
(a)14,200 Egghead, Inc. .............................................. 56
2,100 Enhance Financial Services Group, Inc. ..................... 92
2,000 Equitable Companies, Inc. .................................. 67
2,200 Federal-Mogul Corp. ........................................ 77
800 Finova Group, Inc. ......................................... 61
(a)3,100 GenRad, Inc. ............................................... 70
</TABLE>

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

<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------- ------
<C> <S> <C>

UNITED STATES--(CONTINUED)
700 Georgia Pacific Corp. ..................................... $ 60
3,230 Greenfield Industries, Inc. ............................... 87
1,600 Greenpoint Financial Corp. ................................ 107
2,700 Houghton Mifflin Co. ...................................... 180
2,730 IBP, Inc. ................................................. 64
(a)9,600 InteliData Technologies Corp. ............................. 46
1,300 Limited (The), Inc. ....................................... 26
500 MBIA, Inc. ................................................ 56
1,500 MCI Communications Corp. .................................. 57
1,400 Mellon Bank Corp. ......................................... 63
(a)1,350 NCR Corp. ................................................. 40
2,360 Penncorp Financial Group, Inc. ............................ 91
450 Pennzoil Co. .............................................. 35
3,800 Pharmacia & Upjohn, Inc. .................................. 132
4,500 Philip Morris Cos., Inc. .................................. 200
1,300 Polaroid Corp. ............................................ 72
(a)2,950 Rohr, Inc. ................................................ 65
1,700 Tandy Corp. ............................................... 95
1,700 Tecumseh Products Co., Class A............................. 102
2,450 Terra Nova (Bermuda) Holdings Ltd. ........................ 52
(a)950 Toys "R" Us, Inc. ......................................... 33
2,400 UST Corp. ................................................. 54
(a)3,800 Waban, Inc. ............................................... 122
------
3,100
------
TOTAL COMMON STOCKS
(COST $5,880)........................................................ 6,663
------
<CAPTION>
FACE
AMOUNT
(000)
---------
<C> <S> <C>
SHORT-TERM INVESTMENT (9.5%)
REPURCHASE AGREEMENT (9.5%)
$697 Chase Securities, Inc. 5.70%, dated 6/30/97, due 7/1/97, to
be repurchased at $697, collateralized by U.S. Treasury
Notes, 5.625%, due 2/15/06, valued at $711 (Cost $697).... 697
------
FOREIGN CURRENCY (0.3%)
BEF 52 Belgian Franc.............................................. 1
DEM 1 Deutsche Mark.............................................. 1
FRF 69 French Franc............................................... 12
JPY 301 Japanese Yen............................................... 3
NLG 1 Netherlands Guilder........................................ 1
CHF 2 Swiss Franc................................................ 1
------
TOTAL FOREIGN CURRENCY
(COST $20)........................................................... 19
------
TOTAL INVESTMENTS (100.7%)
(COST $6,597*)....................................................... 7,379
------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
------ ------
<S> <C> <C>
OTHER ASSETS (0.9%)
Cash............................................................. $ 1
Receivable for Portfolio Shares Sold............................. 35
Dividends Receivable............................................. 19
Foreign Withholding Tax Reclaim Receivable....................... 5
Receivable for Investments Sold.................................. 4 $ 64
----
LIABILITIES (-1.6%)
Payable for Investments Purchased................................ (86)
Professional Fees Payable........................................ (14)
Administrative Fees Payable...................................... (3)
Custodian Fees Payable........................................... (3)
Investment Advisory Fees Payable................................. (2)
Other Liabilities................................................ (9) (117)
---- ------
NET ASSETS (100%)................................................ $7,326
======
</TABLE>

<TABLE>
<CAPTION>
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 637,379 outstanding $0.001 par value shares (authorized
500,000,000 shares)................................................... $11.49
======
NET ASSETS CONSIST OF:
Paid in Capital........................................................ $6,483
Undistributed Net Investment Income.................................... 50
Accumulated Net Realized Gain.......................................... 10
Unrealized Appreciation on Investments and
Foreign Currency Translations......................................... 783
------
NET ASSETS............................................................. $7,326
======
</TABLE>
- -------
(a)--Non-income producing security
* At June 30, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the Global Equity Portfolio
were:

<TABLE>
<CAPTION>
NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
(000) (000) (000) (000)
------ ------------ -------------- ------------
<S> <C> <C> <C>
$6,577 $869 $(86) $783
</TABLE>

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

For the period ended June 30, 1997, purchases and sales of investment
securities for the Global Equity Portfolio, other than long-term U.S.
Government securities and short-term investments, were $6,026,000 and $151,000,
respectively.

SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION

<TABLE>
<CAPTION>
VALUE % OF
SECTOR DIVERSIFICATION (000) NET ASSETS
---------------------- ------ -----------
<S> <C> <C>
Capital Equipment............................................ $1,392 19.0%
Consumer Products............................................ 1,669 22.8
Energy....................................................... 80 1.1
Finance...................................................... 1,200 16.4
Materials.................................................... 556 7.6
Mining....................................................... 161 2.2
Multi-Industry............................................... 370 5.0
Services..................................................... 942 12.8
Tobacco...................................................... 293 4.0
Other........................................................ 716 9.8
------ -----
Total Investments............................................ $7,379 100.7%
====== =====
</TABLE>

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
INTERNATIONAL MAGNUM PORTFOLIO

STATEMENT OF NET ASSETS

(UNAUDITED)

JUNE 30, 1997

<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ -------
<C> <S> <C>

COMMON STOCKS (92.3%)
AUSTRALIA (2.9%)
8,528 Amcor Ltd. ................................................... $ 57
5,300 Broken Hill Proprietary Co., Ltd. ............................ 78
4,600 Commonwealth Bank of Australia................................ 55
2,300 Lend Lease Corp., Ltd. ....................................... 49
11,700 News Corp., Ltd. ............................................. 56
3,830 National Australia Bank, Ltd. ................................ 55
12,200 WMC Ltd. ..................................................... 77
-------
427
-------
AUSTRIA (0.6%)
1,000 Boehler-Uddeholm AG........................................... 78
130 Radex-Heraklith Industriebet AG............................... 5
-------
83
-------
BELGIUM (0.5%)
1,640 G.I.B. Holdings Ltd. ......................................... 78
-------
DENMARK (1.3%)
1,700 BG Bank A/S................................................... 94
1,650 Unidanmark A/S, Class A (Registered).......................... 93
-------
187
-------
FINLAND (1.3%)
210 Kone Oy, Class B.............................................. 25
12,100 Merita Ltd., Class A.......................................... 40
7,900 Rautaruukki Oy................................................ 83
2,300 Valmet Corp. ................................................. 40
-------
188
-------
FRANCE (6.6%)
300 Alcatel Alsthom............................................... 38
950 Banque Nationale de Paris..................................... 39
140 Bongrain S.A. ................................................ 55
770 Cie de Saint Gobain........................................... 112
800 Elf Aquitaine S.A. ........................................... 86
600 Eridania Beghin-Say S.A. ..................................... 90
620 Groupe Danone................................................. 103
1,450 Lafarge S.A. ................................................. 90
1,800 Legris Industries S.A. ....................................... 85
(a)900 SGS-Thomson Microelectronics N.V. ............................ 71
1,220 Total S.A., Class B........................................... 123
4,500 Usinor Sacilor................................................ 81
-------
973
-------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ -------
<C> <S> <C>

GERMANY (5.4%)
2,160 BASF AG....................................................... $ 80
2,070 Bayer AG...................................................... 80
70 Buderus AG.................................................... 39
4,840 Gerresheimer Glas AG.......................................... 81
5,200 Lufthansa AG.................................................. 100
(a)410 Metro AG...................................................... 45
1,700 VEBA AG....................................................... 96
200 Viag AG....................................................... 91
240 Volkswagen AG................................................. 182
-------
794
-------
HONG KONG (4.3%)
11,000 Cheung Kong Holdings Ltd. .................................... 109
15,000 China Resources Enterprise Ltd. .............................. 74
8,000 Dao Heng Bank Group Ltd. ..................................... 44
6,000 Henderson Land Development Co., Ltd. ......................... 53
7,000 Hutchison Whampoa Ltd. ....................................... 60
4,000 HSBC Holdings plc............................................. 120
9,000 New World Development Co., Ltd. .............................. 54
10,000 Shanghai Industrial Holdings Ltd. ............................ 62
4,000 Sun Hung Kai Properties Ltd. ................................. 48
-------
624
-------
ITALY (2.5%)
18,000 Editoriale L'Expresso S.p.A. ................................. 60
8,600 Marzotto (Gaetano) & Figli S.p.A. ............................ 72
29,800 Sogefi S.p.A. ................................................ 75
22,500 Stet Di Risp (NCS)............................................ 78
39,000 Telecom Italia S.p.A., Di Risp (NCS).......................... 77
-------
362
-------
JAPAN (29.5%)
8,000 Amada Co., Ltd. .............................................. 71
7,000 Asahi Tec Corp. .............................................. 34
5,000 Canon, Inc. .................................................. 136
4,000 Dai Nippon Printing Co., Ltd. ................................ 90
11,000 Daicel Chemical Industry Ltd. ................................ 43
6,000 Daifuku Co., Ltd. ............................................ 79
5,000 Daikin Industries Ltd. ....................................... 45
1,200 FamilyMart.................................................... 59
3,000 Fuji Machine Manufacturing Co. ............................... 109
3,000 Fuji Photo Film Ltd. ......................................... 121
4,000 Fujitec Co., Ltd. ............................................ 47
9,000 Fujitsu Ltd. ................................................. 125
15,000 Furukawa Electric Co. ........................................ 95
3,000 Hitachi Credit Corp. ......................................... 58
11,000 Hitachi Ltd. ................................................. 123
5,000 Inabata & Co. ................................................ 34
11,000 Kaneka Corp. ................................................. 69
3,000 Kurita Water Industries....................................... 80
1,000 Kyocera Ltd. ................................................. 79
4,000 Kyudenko Co., Ltd. ........................................... 34
3,000 Lintec........................................................ 55
</TABLE>

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

<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ -------
<C> <S> <C>

JAPAN--(CONTINUED)
6,000 Matsushita Electric Industries Ltd. .......................... $ 121
19,000 Mitsubishi Chemical Corp. .................................... 62
4,000 Mitsubishi Estate Co., Ltd. .................................. 58
12,000 Mitsubishi Heavy Industries Ltd. ............................. 92
4,000 Mitsumi Electric Co., Ltd. ................................... 95
2,000 Murata Manufacturing Co., Ltd. ............................... 80
10,000 NEC Corp. .................................................... 140
3,000 Nifco, Inc. .................................................. 31
1,000 Nintendo Corp., Ltd. ......................................... 84
12 Nippon Telegraph & Telephone.................................. 115
12,000 Nissan Motor Co. ............................................. 93
5,000 Nissha Printing............................................... 58
10,000 Obayashi Corp. ............................................... 67
9,000 Ricoh Co., Ltd. .............................................. 118
3,000 Rinnai Corp. ................................................. 64
1,000 Sangetsu Co., Ltd. ........................................... 21
4,000 Sankyo Co., Ltd. ............................................. 134
7,000 Sanwa Shutter................................................. 63
6,000 Sekisui Chemical Co. ......................................... 61
6,000 Sekisui House Ltd. ........................................... 61
1,000 Shimamura Co., Ltd. .......................................... 36
1,500 Sony Corp. ................................................... 131
8,000 Sumitomo Marine & Fire Insurance Co. ......................... 66
6,000 Suzuki Motor Co., Ltd. ....................................... 76
13,000 Taisei Corp. ................................................. 60
2,000 TDK Corp. .................................................... 147
3,200 Tokyo Electron Ltd. .......................................... 153
17,000 Toshiba Corp. ................................................ 109
4,000 Toyota Motor Corp. ........................................... 118
10,000 Tsubakimoto Chain............................................. 61
3,000 Yamaha Corp. ................................................. 55
4,000 Yamanouchi Pharmaceutical Co. ................................ 108
-------
4,324
-------
MALAYSIA (1.9%)
15,000 Berjaya Group Bhd............................................. 18
10,000 Commerce Asset Holding Bhd.................................... 26
1,000 Dialog Group Bhd.............................................. 15
3,000 Genting Bhd................................................... 14
6,000 IJM Corp. Bhd................................................. 13
4,000 Malayan Banking Bhd........................................... 42
5,000 Malaysian International Shipping Bhd (Foreign)................ 13
6,000 Malaysian Resources Corp., Bhd................................ 17
5,000 Rashid Hussain Bhd............................................ 32
5,000 Resorts World Bhd............................................. 15
13,000 Sime Darby Bhd................................................ 43
4,000 United Engineers (Malaysia) Ltd. ............................. 29
-------
277
-------
NETHERLANDS (5.6%)
4,250 ABN Amro Holdings N.V. ....................................... 79
860 Akzo Nobel N.V. .............................................. 118
306 Hollandsche Beton Groep N.V. ................................. 70
2,636 ING Groep N.V. ............................................... 122
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------- -------
<C> <S> <C>

1,300 KLM Royal Dutch Airlines N.V. ............................. $ 40
1,100 Koninklijke Bijendorf Beheer N.V. ......................... 77
4,100 Koninklijke KNP BT N.V. ................................... 93
1,600 Koninklijke Van Ommeren N.V. .............................. 62
2,300 Philips Electronics N.V. .................................. 165
-------
826
-------
NEW ZEALAND (0.3%)
15,600 Fletcher Challenge Paper................................... 38
-------
NORWAY (1.1%)
10,700 Den Norske Bank ASA........................................ 42
4,900 Saga Petroleum ASA, Class B................................ 85
(a)4,300 Storebrand ASA............................................. 26
-------
153
-------
SINGAPORE (2.1%)
6,000 Datacraft Asia Ltd. ....................................... 19
2,000 Development Bank of Singapore Ltd. (Foreign)............... 25
11,000 Electronic Resources Ltd. ................................. 17
14,000 NatSteel Ltd. ............................................. 36
2,400 Oversea-Chinese Banking Corp. (Foreign).................... 25
(a)12,000 Pacific Century Regional Development....................... 17
2,000 Parkway Holdings Ltd. ..................................... 9
2,000 Singapore Press Holdings (Foreign)......................... 40
21,000 Summit Holdings Ltd. ...................................... 16
(a)24,000 Super Coffeemix Manufacturing Ltd. ........................ 20
3,000 United Overseas Bank Ltd. (Foreign)........................ 31
(a)10,800 Want Want Holdings......................................... 36
6,000 Wing Tai Holdings Ltd. .................................... 17
-------
308
-------
SPAIN (2.9%)
1,030 Banco Bilbao Vizcaya S.A. (Registered)..................... 84
7,700 Iberdrola S.A. ............................................ 97
3,800 Telefonica de Espana S.A. ................................. 110
11,420 Uralita S.A. .............................................. 128
-------
419
-------
SWEDEN (3.4%)
1,700 Esselte AB, Class B........................................ 40
3,800 Nordbanken AB.............................................. 128
1,200 Pharmacia & Upjohn, Inc. .................................. 40
1,640 Skandia Forsakrings AB..................................... 60
2,160 S.K.F. AB, Class B......................................... 56
2,650 Sparbaken Sverige AB, Class A.............................. 59
3,100 Spectra-Physics AB, Class A................................ 56
1,960 Svenska Handelsbanken, Class A............................. 63
-------
502
-------
SWITZERLAND (7.2%)
(a)30 Baloise Holdings Ltd. (Registered)......................... 72
50 Bobst AG (Bearer).......................................... 85
270 Forbo Holdings AG (Registered)............................. 116
</TABLE>

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

<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ -------
<C> <S> <C>

SWITZERLAND--(CONTINUED)
130 Holderbank Financiere Glarus AG, Class B (Bearer)............. $ 123
120 Nestle S.A. (Registered)...................................... 158
50 Novartis AG (Registered)...................................... 80
340 Oerlikon-Buehrle Holding AG (Registered)...................... 40
65 Schindler Holding AG (Registered)............................. 83
60 Schweizerisch Industrie-Gesellschaft Holdings (Registered).... 89
140 Sulzer AG (Registered)........................................ 120
(a)250 Valora Holding AG (Registered)................................ 53
100 Zurich Versicherungs (Registered)............................. 40
-------
1,059
-------
UNITED KINGDOM (12.9%)
9,450 Associated British Foods plc.................................. 81
7,654 Bank of Scotland.............................................. 49
7,900 Bass plc...................................................... 96
9,000 BAT Industries plc............................................ 80
10,800 BG plc........................................................ 40
13,200 British Telecommunications plc................................ 98
7,100 Burmah Castrol plc............................................ 120
23,000 Christian Salvesen plc........................................ 108
17,600 Courtaulds Textiles plc....................................... 90
14,800 Grand Metropolitan plc........................................ 142
21,000 Imperial Tobacco Group plc.................................... 135
23,867 John Mowlem & Co. plc......................................... 49
16,000 Kwik Save Group plc........................................... 81
3,900 Peninsular & Oriental Steam Navigation Co. ................... 39
600 Premier Farnell plc........................................... 5
20,000 Racal Electronics plc......................................... 80
8,279 Reckitt & Colman plc.......................................... 124
12,116 Royal & Sun Alliance Insurance Group plc...................... 90
10,500 Scottish Hydro-Electric plc................................... 73
16,300 Tate & Lyle plc............................................... 121
3,100 Unilever plc.................................................. 89
25,000 WPP Group plc................................................. 102
-------
1,892
-------
TOTAL COMMON STOCKS
(COST $12,187)....................................................... 13,514
-------
PREFERRED STOCKS (1.5%)
GERMANY (1.5%)
240 Dyckerhoff AG................................................. 87
930 Hornbach Holding AG........................................... 77
110 Suedzucker AG................................................. 59
-------
TOTAL PREFERRED STOCKS
(COST $192).......................................................... 223
-------
</TABLE>
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
-------- -------
<C> <S> <C>

RIGHTS (0.0%)
MALAYSIA (0.0%)
(a)2,000 Commerce Asset Holding Bhd, expiring 7/23/97............... $ --
-------
SWITZERLAND (0.0%)
(a)100 Sulzer AG, expiring 7/11/97................................ --
-------
TOTAL RIGHTS
(COST $0)........................................................... --
-------
<CAPTION>
NO. OF
WARRANTS
--------
<C> <S> <C>
WARRANTS (0.0%)
MALAYSIA (0.0%)
(a)1,250 Commerce Asset Holding Bhd, expiring 3/16/02............... --
(a)714 Rashid Hussain Bhd, expiring 12/31/02...................... --
-------
TOTAL WARRANTS
(COST $0)........................................................... --
-------
TOTAL FOREIGN SECURITIES (93.8%)
(COST $12,379)...................................................... 13,737
-------
<CAPTION>
FACE
AMOUNT
(000)
--------
<C> <S> <C>
SHORT-TERM INVESTMENT (10.2%)
REPURCHASE AGREEMENT (10.2%)
$1,489 Chase Securities, Inc. 5.70%, dated 6/30/97, due 7/1/97, to
be repurchased at $1,489, collateralized by U.S. Treasury
Notes, 5.625%, due 2/15/06, valued at $1,518
(Cost $1,489)............................................. 1,489
-------
</TABLE>

<TABLE>
<CAPTION>
AMOUNT
(000)
----------
<C> <S> <C>
FOREIGN CURRENCY (1.2%)
BEF 779 Belgian Franc.............................................. 22
DEM 8 Deutsche Mark.............................................. 5
FRF 85 French Franc............................................... 15
ITL 7,332 Italian Lira............................................... 4
JPY 11,781 Japanese Yen............................................... 103
NLG 55 Netherlands Guilder........................................ 28
SGD 1 Singapore Dollar........................................... --
ESP 166 Spanish Peseta............................................. 1
CHF 5 Swiss Franc................................................ 3
------
TOTAL FOREIGN CURRENCY
(COST $182)........................................................... 181
------
TOTAL INVESTMENTS (105.2%)
(COST $14,050*)....................................................... 15,407
------
</TABLE>

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

<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
------ -------
<S> <C> <C>
OTHER ASSETS (1.7%)
Cash........................................................... $ 91
Receivable for Portfolio Shares Sold........................... 49
Dividends Receivable........................................... 46
Net Unrealized Gain on Foreign Currency Exchange Contracts..... 45
Foreign Withholding Tax Reclaim Receivable..................... 10
Receivable for Investments Sold................................ 8 $ 249
-----
LIABILITIES (-6.9%)
Payable for Investments Purchased.............................. (966)
Custodian Fees Payable......................................... (16)
Investment Advisory Fees Payable............................... (6)
Administrative Fees Payable.................................... (5)
Professional Fees Payable...................................... (2)
Payable for Closed Foreign Currency Contracts.................. (1)
Other Liabilities.............................................. (17) (1,013)
----- -------
NET ASSETS (100%).............................................. $14,643
=======
Net asset Value, Offering and Redemption Price Per Share
Applicable to 1,255,156 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................... $ 11.67
=======
NET ASSETS CONSIST OF:
Paid in Capital................................................ $12,802
Undistributed Net Investment Income............................ 109
Accumulated Net Realized Gain.................................. 328
Unrealized Appreciation on Investments and Foreign Currency
Translations.................................................. 1,404
-------
NET ASSETS..................................................... $14,643
=======
</TABLE>

FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:

Under the terms of foreign currency exchange contracts open at June 30, 1997,
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 TO IN EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ----------- ------ ---------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
U.S.$ 125 $ 125 8/18/97 NLG 242 $ 124 $(1)
U.S.$ 125 125 8/18/97 CHF 178 123 (2)
NLG 641 328 8/18/97 U.S.$ 338 338 10
CHF 19 13 8/18/97 U.S.$ 13 13 --
CHF 499 344 8/18/97 U.S.$ 351 351 7
JPY 100,442 884 8/25/97 U.S.$ 900 900 16
DEM 590 340 8/29/97 U.S.$ 344 344 4
U.S.$ 100 100 8/29/97 DEM 172 99 (1)
BEF 1,475 41 8/29/97 DEM 42 42 1
U.S.$ 25 25 8/29/97 BEF 886 25 --
U.S.$ 150 150 9/15/97 FRF 868 149 (1)
FRF 2,218 379 9/15/97 U.S.$ 391 391 12
------ ------ ---
$2,854 $2,899 $45
====== ====== ===
</TABLE>
- -------
(a)--Non-income producing security
NCS--Non Convertible Shares
* At June 30, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the International Magnum
Portfolio were:

<TABLE>
<CAPTION>
NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
(000) (000) (000) (000)
- ------- ------------ -------------- ------------
<S> <C> <C> <C>
$13,868 $1,533 $(175) $1,358
</TABLE>

For the period ended June 30, 1997, purchases and sales of investment
securities for the International Magnum Portfolio other than long-term U.S.
Government securities and short-term investments were $14,030,000 and
$1,701,000, respectively.

SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION

<TABLE>
<CAPTION>
VALUE % OF
SECTOR DIVERSIFICATION (000) NET ASSETS
---------------------- ------- ----------
<S> <C> <C>
Capital Equipment............................................ $ 2,606 17.8%
Consumer Products............................................ 2,982 20.4
Electrical and Electronics................................... 1,717 11.7
Energy....................................................... 615 4.2
Finance...................................................... 2,304 15.7
Materials.................................................... 1,569 10.7
Multi-Industry............................................... 271 1.9
Services..................................................... 1,673 11.4
Other........................................................ 1,670 11.4
------- -----
Total Investments............................................ $15,407 105.2%
======= =====
</TABLE>

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
EQUITY GROWTH PORTFOLIO

STATEMENT OF NET ASSETS

(UNAUDITED)

JUNE 30, 1997

<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------- ------
<C> <S> <C>

COMMON STOCK (94.9%)
CAPITAL GOODS--CONSTRUCTION (10.4%)
AEROSPACE & DEFENSE (10.4%)
900 Boeing Co. .................................................. $ 48
700 Gulfstream Aerospace Corp. .................................. 21
(a)700 Litton Industries, Inc. ..................................... 34
900 McDonnell Douglas Corp. ..................................... 62
900 Thiokol Corp. ............................................... 63
2,200 United Technologies Corp. ................................... 182
------
TOTAL CAPITAL GOODS--CONSTRUCTION...................................... 410
------
CONSUMER CYCLICAL (23.4%)
AUTOMOTIVE (1.0%)
500 Ford Motor Co. .............................................. 19
(a)500 O'Reilly Automotive, Inc. ................................... 19
------
38
------
BROADCAST-- RADIO & TELEVISION (3.0%)
(a)1,300 Clear Channel Communications, Inc. .......................... 80
(a)400 Heftel Broadcasting Corp., Class A........................... 22
400 Time Warner, Inc. ........................................... 19
------
121
------
ENTERTAINMENT & LEISURE (2.6%)
(a)2,900 GTECH Holdings Corp. ........................................ 94
300 WMS Industries, Inc. ........................................ 7
------
101
------
FOOD SERVICE (2.3%)
1,700 Cracker Barrel Old Country Store, Inc. ...................... 45
600 Einstein/Noah Bagel Corp. ................................... 7
800 McDonald's Corp. ............................................ 39
------
91
------
GAMING & LODGING (9.2%)
(a)5,700 HFS, Inc. ................................................... 331
2,000 International Game Technology................................ 35
------
366
------
PUBLISHING (2.4%)
200 Gannett Co., Inc. ........................................... 20
(a)6,300 K-III Communications Corp. .................................. 75
------
95
------
RETAIL--FOOD (0.3%)
400 Dominick's Supermarkets, Inc. ............................... 11
------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ ------
<C> <S> <C>

RETAIL--GENERAL (2.6%)
1,300 Home Depot, Inc. ............................................. $ 90
(a)500 Woolworth Corp. .............................................. 12
------
102
------
TOTAL CONSUMER CYCLICAL............................................... 925
------
CONSUMER STAPLES (13.0%)
BEVERAGES (2.0%)
3,400 Coca Cola Enterprises, Inc. .................................. 78
------
CIGARETTES (6.6%)
5,900 Philip Morris Cos., Inc. ..................................... 262
------
FOOD (1.1%)
900 Campbell Soup Co. ............................................ 45
------
HOSPITAL SUPPLIES & SERVICES (3.3%)
700 Aetna, Inc. .................................................. 71
800 Becton Dickinson & Co. ....................................... 40
500 Columbia/HCA Healthcare Corp. ................................ 20
------
131
------
TOTAL CONSUMER STAPLES................................................ 516
------
DIVERSIFIED (11.6%)
1,100 Allied Signal, Inc. .......................................... 92
(a)2 Berkshire Hathaway, Inc., Class A............................. 94
600 Hillenbrand Industries........................................ 29
1,700 ITT Industries, Inc. ......................................... 44
900 Loews Corp. .................................................. 90
1,100 Textron, Inc. ................................................ 73
2,000 Viad Corp. ................................................... 39
------
TOTAL DIVERSIFIED..................................................... 461
------
ENERGY (2.3%)
COAL, GAS, & OIL (2.3%)
(a)200 AES Corp. .................................................... 14
300 Amoco Corp. .................................................. 26
200 British Petroleum Co. plc ADR................................. 15
(a)300 Diamond Offshore Drilling, Inc. .............................. 23
100 Schlumberger, Ltd. ........................................... 13
------
TOTAL ENERGY.......................................................... 91
------
FINANCE (20.5%)
BANKING (7.0%)
1,000 BankAmerica Corp. ............................................ 65
400 Chase Manhattan Corp. ........................................ 39
400 Citicorp...................................................... 48
400 H.F. Ahmanson & Co. .......................................... 17
400 Wells Fargo & Co. ............................................ 108
------
277
------
FINANCIAL SERVICES (5.8%)
800 American Express Co. ......................................... 60
700 Charles Schwab Corp. ......................................... 28
100 CIGNA Corp. .................................................. 18
500 Franklin Resources, Inc. ..................................... 36
700 Merrill Lynch & Co. .......................................... 42
</TABLE>

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

<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------- ------
<C> <S> <C>

FINANCIAL SERVICES--(CONTINUED)
200 Ocwen Financial Corp. ...................................... $ 7
300 Student Loan Marketing Association.......................... 38
------
229
------
INSURANCE (7.7%)
1,000 Ace Ltd. ................................................... 74
1,800 CMAC Investment Corp. ...................................... 86
(a)500 CNA Financial Corp. ........................................ 53
400 Equitable of Iowa Cos. ..................................... 22
500 MGIC Investment Corp. ...................................... 24
200 Progressive Corp. .......................................... 17
1,200 USF&G Corp. ................................................ 29
------
305
------
TOTAL FINANCE......................................................... 811
------
MATERIALS (1.0%)
CHEMICALS (1.0%)
300 E.I. DuPont de Nemours & Co. ............................... 19
500 Monsanto Co. ............................................... 21
------
TOTAL MATERIALS....................................................... 40
------
SERVICES (2.5%)
PROFESSIONAL SERVICES (0.3%)
400 Snyder Communications, Inc. ................................ 11
------
TRANSPORTATION (2.2%)
(a)500 AMR Corp. .................................................. 46
(a)1,200 US Airways Group, Inc. ..................................... 42
------
88
------
TOTAL SERVICES........................................................ 99
------
TECHNOLOGY (10.2%)
COMPUTERS (1.6%)
(a)300 Compaq Computer Corp. ...................................... 30
(a)200 Dell Computer Corp. ........................................ 23
(a)300 Seagate Technology, Inc. ................................... 11
------
64
------
ELECTRONICS (2.9%)
(a)400 Applied Materials, Inc. .................................... 28
200 Intel Corp. ................................................ 28
400 Linear Technology Corp. .................................... 21
300 Motorola, Inc. ............................................. 23
200 Texas Instruments, Inc. .................................... 17
------
117
------
OFFICE EQUIPMENT (2.2%)
700 International Business Machines Corp. ...................... 63
300 Xerox Corp. ................................................ 24
------
87
------
SOFTWARE SERVICES (2.9%)
(a)300 America Online, Inc. ....................................... 17
(a)500 Microsoft Corp. ............................................ 63
(a)400 Oracle Corp. ............................................... 20
(a)400 Sterling Commerce, Inc. .................................... 13
------
113
------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ ------
<C> <S> <C>

TELECOMMUNICATIONS (0.6%)
(a)200 Globalstar Telecommunications Ltd. ........................... $ 6
(a)200 Iridium World Communications Ltd. ............................ 3
(a)500 WorldCom, Inc. ............................................... 16
------
25
------
TOTAL TECHNOLOGY...................................................... 406
------
TOTAL COMMON STOCK
(COST $3,388)........................................................ 3,759
------
<CAPTION>
FACE
AMOUNT
(000)
------
<C> <S> <C>
SHORT-TERM INVESTMENT (15.4%)
REPURCHASE AGREEMENT (15.4%)
$608 Chase Securities, Inc. 5.70%, dated 6/30/97, due 7/1/97, to be
repurchased at $608, collateralized by U.S. Treasury Notes,
5.625%, due 2/15/06, valued at $620, (Cost $608)............. 608
------
TOTAL INVESTMENTS (110.3%)
(COST $3,996*)....................................................... 4,367
------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (2.1%)
Dividends Receivable........................................... $ 3
Receivable for Investments Sold................................ 27
Due from Adviser............................................... 27
Receivable for Portfolio Shares Sold........................... 26 83
-----
LIABILITIES (-12.4%)
Payable for Investments Purchased.............................. (415)
Custodian Fees Payable......................................... (36)
Professional Fees Payable...................................... (14)
Bank Overdraft................................................. (6)
Administrative Fees Payable.................................... (2)
Other Liabilities.............................................. (18) (491)
----- ------
NET ASSETS (100%).............................................. $3,959
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 343,470 outstanding $0.001 par value shares (au-
thorized 500,000,000 shares).................................. $11.53
======
NET ASSETS CONSIST OF:
Paid in Capital................................................ $3,519
Undistributed Net Investment Income............................ 9
Accumulated Net Realized Gain.................................. 60
Unrealized Appreciation on Investments......................... 371
------
NET ASSETS..................................................... $3,959
======
</TABLE>
- -------
(a)--Non-income producing security
ADR--American Depositary Receipt

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

* At June 30, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the Equity Growth Portfolio
were:

<TABLE>
<CAPTION>
NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
(000) (000) (000) (000)
------ ------------ -------------- ------------
<S> <C> <C> <C>
$3,996 $401 $(30) $371
</TABLE>

For the period ended June 30, 1997, purchases and sales of investment
securities for the Equity Growth Portfolio, other than long-term U.S.
Government securities and short-term investments, were $5,724,000 and
$2,396,000, respectively.

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
MID CAP VALUE PORTFOLIO

STATEMENT OF NET ASSETS

(UNAUDITED)

JUNE 30, 1997

<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------- ------
<C> <S> <C>

COMMON STOCKS (97.6%)
BASIC RESOURCES (2.5%)
400 H. B. Fuller Co. ............................................ $ 22
200 Oregon Steel Mills, Inc. .................................... 4
(a)1,100 Owens-Illinois, Inc. ........................................ 34
1,100 P.H. Glatfelter Co. ......................................... 22
200 Rohm & Haas Co. ............................................. 18
(a)800 Tetra Technologies, Inc...................................... 20
------
120
------
CONSUMER DURABLES (5.2%)
100 Armstrong World Industries, Inc. ............................ 7
400 Callaway Golf Co. ........................................... 14
(a)700 Champion Enterprises, Inc. .................................. 11
300 Ethan Allen Interiors, Inc. ................................. 17
(a)700 Furniture Brands International, Inc. ........................ 14
500 Harley-Davidson, Inc. ....................................... 24
(a)900 Lear Corp. .................................................. 40
500 Mascotech, Inc. ............................................. 10
600 PACCAR, Inc. ................................................ 28
700 Premark International, Inc. ................................. 19
600 Southdown, Inc. ............................................. 26
(a)500 Tower Automotive, Inc. ...................................... 21
(a)700 USG Corp. ................................................... 26
------
257
------
CONSUMER SERVICES (3.3%)
400 Hertz Corp., Class A......................................... 14
100 Jostens, Inc. ............................................... 3
2,100 Journal Register Co. ........................................ 42
(a)500 MGM Grand, Inc. ............................................. 18
800 McClatchy Newspapers, Inc., Class A.......................... 24
200 New York Times Co., Class A.................................. 10
(a)500 Valassis Communications, Inc. ............................... 12
100 Washington Post Co., Class B................................. 40
------
163
------
ENERGY (10.5%)
700 Apache Corp. ................................................ 23
(a)900 BJ Services Co. ............................................. 48
500 Columbia Gas System, Inc. ................................... 33
(a)400 Cooper Cameron Corp. ........................................ 19
(a)400 Diamond Offshore Drilling, Inc. ............................. 31
200 El Paso Natural Gas Co. ..................................... 11
(a)1,200 ENSCO International, Inc. ................................... 63
(a)700 Global Marine, Inc. ......................................... 16
400 National Fuel Gas Co. ....................................... 17
400 NICOR, Inc. ................................................. 14
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------- ------
<C> <S> <C>

(a)2,600 Noble Drilling Corp. ........................................ $ 59
400 ONEOK, Inc. ................................................. 13
400 Pacific Enterprises.......................................... 13
(a)600 Precision Drilling Corp. .................................... 29
(a)800 Santa Fe International Corp. ................................ 27
400 Sun Co., Inc. ............................................... 12
500 Transocean Offshore, Inc. ................................... 36
800 Union Texas Petro Holdings, Inc. ............................ 17
(a)400 Varco International, Inc. ................................... 13
200 Vastar Resources, Inc. ...................................... 7
(a)300 Weatherford Enterra, Inc. ................................... 12
------
513
------
FINANCE (19.9%)
BANKING (9.8%)
200 AMBAC, Inc. ................................................. 15
600 AmSouth Bancorp.............................................. 23
400 Astoria Financial Corp. ..................................... 19
300 City National Corp. ......................................... 7
300 Collective Bancorp, Inc. .................................... 13
800 Comerica, Inc. .............................................. 54
900 Community First Bankshares, Inc. ............................ 34
800 Cullen/Frost Bankers, Inc. .................................. 34
800 First Financial Corp. of Wisconsin........................... 24
450 First of America Bank Corp. ................................. 20
300 FirstBank Puerto Rico........................................ 8
300 MAF Bancorp, Inc. ........................................... 13
800 National Commerce Bancorp.................................... 18
1,400 North Fork Bancorp, Inc. .................................... 30
400 Northern Trust Corp. ........................................ 19
900 Southtrust Corp. ............................................ 37
600 Summit Bancorp .............................................. 30
900 Union Planters Corp. ........................................ 47
200 UnionBanCal Corp. ........................................... 14
500 Wilmington Trust Corp. ...................................... 23
------
482
------
CREDIT & FINANCE (1.6%)
700 Capital One Financial Corp. ................................. 26
700 CMAC Investment Corp. ....................................... 33
(a)200 Healthcare Financial Partners, Inc. ......................... 4
100 Student Loan Marketing Association........................... 13
------
76
------
INSURANCE (4.0%)
100 Chartwell Re Corp. .......................................... 3
500 Everest Reinsurance Holdings, Inc. .......................... 20
400 Hartford Life, Inc., Class A................................. 15
500 Mercury General Corp. ....................................... 36
1,300 Nationwide Financial Services, Inc.,
Class A .................................................... 35
400 Progressive Corp. ........................................... 35
1,100 Reliance Group Holdings, Inc. ............................... 13
300 Torchmark Corp. ............................................. 21
700 Western National Corp. ...................................... 19
------
197
------
</TABLE>

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

<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------- ------
<C> <S> <C>

INVESTMENT RELATED COMPANIES (2.9%)
600 Bear Stearns Co., Inc........................................ $ 21
1,400 Franklin Resources, Inc...................................... 102
300 Paine Webber Group, Inc. .................................... 11
400 United Asset Management Corp................................. 11
------
145
------
REAL ESTATE INVESTMENT TRUSTS (1.6%)
2,300 CarrAmerica Realty Corp. REIT................................ 66
500 Kilroy Realty Corp. REIT..................................... 13
------
79
------
TOTAL FINANCE.......................................................... 979
------
FOOD, TOBACCO & OTHER (4.4%)
400 Consolidated Cigar Holdings, Inc............................. 11
800 Dean Foods Co................................................ 32
800 Dimon, Inc. ................................................. 21
200 Interstate Bakeries Corp. ................................... 12
300 Lancaster Colony Corp. ...................................... 14
1,100 Schweitzer-Mauduit International, Inc........................ 41
1,300 Tyson Foods, Inc., Class A .................................. 25
1,700 Universal Corp. VA .......................................... 54
100 Universal Foods Corp. ....................................... 4
------
214
------
HEALTH CARE (7.5%)
(a)500 Biogen, Inc. ................................................ 17
(a)600 Coherent, Inc. .............................................. 27
(a)1,100 FPA Medical Management, Inc. ................................ 26
(a)400 Health Care and Retirement Corp.............................. 13
(a)2,500 Healthdyne Technologies, Inc................................. 43
(a)500 Marquette Medical Systems, Class A .......................... 11
(a)1,900 Nellcor Puritan Bennett, Inc. ............................... 35
(a)600 Personnel Group of America, Inc.............................. 17
(a)200 Rotech Medical Corp.......................................... 4
3,300 Sullivan Dental Products, Inc. .............................. 60
(a)800 Universal Health Services, Inc., Class B..................... 31
(a)500 Vencor, Inc. ................................................ 21
(a)200 Watson Pharmaceuticals, Inc. ................................ 8
(a)1,000 Wellpoint Health Networks, Inc............................... 46
600 Xomed Surgical Products, Inc................................. 12
------
371
------
HEAVY INDUSTRY/TRANSPORTATION (17.1%)
(a)2,400 AccuStaff, Inc............................................... 57
400 Agco Corp.................................................... 14
2,700 Air Express International Corp............................... 107
1,600 Arnold Industries, Inc....................................... 27
(a)1,000 Aviation Sales Co............................................ 24
(a)1,700 CDI Corp..................................................... 71
(a)300 Coltec Industries, Inc....................................... 6
1,800 Crane Co..................................................... 75
1,200 Danka Business Systems plc ADR............................... 49
500 DONCASTERS plc ADR........................................... 12
800 Expeditors International of Washington, Inc. ................ 23
400 Halter Marine Group, Inc. ................................... 10
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------- ------
<C> <S> <C>

(a)600 Hirsch International Corp., Class A ......................... $ 13
100 Ingersoll Rand Co............................................ 6
(a)500 Interim Services, Inc. ...................................... 22
1,300 JLG Industries, Inc.......................................... 18
400 Kaydon Corp.................................................. 20
(a)750 Midwest Express Holdings, Inc. .............................. 20
2,000 Miller (Herman), Inc. ....................................... 72
(a)2,200 OMI Corp. ................................................... 21
(a)1,400 Offshore Logistics, Inc...................................... 26
700 Precision Castparts Corp. ................................... 42
(a)400 SPS Technologies, Inc........................................ 28
300 Thiokol Corp................................................. 21
600 Triumph Group, Inc........................................... 19
(a)400 Tuboscope Vetco International Corp. ......................... 8
(a)700 USA Waste Services, Inc...................................... 27
100 York International Corp...................................... 5
------
843
------
RETAIL (10.2%)
300 American Stores Co........................................... 15
(a)700 Boston Chicken, Inc.......................................... 10
400 Brylane, Inc................................................. 15
1,400 CVS Corp. ................................................... 72
(a)700 Designer Holdings Ltd........................................ 7
1,500 Duty Free International, Inc. ............................... 28
(a)300 Fred Meyer, Inc. ............................................ 15
(a)500 Fruit of the Loom, Inc., Class A ............................ 16
1,200 Hughes Supply, Inc. ......................................... 48
(a)1,000 Office Depot, Inc. .......................................... 19
1,100 Pier 1 Imports, Inc. ........................................ 29
(a)500 Polo Ralph Lauren Corp. ..................................... 14
2,100 ProSource, Inc. ............................................. 15
1,300 Richfood Holdings, Inc. ..................................... 34
1,400 Ross Stores, Inc. ........................................... 46
2,000 TJX Companies, Inc. ......................................... 53
800 V.F. Corp. .................................................. 68
------
504
------
TECHNOLOGY (14.1%)
(a)600 ADC Telecommunicaions, Inc. ................................. 20
800 Adobe Systems, Inc. ......................................... 28
(a)700 Altera Corp. ................................................ 35
(a)200 BMC Software, Inc. .......................................... 11
(a)1,000 Cadence Design Systems, Inc. ................................ 34
(a)500 Ceridian Corp. .............................................. 21
(a)1,000 Computer Products, Inc....................................... 25
(a)300 ESS Technology, Inc. ........................................ 4
(a)500 FactSet Research Systems, Inc. .............................. 12
(a)1,000 Fiserv, Inc. ................................................ 45
(a)1,200 Gateway 2000, Inc............................................ 39
1,000 General Cable Corp. ......................................... 26
(a)1,600 HMT Technology Corp.......................................... 21
(a)800 Inacom Corp.................................................. 25
(a)800 Intevac, Inc. ............................................... 10
(a)1,700 Overland Data, Inc........................................... 9
(a)600 Parametric Technology Corp................................... 26
</TABLE>

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

<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------- ------
<C> <S> <C>

TECHNOLOGY--(CONTINUED)
1,200 Penn Engineering & Manufacturing Corp....................... $ 24
(a)600 SCI Systems, Inc. .......................................... 38
(a)600 Seagate Technology.......................................... 21
(a)300 Solectron Corp. ............................................ 21
(a)1,200 Symantec Corp............................................... 23
(a)800 Tech Data Corp.............................................. 25
800 Technology Modeling Association, Inc........................ 11
600 Tektronix, Inc.............................................. 36
(a)900 Teradyne, Inc. ............................................. 35
(a)600 USCS International, Inc..................................... 20
(a)400 Vishay Intertechnology, Inc................................. 12
(a)1,200 Western Digital Corp........................................ 38
------
695
------
UTILITIES (2.9%)
900 Black Hills Corp............................................ 26
1,200 IPALCO Enterprises, Inc..................................... 37
900 LG&E Energy Corp............................................ 20
500 Nevada Power Co............................................. 11
(a)700 Nextel Communications, Inc., Class A ....................... 13
300 Pinnacle West Capital Corp.................................. 9
400 Public Service Co. of Colorado.............................. 16
700 St. Joseph Light & Power Co. ............................... 11
------
143
------
TOTAL COMMON STOCK
(COST $4,229)........................................................ 4,802
------
<CAPTION>
FACE
AMOUNT
(000)
--------
<C> <S> <C>
SHORT-TERM INVESTMENT (4.8%)
REPURCHASE AGREEMENT (4.8%)
$238 Chase Securities, Inc. 5.70%, dated 6/30/97, due 7/1/97, to
be repurchased at $238, collateralized by U.S. Treasury
Notes, 5.625%, due 2/15/06, valued at $245 (Cost $238)..... 238
------
TOTAL INVESTMENTS (102.4%)
(COST $4,467*)....................................................... 5,040
------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
----------- -----------
<S> <C> <C>
OTHER ASSETS (1.7%)
Receivable for Investments Sold......................... $ 60
Receivable for Portfolio Shares Sold.................... 15
Due from Adviser........................................ 6
Dividends Receivable.................................... 3 $ 84
----
LIABILITIES (-4.1%)
Payable for Investments Purchased....................... (131)
Bank Overdraft.......................................... (45)
Custodian Fees Payable.................................. (11)
Professional Fees Payable............................... (9)
Administrative Fees Payable............................. (1)
Other Liabilities....................................... (5) (202)
---- ------
NET ASSETS (100%)....................................... $4,922
======
</TABLE>

<TABLE>
<CAPTION>
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 413,203 outstanding $0.001 par value shares (authorized
500,000,000 shares)................................................... $11.91
======
NET ASSETS CONSIST OF:
Paid in Capital........................................................ $4,231
Undistributed Net Investment Income.................................... 8
Accumulated Net Realized Gain.......................................... 110
Unrealized Appreciation on Investments................................. 573
------
NET ASSETS............................................................. $4,922
======
</TABLE>
- -------

(a)--Non-income producing security
ADR--American Depositary Receipt
REIT--Real Estate Investment Trust
* At June 30, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the Mid Cap Value Portfolio
were:

<TABLE>
<CAPTION>
NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
(000) (000) (000) (000)
------ ------------ -------------- ------------
<S> <C> <C> <C>
$4,467 $642 $(69) $573
</TABLE>

For the period ended June 30, 1997, purchases and sales of investment
securities for the Mid Cap Value Portfolio, other than long-term U.S.
Government securities and short-term investments, were approximately $6,523,000
and $2,403,000 respectively.

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
U.S. REAL ESTATE PORTFOLIO

STATEMENT OF NET ASSETS

(UNAUDITED)

JUNE 30, 1997

<TABLE>
<CAPTION>
VALUE
SHARES (000)
--------- ------
<C> <S> <C>

COMMON STOCKS (88.6%)
APARTMENT (20.6%)
600 Amli Residential Properties Trust REIT...................... $ 14
3,400 Associated Estates Realty Corp. REIT........................ 80
5,500 Avalon Properties, Inc. REIT................................ 158
5,000 Bay Apartment Communities, Inc. REIT........................ 185
500 Columbus Realty Trust REIT.................................. 11
6,900 Essex Property Trust, Inc. REIT............................. 222
3,800 Gables Residential Trust REIT............................... 96
5,000 Merry Land & Investment Co., Inc. REIT...................... 108
4,600 Oasis Residential, Inc. REIT................................ 108
4,800 Security Capital Atlantic, Inc. REIT........................ 115
700 Summit Properties, Inc. REIT................................ 14
12,007 Wellsford Real Properties, Inc. ............................ 132
------
1,243
------
HEALTHCARE (9.7%)
(a)1,900 Alexandria Real Estate Equities, Inc. REIT.................. 42
(a)3,900 Assisted Living Concepts, Inc. ............................. 43
1,800 Health Care Property Investors, Inc. REIT................... 63
11,000 Nationwide Health Properties, Inc. REIT..................... 242
5,900 Omega Healthcare Investors, Inc. REIT....................... 193
------
583
------
LAND (1.9%)
(a)10,948 Atlantic Gulf Communities Corp. ............................ 70
(a)2,500 Catellus Development Corp. ................................. 45
------
115
------
LODGING/LEISURE (12.2%)
11,300 American General Hospitality Corp. REIT..................... 280
(a)1,300 Bristol Hotel Co. .......................................... 50
(a)6,600 Extended Stay America, Inc. ................................ 104
(a)6,200 Host Marriott Corp. ........................................ 110
(a)3,800 Servico, Inc. .............................................. 56
3,200 Starwood Lodging Trust REIT................................. 137
------
737
------
MANUFACTURED HOME (6.8%)
10,600 Chateau Communities, Inc. REIT.............................. 304
4,600 Manufactured Home Communities, Inc. REIT ................... 106
------
410
------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------- ------
<C> <S> <C>

OFFICE AND INDUSTRIAL (21.4%)
INDUSTRIAL (3.2%)
2,200 Meridian Industrial Trust, Inc. REIT........................ $ 52
6,300 Pacific Gulf Properties, Inc. REIT.......................... 138
------
190
------
OFFICE (16.8%)
5,500 Arden Realty Group, Inc..................................... 143
3,700 Beacon Properties Corp. REIT................................ 124
9,900 Brandywine Realty Trust REIT................................ 200
(a)4,600 Brookfield Properties (Installment Receipts-second
installment: CAD6.50/Shr due on 2/13/98)................... 32
4,200 CarrAmerica Realty Corp. REIT............................... 121
2,600 Cornerstone Properties, Inc. REIT........................... 40
6,200 Great Lakes, Inc. REIT...................................... 102
1,700 Kilroy Realty Corp. REIT.................................... 43
2,700 Koger Equity, Inc. REIT..................................... 49
7,400 Trizec Hahn Corp. REIT...................................... 158
------
1,012
------
OFFICE AND INDUSTRIAL (1.4%)
(a)1,600 Boston Properties, Inc. REIT................................ 44
1,600 Prentiss Properties Trust REIT.............................. 41
------
85
------
TOTAL OFFICE AND INDUSTRIAL........................................... 1,287
------
RETAIL (14.9%)
REGIONAL MALL (10.2%)
11,300 First Union Real Estate REIT................................ 160
7,800 Tauban Centers, Inc. REIT................................... 103
6,500 Urban Shopping Centers, Inc. REIT........................... 207
(a)8,400 Westfield America, Inc. REIT................................ 142
------
612
------
SHOPPING CENTER (1.7%)
1,500 Federal Realty Investment Trust REIT........................ 40
800 IRT Property Co. REIT....................................... 9
300 Price, Inc. REIT............................................ 11
100 Ramco-Gershenson Properties Trust REIT...................... 2
3,000 Western Investment Real Estate Trust REIT................... 42
------
104
------
STRIP CENTER (3.0%)
2,700 Alexander Haagen Properties, Inc. REIT...................... 44
10,100 Burnham Pacific Property Trust REIT......................... 139
------
183
------
TOTAL RETAIL.......................................................... 899
------
SELF STORAGE (1.1%)
2,300 Shurgard Storage Centers, Inc., Series A, REIT.............. 65
------
TOTAL COMMON STOCKS
(COST $5,135)........................................................ 5,339
------
</TABLE>

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

<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------- ------
<C> <S> <C>

PREFERRED STOCK (0.3%)
LAND (0.3%)
(a,d)2,003 Atlantic Gulf Communities Corp.
(Cost $20)............................................... $ 20
------
<CAPTION>
NO. OF
WARRANTS
----------
<C> <S> <C>
WARRANTS (0.0%)
LAND (0.0%)
(a,d)1,878 Atlantic Gulf Communities, Class A........................ --
(a,d)1,878 Atlantic Gulf Communities, Class B........................ --
(a,d)1,878 Atlantic Gulf Communities, Class C........................ --
------
TOTAL WARRANTS
(COST $0)............................................................ --
------
<CAPTION>
FACE
AMOUNT
(000)
----------
<C> <S> <C>
SHORT TERM INVESTMENT (7.6%)
REPURCHASE AGREEMENT (7.6%)
$458 Chase Securities, Inc. 5.70%, dated 6/30/97, due 7/1/97,
to be repurchased at $458, collateralized by U.S.
Treasury Notes, 5.625%, due 2/15/06, valued at $466
(Cost $458).............................................. 458
------
TOTAL INVESTMENTS (96.5%)
(COST $5,613*)....................................................... 5,817
------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
----------- -----------
<S> <C> <C>
OTHER ASSETS (4.8%)
Cash.................................................... $ 22
Receivable for Investments Sold......................... 219
Dividends Receivable.................................... 27
Due from Adviser........................................ 22
Receivable for Portfolio Shares Sold.................... 1 $ 291
----
LIABILITIES (-1.3%)
Payable for Investments Purchased....................... (35)
Custodian Fees Payable.................................. (21)
Professional Fees Payable............................... (9)
Administrative Fees Payable............................. (2)
Other Liabilities....................................... (16) (83)
---- ------
NET ASSETS (100%)....................................... $6,025
======
</TABLE>

<TABLE>
<CAPTION>
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 580,767 outstanding $0.001 par value shares (authorized
500,000,000 shares).................................................. $10.37
======
NET ASSETS CONSIST OF:
Paid in Capital....................................................... $5,799
Undistributed Net Investment Income................................... 59
Accumulated Net Realized Loss......................................... (37)
Unrealized Appreciation on Investments................................ 204
------
NET ASSETS............................................................ $6,025
======
</TABLE>
- -------
(a)--Non-income producing security
(d)--Security valued at fair value--see Note A-1 to financial statements.
CAD--Canadian Dollar
REIT--Real Estate Investment Trust

* At June 30, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the U.S. Real Estate
Portfolio were:

<TABLE>
<CAPTION>
COST APPRECIATION (DEPRECIATION) NET APPRECIATION
(000) (000) (000) (000)
------ ------------ -------------- ----------------
<S> <C> <C> <C>
$5,613 $277 $(73) $204
</TABLE>

For the period ended June 30, 1997, purchases and sales of investment
securities for the U.S. Real Estate Portfolio, other than long-term U.S.
Government securities and short-term investments, were $7,269,000 and
$2,044,000 respectively.

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
VALUE PORTFOLIO

STATEMENT OF NET ASSETS

(UNAUDITED)

JUNE 30, 1997

<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ ------
<C> <S> <C>

COMMON STOCKS (81.2%)
BASIC RESOURCES (4.5%)
1,000 Cabot Oil & Gas Corp., Class A ................................ $ 29
300 Dow Chemical Co. .............................................. 26
700 E.I. DuPont de Nemours & Co. .................................. 44
1,400 Great Lakes Chemical Corp. .................................... 73
500 Rohm & Haas Co. ............................................... 45
700 Westvaco Corp. ................................................ 22
------
239
------
CONSUMER DURABLES (8.4%)
900 Dana Corp. .................................................... 34
3,400 Ford Motor Co. ................................................ 128
1,300 General Motors Corp. .......................................... 73
1,600 Goodyear Tire & Rubber Co. .................................... 101
1,100 Owens Corning.................................................. 47
800 Premark International, Inc. ................................... 21
1,000 Tupperware Corp. .............................................. 37
------
441
------
CONSUMER SERVICES (0.3%)
600 Standard Register Co. ......................................... 18
------
ENERGY (7.8%)
600 Amoco Corp. ................................................... 52
700 Atlantic Richfield Co. ........................................ 49
700 British Petroleum plc ADR...................................... 53
600 El Paso Natural Gas Co. ....................................... 33
500 IMC Global, Inc. .............................................. 18
1,300 MAPCO, Inc. ................................................... 41
800 Phillips Petroleum Co. ........................................ 35
1,100 Repsol SA ADR.................................................. 47
900 Ultramar Diamond Shamrock Corp. ............................... 29
1,700 YPF SA ADR..................................................... 52
------
409
------
FINANCIAL SERVICES (16.0%)
BANKING (6.4%)
1,000 Bank of New York Co. .......................................... 44
700 Chase Manhattan Corp. ......................................... 68
400 Citicorp....................................................... 48
500 Crestar Financial Corp. ....................................... 19
100 First Chicago NBD Corp. ....................................... 6
400 First Union Corp. ............................................. 37
900 Mellon Bank Corp. ............................................. 41
400 Republic New York Corp. ....................................... 43
900 Signet Banking Corp. .......................................... 32
------
338
------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------- ------
<C> <S> <C>

CREDIT & FINANCE/INVESTMENT RELATED COMPANIES (1.8%)
1,100 Capital One Financial Corp. ................................. $ 42
800 Federal National Mortgage Association........................ 35
300 Salomon, Inc. ............................................... 17
------
94
------
INSURANCE (7.8%)
304 Aegon N.V. ARS............................................... 21
800 Allstate Corp. .............................................. 58
800 American General Corp. ...................................... 38
500 Chubb Corp. ................................................. 33
1,300 Everest Reinsurance Holdings, Inc. .......................... 52
400 Hartford Financial Services Group, Inc. ..................... 33
1,200 Old Republic International Corp. ............................ 36
700 Providian Corp. ............................................. 23
600 ReliaStar Financial Corp. ................................... 44
800 TIG Holdings, Inc. .......................................... 25
100 Torchmark Corp. ............................................. 7
400 Transatlantic Holdings, Inc. ................................ 40
------
410
------
TOTAL FINANCIAL SERVICES............................................... 842
------
FOOD, TOBACCO & OTHER (4.9%)
1,300 IBP, Inc. ................................................... 30
2,500 Philip Morris Cos., Inc. .................................... 111
2,100 RJR Nabisco Holdings Corp. .................................. 69
1,200 Universal Foods Corp. ....................................... 46
------
256
------
HEALTH CARE (5.5%)
1,400 Beckman Instruments, Inc. ................................... 67
1,600 Bergen Brunswig Corp., Class A............................... 45
900 Columbia/HCA Healthcare Corp. ............................... 35
(a)1,670 Foundation Health Corp. ..................................... 51
1,000 Mallinckrodt, Inc. .......................................... 38
(a)800 Maxicare Health Plans, Inc. ................................. 18
(a)1,900 Nellcor Puritan Bennett, Inc. ............................... 34
------
288
------
HEAVY INDUSTRY/TRANSPORTATION (19.9%)
2,300 Aeroquip-Vickers, Inc. ...................................... 109
(a)400 AMR Corp. ................................................... 37
300 Burlington Northern Santa Fe, Inc. .......................... 27
1,800 Case Corp. .................................................. 124
300 Caterpillar, Inc. ........................................... 32
600 CSX Corp. ................................................... 33
2,600 Cummins Engine Co., Inc. .................................... 183
600 Deere & Co. ................................................. 33
700 Eaton Corp. ................................................. 61
(a)700 FMC Corp. ................................................... 56
1,500 Harnischfeger Industries, Inc. .............................. 62
1,200 Kennametal, Inc. ............................................ 52
1,200 Olsten Corp. ................................................ 23
800 Parker Hannifin Corp. ....................................... 49
</TABLE>

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

<TABLE>
<CAPTION>
VALUE
SHARES (000)
-------- ------
<C> <S> <C>

HEAVY INDUSTRY/TRANSPORTATION--(CONTINUED)
600 Raytheon Corp. ............................................. $ 31
900 Tecumseh Products Co., Class A.............................. 54
800 TRW, Inc. .................................................. 45
(a)500 UAL Corp. .................................................. 36
------
1,047
------
RETAIL (4.9%)
1,000 Dillard Department Stores, Inc., Class A.................... 35
1,100 Russell Corp. .............................................. 33
700 Springs Industries, Inc., Class A........................... 37
1,300 Talbots, Inc. .............................................. 44
(a)1,400 Toys "R" Us, Inc. .......................................... 49
700 V.F. Corp. ................................................. 59
------
257
------
TECHNOLOGY (6.6%)
(a)300 Arrow Electronics, Inc. .................................... 16
(a)500 Compaq Computer Corp. ...................................... 50
1,300 International Business Machines Corp. ...................... 117
(a)1,700 Seagate Technology.......................................... 60
(a)100 Stratus Computer, Inc. ..................................... 5
800 Tektronix, Inc. ............................................ 48
(a)1,600 Western Digital Corp. ...................................... 50
------
346
------
UTILITIES (2.4%)
700 Central Maine Power Co. .................................... 9
600 CINergy Corp. .............................................. 21
900 DTE Energy Co. ............................................. 25
418 Duke Energy Corp. .......................................... 20
900 Entergy Corp. .............................................. 24
800 GPU, Inc. .................................................. 29
------
128
------
TOTAL COMMON STOCK
(COST $3,802)........................................................ 4,271
------
<CAPTION>
FACE
AMOUNT
(000)
--------
<C> <S> <C>
SHORT-TERM INVESTMENT (18.4%)
REPURCHASE AGREEMENT (18.4%)
$970 Chase Securities, Inc. 5.70%, dated 6/30/97, due 7/1/97, to
be repurchased at $970, collateralized by various U.S.
Treasury Note, 5.625%, due 2/15/06, valued at $989, (Cost
$970)...................................................... 970
------
TOTAL INVESTMENTS (99.6%)
(COST $4,772*)....................................................... 5,241
------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
----------- -----------
<S> <C> <C>
OTHER ASSETS (1.7%)
Cash.................................................... $ 3
Receivable for Investments Sold......................... 47
Receivable for Portfolio Shares Sold.................... 27
Due from Adviser........................................ 8
Dividends Receivable.................................... 5 $ 90
---
LIABILITIES (-1.3%)
Payable for Investments Purchased....................... (40)
Professional Fees Payable............................... (15)
Custodian Fees Payable.................................. (6)
Administrative Fees Payable............................. (1)
Other Liabilities....................................... (5) (67)
--- ------
NET ASSETS (100%)....................................... $5,264
======
</TABLE>

<TABLE>
<CAPTION>
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 455,591 outstanding $0.001 par value shares (authorized
500,000,000 shares)................................................... $11.55
======
NET ASSETS CONSIST OF:
Paid in Capital........................................................ $4,690
Undistributed Net Investment Income.................................... 33
Accumulated Net Realized Gain.......................................... 72
Unrealized Appreciation on Investments................................. 469
------
NET ASSETS............................................................. $5,264
======
</TABLE>

(a)--Non-income producing security
ADR--American Depositary Receipt
ARS--American Registered Share
* At June 30, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the Value Portfolio were:

<TABLE>
<CAPTION>
NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
(000) (000) (000) (000)
------ ------------ -------------- ------------
<S> <C> <C> <C>
$4,772 $520 $(51) $469
</TABLE>

For the period ended June 30, 1997, purchases and sales of investment
securities for the Value Portfolio, other than long-term U.S. Government
securities and short-term investments, were approximately $4,330,000 and
$600,000, respectively.

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
EMERGING MARKETS DEBT PORTFOLIO

STATEMENT OF NET ASSETS

(UNAUDITED)

JUNE 30, 1997

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

DEBT INSTRUMENTS (88.8%)
ARGENTINA (BONDS) (12.9%)
U.S.$ 250 Republic of Argentina Global Bond, Series BGL4, 11.00%,
10/9/06................................................. $ 278
ARP(e)100 Republic of Argentina,
11.75%, 2/12/07......................................... 112
U.S.$ 970 Republic of Argentina, Series L, "Euro', (Floating Rate),
6.75%, 3/31/05.......................................... 912
-------
1,302
-------
BRAZIL (BONDS) (12.2%)
224 Federative Republic of Brazil, Series C, "Euro',
(Floating Rate), PIK, 8.00%, 4/15/14.................... 180
800 Federative Republic of Brazil Debt Conversion Bond,
Series L, (Floating Rate), 6.938%, 4/15/12.............. 662
400 Federative Republic of Brazil Global Bond, 10.125%,
5/15/27................................................. 386
-------
1,228
-------
BULGARIA (BOND) (5.7%)
1,000 Bulgaria Front Loaded Interest Reduction Bond, Series A,
2.25%, 7/28/12.......................................... 571
-------
IVORY COAST (BOND) (3.3%)
(b,e)1,000 Republic of Ivory Coast Front Loaded Interest Reduction
Bond, Zero Coupon, 12/29/49............................. 334
-------
JAMAICA (BOND) (1.5%)
150 Government of Jamaica,
9.625%, 7/2/02.......................................... 151
-------
MEXICO (BONDS) (15.5%)
400 Banco National Global Bond,
7.25%, 2/2/04........................................... 373
700 United Mexican States Discount Bond, Series A, (Floating
Rate), 6.867%, 12/31/19 (Value Recovery Rights
Attached)............................................... 651
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
----------- -------
<C> <S> <C>

$ 400 United Mexican States Par Bond, Series B, 6.25%,
12/31/19 (Value Recovery Rights Attached).............. $ 309
200 United Mexican States Global Bond, 11.50%, 5/15/26...... 229
-------
1,562
-------
MOROCCO (LOAN AGREEMENT) (4.6%)
500 Kingdom of Morocco, Restructuring & Consolidation
Agreement, Tranche A, (Floating Rate), 6.375%, 1/1/09
(Participation: Chase Securities)...................... 458
-------
PANAMA (BOND) (0.8%)
(e)100 Republic of Panama Interest Reduction Bond, (Floating
Rate),
3.50%, 7/17/14......................................... 77
-------
PERU (BOND) (2.4%)
U.S.$(n)400 Republic of Peru Front Loaded Interest Reduction Bond,
3.25%, 3/7/17.......................................... 239
-------
RUSSIA (16.6%) (BOND) (10.0%)
1,500 Ministry of Finance Tranche IV, GDR, 3.00%, 5/14/03..... 1,007
-------
NOTES (6.6%)
250 Russia Interest Arrears Note 12/31/99................... 191
700 Russian Principal Notes 12/31/99........................ 467
-------
658
-------
1,665
-------
SOUTH AFRICA (BOND) (2.0%)
Zar 1,000 Republic of South Africa Series 150, 12.00%, 2/28/05.... 197
-------
VENEZUELA (BONDS) (11.3%)
U.S.$ 750 Republic of Venezuela Debt Conversion Bonds, Series DL,
(Floating Rate), 6.75%, 12/18/07....................... 696
238 Republic of Venezuela Front Loaded Interest Reduction
Bonds,
Series A, (Floating Rate),
6.75%, 3/31/07......................................... 221
250 Republic of Venezuela Discount Bonds, Series A,
(Floating Rate),
6.813%, 3/31/20........................................ 222
-------
1,139
-------
TOTAL FOREIGN DEBT INSTRUMENTS
(COST $8,950)....................................................... 8,923
-------
</TABLE>

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

<TABLE>
<CAPTION>
NO. OF VALUE
WARRANTS (000)
----------- -------
<C> <S> <C>

WARRANTS (0.0%)
VENEZUELA (0.0%)
(a)1,785 Republic of Venezuela Oil, expiring 3/31/20 (Cost $0)... $ --
-------
<CAPTION>
FACE
AMOUNT
(000)
-----------
<C> <S> <C>
SHORT-TERM INVESTMENTS (29.2%)
DISCOUNT NOTE (21.9%)
U.S.$ 2,200 Federal Home Loan Discount Note, 7/08/97................ 2,198
-------
REPURCHASE AGREEEMENT (7.3%)
734 Chase Securities, Inc. 5.70%, dated 6/30/97, due 7/1/97
to be repurchased at $734, collateralized by U.S.
Treasury Notes, 5.625%, due 2/15/06, valued at $749.... 734
-------
TOTAL SHORT-TERM INVESTMENTS
(COST $2,932)....................................................... 2,932
-------
TOTAL INVESTMENTS (118.0%)
(COST $11,882*)..................................................... 11,855
-------
</TABLE>

<TABLE>
<S> <C> <C>
OTHER ASSETS (2.8%)
Cash......................................................... $ 1
Receivable for Investments Sold.............................. 159
Interest Receivable.......................................... 117
Due from Adviser............................................. 3 280
-------
LIABILITIES (-20.8%)
Payable for Investments Purchased............................ (2,076)
Professional Fees Payable.................................... (3)
Custodian Fees Payable....................................... (3)
Administrative Fees Payable.................................. (2)
Net Unrealized Loss on Foreign Currency Exchange Contracts... (1)
Other Liabilities............................................ (1) (2,086)
------- -------
NET ASSETS (100%)............................................ $10,049
=======
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
-------
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 1,005,276 outstanding $0.001 par value shares (autho-
rized 500,000,000 shares)........................................... $ 10.00
=======
NET ASSETS CONSIST OF:
Paid in Capital...................................................... $10,053
Undistributed Net Investment Income.................................. 27
Accumulated Net Realized Loss........................................ (5)
Unrealized Depreciation on Investments and Foreign Currency
Translations........................................................ (26)
-------
NET ASSETS........................................................... $10,049
=======
</TABLE>

FOREIGN CURRENCY EXCHANGE CONTRACTS INFORMATION:

Under the terms of foreign currency exchange contracts open at June 30, 1997,
the Portfolio is obligated to deliver U.S. dollars in exchange for foreign
currency as indicated below:

<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ---------- ----- ---------- ----------- ----- --------------
<S> <C> <C> <C> <C> <C>
U.S.$204 $204 7/3/97 ZAR 921 $203 $(1)
</TABLE>

(a)--Non-income producing security
(b)--Non-income producing-in default
(e)--144A Security--certain conditions for public sale may exist.
(n)--Step Bond-coupon rate increases in increments to maturity. Rate disclosed
is as of June 30, 1997. Maturity date disclosed is the ultimate maturity.
ARP--Argentine Peso
GDR--Global Depositary Receipt
PIK--Payment-in-Kind. Income may be paid in additional securities or cash at
the discretion of the issuer.
ZAR--South African Rand
Floating Rate Security--Interest rate changes on these instruments are based on
changes in a designated base rate. The rates shown are those in effect at June
30, 1997.
* At June 30, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the Emerging Markets Debt
Portfolio were:

<TABLE>
<CAPTION>
NET
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
(000) (000) (000) (000)
- ------- ------------ -------------- --------------
<S> <C> <C> <C>
$11,882 $26 $(53) $(27)
</TABLE>

For the period ended June 30, 1997, purchases and sales of investment
securities for the Emerging Markets Debt Portfolio, other than long-term U.S.
Government securities and short-term investments, were $9,577,000 and $626,000
respectively.

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
FIXED INCOME PORTFOLIO

STATEMENT OF NET ASSETS
(UNAUDITED)

JUNE 30, 1997

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

FIXED INCOME SECURITIES (84.1%)
ADJUSTABLE RATE MORTGAGES (4.7%)
Government National Mortgage Association
$ 269 7.125%, 7/20/25............................................... $ 275
150 6.00%, 6/20/27 August TBA..................................... 150
-------
425
-------
AGENCY FIXED RATE MORTGAGES (14.5%)
Federal Home Loan Mortgage Corporation
61 10.50%, 2/1/15-9/1/16......................................... 68
-------
Federal National Mortgage Corporation Conventional Pools:
19 10.00%, 9/1/10................................................ 20
45 11.50%, 7/1/13................................................ 51
71 12.00%, 11/1/11-9/1/12........................................ 81
175 6.00%, 6/15/26 July TBA....................................... 163
-------
315
-------
Government National Mortgage Association Various Pools:
450 7.00%, 12/15/23............................................... 445
250 10.00%, 7/15/16-5/15/19....................................... 276
69 10.50%, 1/15/18............................................... 77
75 11.00%, 2/15/19-4/15/20....................................... 85
21 11.50%, 5/15/13-9/15/15....................................... 23
17 12.00%, 12/15/14.............................................. 20
-------
926
-------
1,309
-------
COLLATERALIZED MORTGAGE OBLIGATIONS--AGENCY COLLATERAL SERIES (2.4%)
Federal Home Loan Mortgage Corporation, Series:
5 1709 H PO REMIC, 1/15/24...................................... 2
9 1750 C PD PO REMIC, 3/15/24................................... 6
5 1813 K PO, 2/15/24............................................ 3
10 1844 PC PO, 3/15/24........................................... 6
5 1887 I PO, 10/15/22........................................... 3
13 93-149 O PO REMIC, 8/25/23.................................... 7
-------
27
-------
Federal National Mortgage Association, Series:
100 282 1 PO 5/15/24.............................................. 65
10 96-14 PC PO REMIC, 12/25/23................................... 5
10 96-46 PB PO REMIC, 9/25/23.................................... 6
5 96-54 PO REMIC, 7/25/23....................................... 3
10 96-54 O PO REMIC, 11/25/23.................................... 6
50 97-3 E PO 12/25/23............................................ 30
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<C> <S> <C>

$ 49 97-7 E PO REMIC, 2/15/23..................................... $ 31
73 97-7 EB PO 3/18/27........................................... 45
-------
191
-------
218
-------
COMMERCIAL MORTGAGE (1.1%)
50 CSFB, Series 97-C1 A1C 7.24%, 4/20/07........................ 50
50 Mortgage Capital Funding, Inc.,
Series 97-MC1 A3 7.288%, 3/20/07............................ 51
-------
101
-------
FINANCE (0.4%)
40 New Jersey Economic Development Authority, Series A 7.425%,
2/15/29..................................................... 40
-------
FOREIGN GOVERNMENTS (2.7%)
125 Government of Germany,
Series 95, 7.375%, 1/3/05................................... 80
Swedish Government Bonds
700 6.00%, 2/9/05................................................ 89
500 10.25%, 5/5/03............................................... 78
-------
247
-------
INDUSTRIALS (1.9%)
50 Kmart Corp. 7.75%, 10/1/12................................... 46
25 News America Holdings 8.875%, 4/26/23........................ 27
50 Paramount Communications, Inc.
8.25%, 8/1/22............................................... 48
25 RJR Nabisco, Inc. 8.75%, 4/15/04............................. 25
30 Southland Corp. 5.00%, 12/15/03.............................. 25
-------
171
-------
STRIPPED MORTGAGE BACKED SECURITIES--AGENCY COLLATERAL SERIES (0.3%)
41 Federal National Mortgage Association, Series 249 1 PO
10/25/23.................................................... 26
-------
TELEPHONES (0.8%)
70 Telecommunications, Inc. 8.75%, 2/15/23...................... 70
-------
U.S. TREASURY SECURITIES (53.9%)
525 U.S. Treasury Bond 8.75%, 8/15/20............................ 638
U.S. Treasury Notes
101 3.375%, 1/15/07 (Inflation Indexed).......................... 99
350 7.00%, 4/15/99............................................... 355
1,100 7.125%, 9/30/99.............................................. 1,123
1,175 7.25%, 8/15/04............................................... 1,225
1,275 7.50%, 2/15/05............................................... 1,349
350 U.S. Treasury Strip 2/15/19.................................. 78
-------
4,867
-------
YANKEE BONDS (1.4%)
National Power Corp.
25 7.875%, 12/15/06............................................. 24
25 8.40%, 12/15/16.............................................. 25
</TABLE>

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

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

YANKEE BONDS--(CONTINUED)
$(n)75 Republic of Argentina Par,
Series L, "Euro' 5.50%, 3/31/23.............................. $ 52
25 Republic of Colombia
8.70%, 2/15/16.............................................. 25
-------
126
-------
TOTAL FIXED INCOME SECURITIES
(COST $7,574)....................................................... 7,600
-------
SHORT-TERM INVESTMENT (23.8%)
REPURCHASE AGREEMENT (23.8%)
2,147 Chase Securities, Inc. 5.70%, dated 6/30/97, due 7/1/97, to
be repurchased at $2,147, collateralized by U.S. Treasury
Notes, 5.875%, due 1/31/99, valued at $2,152 (Cost $2,147).. 2,147
-------
TOTAL INVESTMENTS (107.9%)
(COST $9,721*)...................................................... 9,747
-------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (24.5%)
Receivable for Investments Sold.............................. $ 2,051
Interest Receivable.......................................... 151
Due From Adviser............................................. 10
Net Unrealized Gain on Foreign Currency Exchange Contracts... 5 2,217
-------
LIABILITIES (-32.4%)
Payable for Investments Purchased............................ (2,446)
Bank Overdraft............................................... (449)
Professional Fees Payable.................................... (17)
Custodian Fees Payable....................................... (11)
Administrative Fees Payable.................................. (2)
Other Liabilities............................................ (6) (2,931)
------- -------
NET ASSETS (100%)............................................ $ 9,033
=======
</TABLE>
<TABLE>
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 872,453 outstanding $0.001 par value shares (authorized
500,000,000 shares).................................................. $ 10.35
=======
NET ASSETS CONSIST OF:
Paid in Capital....................................................... $ 8,733
Undistributed Net Investment Income................................... 218
Accumulated Net Realized Gain......................................... 52
Unrealized Appreciation on Investments and Foreign Currency
Translations......................................................... 30
-------
NET ASSETS............................................................ $ 9,033
=======
</TABLE>
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:

Under the terms of foreign currency exchange contracts open at June 30, 1997,
the Portfolio is obligated to deliver foreign currency in exchange for U.S.
dollars as indicated below:

<TABLE>
<CAPTION>
CURRENCY NET
TO IN EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- -------- ----- ---------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
SEK1,305 $169 8/27/97 U.S.$172 $172 $ 3
DEM 145 84 8/29/97 U.S.$ 86 86 2
---- ---- ---
$253 $258 $ 5
==== ==== ===
</TABLE>

- -------
(n)--Step Bond-coupon rate increases in increments to maturity. Rate disclosed
is as of June 30, 1997. Maturity date disclosed is the ultimate maturity
date.
DEM --German Mark
PO --Principal Only
REMIC --Real Estate Mortgage Investment Conduit
SEK --Swedish Krona
TBA --Security is subject to delayed delivery.
- -------
* At June 30, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the Fixed Income Portfolio
were:

<TABLE>
<CAPTION>
NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
(000) (000) (000) (000)
------ ------------ -------------- ------------
<S> <C> <C> <C>
$9,721 $39 $(13) $26
</TABLE>

For the period ended June 30, 1997, purchases and sales of investment
securities for the Fixed Income Portfolio, other than long-term U.S. Government
securities and short-term investments, were approximately $13,993,000 and
$6,411,000 respectively.

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
HIGH YIELD PORTFOLIO

STATEMENT OF NET ASSETS
(UNAUDITED)

JUNE 30, 1997

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

FIXED INCOME SECURITIES (78.2%)
ASSET BACKED CORPORATES (0.9%)
$ 75 Aircraft Lease Portfolio Securitization, Ltd., Series 96-1 D,
12.75%, 6/15/06.............................................. $ 81
------
CABLE (6.5%)
150 Cablevision Systems Corp.,
9.875%, 5/15/06.............................................. 160
200 Paramount Communications, Inc.,
8.25%, 8/1/22................................................ 191
Rogers Cablesystems Ltd.,
185 10.00%, 3/15/05, Series B..................................... 200
50 10.125%, 9/1/12............................................... 54
------
605
------
CONSUMER SERVICES/PRODUCTS (4.1%)
205 RJR Nabisco, Inc., 8.75%, 4/15/04............................. 209
150 TLC Beatrice International Holdings, Inc., 11.50%, 10/1/05.... 169
------
378
------
ENERGY (2.4%)
120 Snyder Oil Corp., 8.75%, 6/15/07.............................. 119
100 Vintage Petroleum, Inc., 8.625%, 2/1/09....................... 100
------
219
------
FINANCE (3.1%)
100 Amresco, Inc.,
Series 97-A, 10.00%, 3/15/04................................. 103
First Nationwide Holdings, Inc.,
55 9.125%, 1/15/03............................................... 57
115 10.625%, 10/1/03.............................................. 126
------
286
------
INDUSTRIALS (19.6%)
125 Advanced Micro Devices, Inc.,
11.00%, 8/1/03............................................... 139
DR Securitized Lease Trust, Series:
177 93-K1 A1, 6.66%, 8/15/10...................................... 156
87 94-K1 A1, 7.60%, 8/15/07...................................... 83
100 94-K1 A2, 8.375%, 8/15/15..................................... 93
125 Grand Casinos, Inc., 10.125%, 12/1/03......................... 131
175 Host Marriott Travel Plaza,
Series B, 9.50%, 5/15/05..................................... 183
245 ISP Holdings, Inc.,
Series B, 9.00%, 10/15/03.................................... 253
105 Kmart Corp., 7.75%, 10/1/12................................... 96
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ ------
<C> <S> <C>

$(n)185 Norcal Waste Systems, Inc.,
Series B, 13.00%, 11/15/05.................................... $ 210
100 SD Warren Co., 12.00%, 12/15/04................................ 112
120 Tenet Healthcare Corp., 8.625%, 1/15/07........................ 122
250 Viacom, Inc., 8.00%, 7/7/06.................................... 243
------
1,821
------
SUPERMARKETS (1.8%)
200 Southland Corp., 5.00%, 12/15/03............................... 170
------
TELEPHONES (13.5%)
Brooks Fiber Properties, Inc.,
(n) 250 0.00%, 3/1/06.................................................. 170
(n) 110 0.00%, 11/1/06................................................. 72
(n) 75 EchoStar Satellite Broadcasting,
0.00%, 3/15/04................................................ 53
125 IXC Communications Inc.,
Series B, 12.50%, 10/1/05..................................... 143
(n) 480 Nextel Communications, Inc.,
0.00%, 8/15/04................................................ 367
210 Telecommunications, Inc.,
9.25%, 1/15/23................................................ 219
(n) 320 Teleport Communications Group, Inc., 0.00%, 7/1/07............. 231
------
1,255
------
U.S. TREASURY SECURITY (8.6%)
800 U.S. Treasury Note, 6.50%, 10/15/06............................ 797
------
UTILITIES (5.7%)
160 Cleveland Electric Illuminating Co.,
Series B, 8.375%, 12/1/11..................................... 161
158 Midland Funding Corp. I,
Series C-94, 10.33%, 7/23/02.................................. 169
200 Quezon Power Ltd., 8.86%, 6/15/17.............................. 200
------
530
------
YANKEE (12.0%)
150 National Power Corp., 7.875%, 12/15/06......................... 147
75 Net Sat Servicos Ltd., 12.75%, 8/5/04.......................... 82
(n) 265 Republic of Argentina Par,
Series L, "Euro', 5.50%, 3/31/23.............................. 183
125 Republic of Brazil Front Loaded Interest Reduction Bond
(Floating Rate),
4.50%, 4/15/09................................................ 98
210 Republic of Colombia, 8.70%, 2/15/16........................... 213
250 Republic of Venezuela,
Series A, 6.75%, 3/31/20...................................... 197
250 United Mexican States,
Series A, 6.25%, 12/31/19..................................... 193
------
1,113
------
TOTAL FIXED INCOME SECURITIES
(COST $7,123).......................................................... 7,255
------
</TABLE>

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

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

PREFERRED STOCKS (4.0%)
CABLE (4.0%)
$ 337 Time Warner, Inc.,
Series M, 10.25%, 7/1/16....................................... $ 370
------
TOTAL PREFERRED STOCKS
(COST $357)............................................................ 370
------
CONVERTIBLE PREFERRED STOCKS (1.1%)
TELEPHONES (1.1%)
1,025 TCI Pacific Communications,
5.00%, 7/31/06................................................. 106
------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $95)............................................................. 106
------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
----------
<C> <S> <C>
RIGHTS (0.0%)
YANKEE (0.0%)
(a)1,250 Republic of Venezuela Recovery Rights, expiring 3/31/20.... --
(a)250,000 United Mexican States Recovery Rights, expiring 6/30/03.... --
-----
TOTAL RIGHTS
(COST $0)............................................................. --
-----
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
------
<C> <S> <C>
SHORT-TERM INVESTMENT (17.8%)
REPURCHASE AGREEMENT (17.8%)
$1,652 Chase Securities, Inc., 5.70%, due 6/30/97, dated 7/1/97, to be
repurchased at $1,652, collateralized by U.S. Treasury Notes,
5.625%, due 2/15/06, valued at $1,681 (Cost $1,652)........... 1,652
------
TOTAL INVESTMENTS (101.1%)
(COST $9,227*)........................................................ 9,383
------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (3.8%)
Cash............................................................. $ 83
Interest Receivable.............................................. 178
Receivable for Investments Sold.................................. 95
Receivable for Portfolio Shares Sold............................. 1 357
-----
LIABILITIES (-4.9%)
Payable for Investments Purchased................................ (438)
Custodian Fees Payable........................................... (6)
Professional Fees Payable........................................ (6)
Administrative Fees Payable...................................... (2)
Other Liabilities................................................ (6) (458)
----- ------
NET ASSETS (100%)................................................ $9,282
======
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
-------
<S> <C>

NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 877,218 outstanding $0.001 par value shares (authorized
500,000,000 shares).................................................. $ 10.58
=======
</TABLE>

<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital......................................................... $8,794
Undistributed Net Investment Income..................................... 308
Accumulated Net Realized Gain........................................... 24
Unrealized Appreciation on Investments.................................. 156
------
NET ASSETS.............................................................. $9,282
======
</TABLE>
- -------
(a) Non-income producing security
(n) Step Bond-coupon rate increases in increments to maturity. Rate disclosed
is as of June 30, 1997. Maturity date disclosed is the ultimate maturity
date.
Floating Rate Security--The interest rate changes on these instruments are
based on changes in a designated base rate. The rates shown are those in
effect on June 30, 1997.
* At June 30, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the High Yield Portfolio
were:

<TABLE>
<CAPTION>
NET
COST APPRECIATION (DEPRECIATION) APPRECIATION
(000) (000) (000) (000)
------ ------------ -------------- ------------
<S> <C> <C> <C>
$9,227 $174 $(18) $156
</TABLE>

For the period ended June 30, 1997, purchases and sales of investment
securities for the High Yield Portfolio, other than long-term U.S. Government
securities and short-term investments, were approximately $11,634,000 and
$4,134,000, respectively.

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
ASIAN EQUITY
PORTFOLIO
-----------------
PERIOD FROM
MARCH 3, 1997* TO
JUNE 30, 1997
(000)
-----------------
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 52
Interest.................................................... 27
Less: Foreign Taxes Withheld............................... (2)
-----
Total Income............................................... 77
-----
EXPENSES:
Investment Advisory Fees.................................... 26
Less: Fees Waived.......................................... (26)
-----
Net Investment Advisory Fees................................ --
Professional Fees........................................... 20
Custodian Fees.............................................. 13
Shareholder Reports......................................... 12
Administrative Fees......................................... 9
Foreign Tax Expense......................................... 2
Other....................................................... 2
Expenses Reimbursed by Adviser.............................. (16)
-----
Net Expenses............................................... 42
-----
Net Investment Income........................................ 35
-----
NET REALIZED LOSS ON:
Investments Sold............................................ (126)
Foreign Currency Transactions............................... (13)
-----
Net Realized Loss.......................................... (139)
-----
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (Net of foreign taxes of $4 on unrealized
appreciation.)............................................. 775
Foreign Currency Translations............................... (2)
-----
Change in Unrealized Appreciation/Depreciation............. 773
-----
Net Realized Gain and Change in Unrealized
Appreciation/Depreciation................................... 634
-----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......... $ 669
=====
</TABLE>
- -------
* Commencement of operations
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)

<TABLE>
<CAPTION>
ASIAN EQUITY
PORTFOLIO
-----------------
PERIOD FROM
MARCH 3, 1997* TO
JUNE 30, 1997
(000)
-----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS OPERATIONS:
Net Investment Income....................................... $ 35
Net Realized Loss........................................... (139)
Change in Unrealized Appreciation/Depreciation.............. 773
-------
Net Increase in Net Assets Resulting from Operations........ 669
-------
CAPITAL SHARE TRANSACTIONS(1):
Subscribed.................................................. 10,329
Redeemed.................................................... (52)
-------
Net Increase in Net Assets Resulting from Capital Share
Transactions............................................... 10,277
-------
Total Increase in Net Assets................................ 10,946
NET ASSETS:
Beginning of Period......................................... --
-------
End of Period (Including undistributed net investment income
of $35).................................................... $10,946
=======
(1) Capital Share Transactions:
Shares Subscribed........................................... 1,032
Shares Redeemed............................................. (5)
-------
Net Increase in Capital Shares Outstanding.................. 1,027
=======
</TABLE>
- -------
* Commencement of operations

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
EMERGING MARKETS
EQUITY PORTFOLIO
----------------
SIX MONTHS ENDED
JUNE 30, 1997
(000)
----------------
<S> <C>
INVESTMENT INCOME:
Dividends..................................................... $ 190
Interest...................................................... 38
Less: Foreign Taxes Withheld................................. (9)
------
Total Income.................................................. 219
------
EXPENSES:
Investment Advisory Fees...................................... 97
Less: Fees Waived............................................ (97)
------
Net Investment Advisory Fees.................................. --
Professional Fees............................................. 116
Custodian Fees................................................ 62
Amortization of Organizational Costs.......................... 41
Administrative Fees........................................... 14
Shareholder Reports........................................... 14
Foreign Tax Expense........................................... 2
Directors' Fees and Expenses.................................. 1
Other......................................................... 3
Expenses Reimbursed by Adviser................................ (114)
------
Net Expenses................................................. 139
------
Net Investment Income.......................................... 80
------
NET REALIZED GAIN (LOSS) ON:
Investments Sold.............................................. 716
Foreign Currency Transactions................................. (5)
------
Net Realized Gain............................................ 711
------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (Net of foreign taxes of $1 on unrealized
appreciation.)............................................... 2,394
Foreign Currency Translations................................. (31)
------
Change in Unrealized Appreciation/Depreciation................ 2,363
------
Net Realized Gain and Change in Unrealized
Appreciation/Depreciation..................................... 3,074
------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $3,154
======
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
EMERGING MARKETS EQUITY PORTFOLIO
------------------------------------
SIX MONTHS ENDED PERIOD FROM
JUNE 30, 1997 OCTOBER 1, 1996* TO
(UNAUDITED) DECEMBER 31, 1996
(000) (000)
---------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income.................... $ 80 $ 8
Net Realized Gain (Loss)................. 711 (60)
Change in Unrealized Appreciation/
Depreciation............................ 2,363 (135)
------- -------
Net Increase (Decrease) in Net Assets
Resulting from Operations............... 3,154 (187)
------- -------
DISTRIBUTIONS:
Net Investment Income.................... -- (20)
------- -------
CAPITAL SHARE TRANSACTIONS(1):
Subscribed............................... 16,479 11,993
Distributions Reinvested................. -- 3
Redeemed................................. (11,114) --
------- -------
Net Increase in Net Assets Resulting from
Capital Share Transactions.............. 5,365 11,996
------- -------
Total Increase in Net Assets............. 8,519 11,789
NET ASSETS:
Beginning of Period...................... 11,789 --
------- -------
End of Period (Including undistributed
net investment income of $83 and $3,
respectively)........................... $20,308 $11,789
======= =======
(1) Capital Share Transactions:
Shares Subscribed........................ 1,466 1,205
Shares Issued on Distributions
Reinvested.............................. -- 1
Shares Redeemed.......................... (983) --
------- -------
Net Increase in Capital Shares
Outstanding............................. 483 1,206
======= =======
</TABLE>
- -------
* Commencement of operations

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
GLOBAL
EQUITY PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 69
Interest................................................... 19
Less: Foreign Taxes Withheld.............................. (6)
----
Total Income............................................... 82
----
EXPENSES:
Investment Advisory Fees................................... 22
Less: Fees Waived......................................... (22)
----
Net Investment Advisory Fees............................... --
Professional Fees.......................................... 21
Administrative Fees........................................ 9
Shareholder Reports........................................ 7
Custodian Fees............................................. 6
Other...................................................... 3
Expenses Reimbursed by Adviser............................. (14)
----
Net Expenses.............................................. 32
----
Net Investment Income....................................... 50
----
NET REALIZED GAIN ON:
Investments Sold........................................... 5
Foreign Currency Transactions.............................. 5
----
Net Realized Gain......................................... 10
----
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments................................................ 783
----
Net Realized Gain and Change in Unrealized Appreciation/
Depreciation............................................... 793
----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $843
====
</TABLE>
- -------
* Commencement of operations
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)

<TABLE>
<CAPTION>
GLOBAL
EQUITY PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS OPERATIONS:
Net Investment Income..................................... $ 50
Net Realized Gain......................................... 10
Change in Unrealized Appreciation/Depreciation............ 783
------
Net Increase in Net Assets Resulting from Operations...... 843
------
CAPITAL SHARE TRANSACTIONS(1):
Subscribed................................................ 6,567
Redeemed.................................................. (84)
------
Net Increase in Net Assets Resulting from Capital Share
Transactions............................................. 6,483
------
Total Increase in Net Assets.............................. 7,326
NET ASSETS:
Beginning of Period....................................... --
------
End of Period (Including undistributed net investment
income of $50)........................................... $7,326
======
(1) Capital Share Transactions:
Shares Subscribed......................................... 645
Shares Redeemed........................................... (8)
------
Net Increase in Capital Shares Outstanding................ 637
======
</TABLE>
- -------
* Commencement of operations

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
INTERNATIONAL
MAGNUM
PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INVESTMENT INCOME:
Dividends................................................. $ 163
Interest.................................................. 32
Less: Foreign Taxes Withheld............................. (22)
------
Total Income.............................................. 173
------
EXPENSES:
Investment Advisory Fees.................................. 44
Less: Fees Waived........................................ (44)
------
Net Investment Advisory Fees.............................. --
Custodian Fees............................................ 35
Administrative Fees....................................... 23
Shareholder Reports....................................... 16
Professional Fees......................................... 13
Other..................................................... 1
Expenses Reimbursed by Adviser............................ (24)
------
Net Expenses............................................. 64
------
Net Investment Income...................................... 109
------
NET REALIZED GAIN ON:
Investments Sold.......................................... 46
Foreign Currency Transactions............................. 282
------
Net Realized Gain........................................ 328
------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments............................................... 1,358
Foreign Currency Translations............................. 46
------
Change in Unrealized Appreciation/Depreciation............ 1,404
------
Net Realized Gain and Change in Unrealized
Appreciation/Depreciation................................. 1,732
------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... $1,841
======
</TABLE>
- -------
* Commencement of operations
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)

<TABLE>
<CAPTION>
INTERNATIONAL
MAGNUM
PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income..................................... $ 109
Net Realized Gain......................................... 328
Change in Unrealized Appreciation/Depreciation............ 1,404
-------
Net Increase in Net Assets Resulting from Operations...... 1,841
-------
CAPITAL SHARE TRANSACTIONS(1):
Subscribed................................................ 12,853
Redeemed.................................................. (51)
Net Increase in Net Assets Resulting from Capital Share
Transactions............................................. 12,802
-------
Total Increase in Net Assets.............................. 14,643
NET ASSETS:
Beginning of Period....................................... --
-------
End of Period (Including undistributed net investment
income of $109).......................................... $14,643
=======
(1) Capital Share Transactions:
Shares Subscribed......................................... 1,260
Shares Redeemed........................................... (5)
-------
Net Increase in Capital Shares Outstanding................ 1,255
=======
</TABLE>
- -------
* Commencement of operations

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
EQUITY
GROWTH PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 14
Interest................................................... 8
----
Total Income............................................... 22
----
EXPENSES:
Investment Advisory Fees................................... 8
Less: Fees Waived......................................... (8)
----
Net Investment Advisory Fees............................... --
Custodian Fees............................................. 36
Shareholder Reports........................................ 16
Professional Fees.......................................... 15
Administrative Fees........................................ 6
Other...................................................... 2
Expenses Reimbursed by Adviser............................. (62)
----
Net Expenses.............................................. 13
----
Net Investment Income....................................... 9
----
NET REALIZED GAIN ON:
Investments Sold........................................... 60
----
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments................................................ 371
----
Net Realized Gain and Change in Unrealized
Appreciation/Depreciation.................................. 431
----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $440
====
</TABLE>
- -------
* Commencement of operations
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)

<TABLE>
<CAPTION>
EQUITY
GROWTH PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income..................................... $ 9
Net Realized Gain......................................... 60
Change in Unrealized Appreciation/Depreciation............ 371
------
Net Increase in Net Assets Resulting from Operations...... 440
------
CAPITAL SHARE TRANSACTIONS(1):
Subscribed................................................ 3,542
Redeemed.................................................. (23)
------
Net Increase in Net Assets Resulting from Capital Share
Transactions............................................. 3,519
------
Total Increase in Net Assets.............................. 3,959
NET ASSETS:
Beginning of Period....................................... --
------
End of Period (Including undistributed net investment
income of $9)............................................ $3,959
======
(1) Capital Share Transactions:
Shares Subscribed......................................... 346
Shares Redeemed........................................... (2)
------
Net Increase in Capital Shares Outstanding................ 344
======
</TABLE>
- -------
* Commencement of operations

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
MID CAP
VALUE PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 20
Interest................................................... 7
----
Total Income.............................................. 27
----
EXPENSES:
Investment Advisory Fees................................... 14
Less: Fees Waived......................................... (14)
----
Net Investment Advisory Fees............................... --
Custodian Fees............................................. 11
Professional Fees.......................................... 9
Shareholder Reports........................................ 5
Administrative Fees........................................ 5
Other...................................................... 1
Expenses Reimbursed by Adviser............................. (12)
----
Net Expenses.............................................. 19
----
Net Investment Income....................................... 8
----
NET REALIZED GAIN ON:
Investments Sold........................................... 110
----
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments................................................ 573
----
Net Realized Gain and Change in Unrealized
Appreciation/Depreciation.................................. 683
----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $691
====
</TABLE>
- -------
* Commencement of operations
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)

<TABLE>
<CAPTION>
MID CAP
VALUE PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS OPERATIONS:
Net Investment Income..................................... $ 8
Net Realized Gain......................................... 110
Change in Unrealized Appreciation/Depreciation............ 573
------
Net Increase in Net Assets Resulting from Operations...... 691
------
CAPITAL SHARE TRANSACTIONS(1):
Subscribed................................................ 4,233
Redeemed.................................................. (2)
------
Net Increase in Net Assets Resulting from Capital Share
Transactions............................................. 4,231
------
Total Increase in Net Assets.............................. 4,922
NET ASSETS:
Beginning of Period....................................... --
------
End of Period (Including undistributed net investment
income of $8)............................................ $4,922
======
(1) Capital Share Transactions:
Shares Subscribed......................................... 413
======
</TABLE>
- -------
* Commencement of operations

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
U.S. REAL
ESTATE PORTFOLIO
-----------------
PERIOD FROM
MARCH 3, 1997* TO
JUNE 30, 1997
(000)
-----------------
<S> <C>
INVESTMENT INCOME:
Dividends.................................................... $ 61
Interest..................................................... 17
----
Total Income................................................ 78
----
EXPENSES:
Investment Advisory Fees..................................... 14
Less: Fees Waived........................................... (14)
----
Net Investment Advisory Fees................................. --
Custodian Fees............................................... 21
Shareholder Reports.......................................... 14
Professional Fees............................................ 9
Administrative Fees.......................................... 5
Other........................................................ 1
Expenses Reimbursed by Adviser............................... (31)
----
Net Expenses................................................ 19
----
Net Investment Income......................................... 59
----
NET REALIZED LOSS ON:
Investments Sold............................................. (37)
----
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments.................................................. 204
----
Net Realized Loss and Change in Unrealized Appreciation/
Depreciation................................................. 167
----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $226
====
</TABLE>
- -------
* Commencement of operations
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)

<TABLE>
<CAPTION>
U.S. REAL
ESTATE PORTFOLIO
-----------------
PERIOD FROM
MARCH 3, 1997* TO
JUNE 30, 1997
(000)
-----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS OPERATIONS:
Net Investment Income....................................... $ 59
Net Realized Loss........................................... (37)
Change in Unrealized Appreciation/Depreciation.............. 204
------
Net Increase in Net Assets Resulting from Operations........ 226
------
CAPITAL SHARE TRANSACTIONS(1):
Subscribed.................................................. 5,799
------
Total Increase in Net Assets................................ 6,025
------
NET ASSETS:
Beginning of Period......................................... --
------
End of Period (Including undistributed net investment income
of $59).................................................... $6,025
======
(1) Capital Share Transactions:
Shares Subscribed........................................... 581
======
</TABLE>
- -------
* Commencement of operations

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
VALUE PORTFOLIO
-------------------
PERIOD FOM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 32
Interest................................................... 16
----
Total Income............................................... 48
----
EXPENSES:
Investment Advisory Fees................................... 10
Less: Fees Waived......................................... (10)
----
Net Investment Advisory Fees............................... --
Professional Fees.......................................... 15
Custodian Fees............................................. 6
Shareholder Reports........................................ 5
Administrative Fees........................................ 5
Other...................................................... 1
Expenses Reimbursed by Adviser............................. (17)
----
Net Expenses.............................................. 15
----
Net Investment Income....................................... 33
----
NET REALIZED GAIN ON:
Investments Sold........................................... 72
----
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments................................................ 469
----
Net Realized Gain and Change in Unrealized
Appreciation/Depreciation.................................. 541
----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $574
====
</TABLE>
- -------
* Commencement of operations
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)

<TABLE>
<CAPTION>
VALUE PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS OPERATIONS:
Net Investment Income..................................... $ 33
Net Realized Gain......................................... 72
Change in Unrealized Appreciation/Depreciation............ 469
------
Net Increase in Net Assets Resulting from Operations...... 574
------
CAPITAL SHARE TRANSACTIONS(1):
Subscribed................................................ 4,690
------
Total Increase in Net Assets.............................. 5,264
NET ASSETS:
Beginning of Period....................................... --
------
End of Period (Including undistributed net investment
income of $33)........................................... $5,264
======
(1) Capital Share Transactions:
Shares Subscribed......................................... 456
======
</TABLE>
- -------
* Commencement of operations

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
EMERGING MARKETS
DEBT PORTFOLIO
-----------------
PERIOD FROM
JUNE 16, 1997* TO
JUNE 30, 1997
(000)
-----------------
<S> <C>
INVESTMENT INCOME:
Interest................................................... $ 32
----
EXPENSES:
Investment Advisory Fees................................... 3
Less: Fees Waived......................................... (3)
----
Net Investment Advisory Fees............................... --
Custodian Fees............................................. 3
Professional Fees.......................................... 3
Shareholder Reports........................................ 1
Administrative Fees........................................ 1
Expenses Reimbursed by Adviser............................. (3)
----
Net Expenses.............................................. 5
----
Net Investment Income....................................... 27
----
NET REALIZED LOSS ON:
Investments Sold........................................... (5)
----
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments................................................ (27)
Foreign Currency Translations.............................. 1
----
Change in Unrealized Appreciation/Depreciation............ (26)
----
Net Realized Loss and Change in Unrealized
Appreciation/Depreciation.................................. (31)
----
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (4)
====
</TABLE>
- -------
* Commencement of operations
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)

<TABLE>
<CAPTION>
EMERGING MARKETS
DEBT PORTFOLIO
-----------------
PERIOD FROM
JUNE 16, 1997* TO
JUNE 30, 1997
(000)
-----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS OPERATIONS:
Net Investment Income....................................... $ 27
Net Realized Loss........................................... (5)
Change in Unrealized Appreciation/Depreciation.............. (26)
-------
Net Decrease in Net Assets Resulting from Operations........ (4)
-------
CAPITAL SHARE TRANSACTIONS(1):
Subscribed.................................................. 10,053
-------
Total Increase in Net Assets................................ 10,049
NET ASSETS:
Beginning of Period......................................... --
-------
End of Period (Including undistributed net investment income
of $27).................................................... $10,049
=======
(1) Capital Share Transactions:
Shares Subscribed........................................... 1,005
=======
</TABLE>
- -------
* Commencement of operations

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
FIXED INCOME
PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INVESTMENT INCOME:
Interest................................................. $248
----
EXPENSES:
Investment Advisory Fees................................. 17
Less: Fees Waived....................................... (17)
----
Net Investment Advisory Fees............................. --
Custodian Fees........................................... 11
Professional Fees........................................ 22
Shareholder Reports...................................... 6
Administrative Fees...................................... 10
Other.................................................... 1
Expenses Reimbursed by Adviser........................... (20)
----
Net Expenses............................................ 30
----
Net Investment Income..................................... 218
----
NET REALIZED GAIN ON:
Investments Sold......................................... 44
Foreign Currency Transactions............................ 8
----
Net Realized Gain....................................... 52
----
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments.............................................. 25
Foreign Currency Translations............................ 5
----
Change in Unrealized Appreciation/Depreciation.......... 30
----
Net Realized Gain and Change in Unrealized
Appreciation/Depreciation................................ 82
----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... $300
====
</TABLE>
- -------
* Commencement of operations
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)

<TABLE>
<CAPTION>
FIXED INCOME
PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS OPERATIONS:
Net Investment Income..................................... $ 218
Net Realized Gain......................................... 52
Change in Unrealized Appreciation/Depreciation............ 30
------
Net Increase in Net Assets Resulting from Operations...... 300
------
CAPITAL SHARE TRANSACTIONS(1):
Subscribed................................................ 8,793
Redeemed.................................................. (60)
------
Net Increase in Net Assets Resulting from Capital Share
Transactions............................................. 8,733
------
Total Increase in Net Assets.............................. 9,033
NET ASSETS:
Beginning of Period....................................... --
------
End of Period (Including undistributed net investment
income of $218).......................................... $9,033
======
(1) Capital Share Transactions:
Shares Subscribed......................................... 878
Shares Redeemed........................................... (6)
------
Net Increase in Capital Shares Outstanding................ 872
======
</TABLE>
- -------
* Commencement of operations

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
HIGH YIELD
PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 2
Interest................................................... 339
----
Total Income.............................................. 341
----
EXPENSES:
Investment Advisory Fees................................... 21
Less: Fees Waived......................................... (21)
----
Net Investment Advisory Fees............................... --
Professional Fees.......................................... 11
Administrative Fees........................................ 10
Custodian Fees............................................. 6
Shareholder Reports........................................ 5
Other...................................................... 1
----
Net Expenses.............................................. 33
----
Net Investment Income....................................... 308
----
NET REALIZED GAIN ON:
Investments Sold........................................... 24
----
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments................................................ 156
----
Net Realized Gain and Change in Unrealized
Appreciation/Depreciation.................................. 180
----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $488
====
</TABLE>
- -------
* Commencement of operations
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)

<TABLE>
<CAPTION>
HIGH YIELD
PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
JUNE 30, 1997
(000)
-------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS OPERATIONS:
Net Investment Income..................................... $ 308
Net Realized Gain......................................... 24
Change in Unrealized Appreciation/Depreciation............ 156
------
Net Increase in Net Assets Resulting from Operations...... 488
------
CAPITAL SHARE TRANSACTIONS(1):
Subscribed................................................ 8,806
Redeemed.................................................. (12)
------
Net Increase in Net Assets Resulting from Capital Share
Transactions............................................. 8,794
------
Total Increase in Net Assets.............................. 9,282
NET ASSETS:
Beginning of Period....................................... --
------
End of Period (Including undistributed net investment
income of $308).......................................... $9,282
======
(1) Capital Share Transactions:
Shares Subscribed......................................... 878
Shares Redeemed........................................... (1)
------
Net Increase in Capital Shares Outstanding................ 877
======
</TABLE>
- -------
* Commencement of operations

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
FINANCIAL HIGHLIGHTS
(UNAUDITED)

<TABLE>
<CAPTION>
ASIAN
EQUITY PORTFOLIO
-----------------
PERIOD FROM
MARCH 3, 1997* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997
- ---------------------------------- -----------------
<S> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 10.00
-------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income.... 0.03
Net Realized and
Unrealized Gain......... 0.63
-------
Total From Investment
Operations.............. 0.66
-------
NET ASSET VALUE, END OF
PERIOD................... $ 10.66
=======
TOTAL RETURN.............. 6.60%
=======
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of Period
(000's).................. $10,946
Ratio of Expenses to
Average Net Assets....... 1.20%**
Ratio of Net Investment
Income to Average Net
Assets................... 1.06%**
Portfolio Turnover Rate... 49%
Average Commission Rate:
Per Share............... $0.0170
As a Percentage of Trade
Amount................. 0.56%
Effect of Voluntary
Expense
Limitation During the
Period:
Per Share Benefit to Net
Investment Loss........ $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets................. 2.55%**
Net Investment Loss to
Average Net Assets..... (0.22)%**
</TABLE>
- -------
* Commencement of operations
** Annualized

<TABLE>
<CAPTION>
EMERGING MARKETS
EQUITY PORTFOLIO
----------------------------------
SIX MONTHS PERIOD FROM
ENDED OCTOBER 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 DECEMBER 31, 1996
---------------------------------- ------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 9.78 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................ 0.05 0.01
Net Realized and Unrealized Gain (Loss)...... 2.20 (0.21)
------- -------
Total From Investment Operations............. 2.25 (0.20)
------- -------
DISTRIBUTIONS
Net Investment Income........................ -- (0.02)
------- -------
Total Distributions.......................... -- (0.02)
------- -------
NET ASSET VALUE, END OF PERIOD................ $ 12.03 $ 9.78
======= =======
TOTAL RETURN.................................. 23.01% (2.03)%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)............. $20,308 $11,789
Ratio of Expenses to Average Net Assets....... 1.75%** 1.75%**
Ratio of Net Investment Income to Average Net
Assets....................................... 1.03%** 0.32%**
Portfolio Turnover Rate....................... 38% 9%
Average Commission Rate:
Per Share................................... $0.0012 $0.0013
As a Percentage of Trade Amount............. 0.40% 0.45%
Effect of Voluntary Expense Limitation During
the Period:
Per Share Benefit to Net Investment Income
(Loss)..................................... $ 0.12 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets.............. 4.49%** 6.17%**
Net Investment Loss to Average Net Assets... (1.67)%** (4.06)%**
</TABLE>
- -------
* Commencement of operations
** Annualized

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
FINANCIAL HIGHLIGHTS
(UNAUDITED)

<TABLE>
<CAPTION>
GLOBAL EQUITY
PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997
- ---------------------------------- -------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income..................................... 0.08
Net Realized and Unrealized Gain.......................... 1.41
-------
Total From Investment Operations.......................... 1.49
-------
NET ASSET VALUE, END OF PERIOD............................. $ 11.49
=======
TOTAL RETURN............................................... 14.90%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).......................... $ 7,326
Ratio of Expenses to Average Net Assets.................... 1.15%**
Ratio of Net Investment Income to Average Net Assets....... 1.81%**
Portfolio Turnover Rate.................................... 3%
Average Commission Rate:
Per Share................................................. $0.0225
As a Percentage of Trade Amount........................... 0.17%
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income................ $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.46%**
Net Investment Income to Average Net Assets............... 0.50%**
</TABLE>
- -------
* Commencement of operations
** Annualized

<TABLE>
<CAPTION>
INTERNATIONAL
MAGNUM PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997
- ---------------------------------- -------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income..................................... 0.09
Net Realized and Unrealized Gain.......................... 1.58
-------
Total From Investment Operations.......................... 1.67
-------
NET ASSET VALUE, END OF PERIOD............................. $ 11.67
=======
TOTAL RETURN............................................... 16.70%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).......................... $14,643
Ratio of Expenses to Average Net Assets.................... 1.15%**
Ratio of Net Investment Income to Average Net Assets....... 1.96%**
Portfolio Turnover Rate.................................... 19%
Average Commission Rate:
Per Share................................................. $0.0170
As a Percentage of Trade Amount........................... 0.17%
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income................ $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.38%**
Net Investment Income to Average Net Assets............... 0.73%**
</TABLE>
- -------
* Commencement of operations
** Annualized

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
FINANCIAL HIGHLIGHTS
(UNAUDITED)

<TABLE>
<CAPTION>
EQUITY
GROWTH PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997
- ---------------------------------- -------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income..................................... 0.03
Net Realized and Unrealized Gain.......................... 1.50
-------
Total From Investment Operations.......................... 1.53
-------
NET ASSET VALUE, END OF PERIOD............................. $ 11.53
=======
TOTAL RETURN............................................... 15.30%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).......................... $ 3,959
Ratio of Expenses to Average Net Assets.................... 0.85%**
Ratio of Net Investment Income to Average Net Assets....... 0.60%**
Portfolio Turnover Rate.................................... 95%
Average Commission Rate Per Share.......................... $0.0510
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income (Loss)......... $ 0.85
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 5.55%**
Net Investment Loss to Average Net Assets................. (4.11)%**
</TABLE>
- -------
* Commencement of operations
** Annualized

<TABLE>
<CAPTION>
MID CAP
VALUE PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997
- ---------------------------------- -------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income..................................... 0.02
Net Realized and Unrealized Gain.......................... 1.89
-------
Total From Investment Operations.......................... 1.91
-------
NET ASSET VALUE, END OF PERIOD............................. $ 11.91
=======
TOTAL RETURN............................................... 19.10%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).......................... $ 4,922
Ratio of Expenses to Average Net Assets.................... 1.05%**
Ratio of Net Investment Income to Average Net Assets....... 0.43%**
Portfolio Turnover Rate.................................... 76%
Average Commission Rate Per Share.......................... $0.0429
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income (Loss)......... $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.45%**
Net Investment Loss to Average Net Assets................. (0.97)%**
</TABLE>
- -------
* Commencement of operations
** Annualized

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
FINANCIAL HIGHLIGHTS
(UNAUDITED)

<TABLE>
<CAPTION>
U.S. REAL
ESTATE PORTFOLIO
-----------------
PERIOD FROM
MARCH 3, 1997* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997
- ---------------------------------- -----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................................... 0.10
Net Realized and Unrealized Gain............................ 0.27
-------
Total From Investment Operations............................ 0.37
-------
NET ASSET VALUE, END OF PERIOD............................... $ 10.37
=======
TOTAL RETURN................................................. 3.70%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)............................ $ 6,025
Ratio of Expenses to Average Net Assets...................... 1.10%**
Ratio of Net Investment Income to Average Net Assets......... 3.52%**
Portfolio Turnover Rate...................................... 56%
Average Commission Rate Per Share............................ $0.0576
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income.................. $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets.............................. 3.71%**
Net Investment Income to Average Net Assets................. 0.90%**
</TABLE>
- -------
* Commencement of operations
** Annualized

<TABLE>
<CAPTION>
VALUE PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997
- ---------------------------------- -------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income..................................... 0.07
Net Realized and Unrealized Gain.......................... 1.48
-------
Total From Investment Operations.......................... 1.55
-------
NET ASSET VALUE, END OF PERIOD............................. $ 11.55
=======
TOTAL RETURN............................................... 15.50%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).......................... $ 5,264
Ratio of Expenses to Average Net Assets.................... 0.85%**
Ratio of Net Investment Income to Average Net Assets....... 1.82%**
Portfolio Turnover Rate.................................... 22%
Average Commission Rate Per Share.......................... $0.0585
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income................ $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 2.35%**
Net Investment Income to Average Net Assets............... 0.32%**
</TABLE>
- -------
* Commencement of operations
** Annualized

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
FINANCIAL HIGHLIGHTS
(UNAUDITED)

<TABLE>
<CAPTION>
EMERGING MARKETS
DEBT PORTFOLIO
-----------------
PERIOD FROM
JUNE 16, 1997* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997
- ---------------------------------- -----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................................... 0.03
Net Realized and Unrealized Loss............................ (0.03)
-------
Total From Investment Operations............................ --
-------
NET ASSET VALUE, END OF PERIOD............................... $ 10.00
=======
TOTAL RETURN................................................. 0.00%
=======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)............................ $10,049
Ratio of Expenses to Average Net Assets...................... 1.30%**
Ratio of Net Investment Income to Average Net Assets......... 6.48%**
Portfolio Turnover Rate...................................... 14%
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income.................. $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets.............................. 2.77%**
Net Investment Income to Average Net Assets................. 5.01%**
</TABLE>
- -------
* Commencement of operations
** Annualized

<TABLE>
<CAPTION>
FIXED INCOME
PORTFOLIO
-------------------
PERIOD FROM
JANUARY 2, 1997* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997
- ---------------------------------- -------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income..................................... 0.25
Net Realized and Unrealized Gain.......................... 0.10
------
Total From Investment Operations.......................... 0.35
------
NET ASSET VALUE, END OF PERIOD............................. $10.35
======
TOTAL RETURN............................................... 3.50%
======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's).......................... $9,033
Ratio of Expenses to Average Net Assets.................... 0.70%**
Ratio of Net Investment Income to Average Net Assets....... 5.27%**
Portfolio Turnover Rate.................................... 100%
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income................ $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 1.59%**
Net Investment Income to Average Net Assets............... 4.38%**
</TABLE>
- -------
* Commencement of operations
** Annualized

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

MORGAN STANLEY UNIVERSAL FUNDS, INC.
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
HIGH YIELD
PORTFOLIO
-----------------
PERIOD FROM
JANUARY 2, 1997*
TO JUNE 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED)
- ---------------------------------- -----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................ 0.35
Net Realized and Unrealized Gain............................. 0.23
------
Total From Investment Operations............................. 0.58
------
NET ASSET VALUE, END OF PERIOD................................ $10.58
======
TOTAL RETURN.................................................. 5.80%
======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's)............................. $9,282
Ratio of Expenses to Average Net Assets....................... 0.80%**
Ratio of Net Investment Income to Average Net Assets.......... 7.41%**
Portfolio Turnover Rate....................................... 63%
Effect of Voluntary Expense Limitation During the Period:
Per Share Benefit to Net Investment Income................... $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................... 1.30%**
Net Investment Income to Average Net Assets.................. 6.91%**
</TABLE>
- -------
* Commencement of operations
** Annualized

The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

JUNE 30, 1997

Morgan Stanley Universal Funds, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. As of June 30, 1997, the Fund was comprised of eleven
separate active portfolios (individually referred to as a "Portfolio",
collectively as the "Portfolios"). The Emerging Markets Equity Portfolio
commenced operations on October 1, 1996. The Global Equity, International
Magnum, Equity Growth, Mid Cap Value, Value, Fixed Income and High Yield
Portfolios each commenced operations on January 2, 1997. The Asian Equity and
U.S. Real Estate Portfolios each commenced operations on March 3, 1997 and the
Emerging Markets Debt Portfolio commenced operations on June 16, 1997.

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 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 which are based primarily on institutional size trading in similar
groups of securities. Debt securities purchased with remaining maturities of 60
days or less are valued at amortized cost, if it approximates market value. All
other securities and assets for which market values are not readily available,
including restricted securities, are valued at fair value as determined in good
faith by the Board of Directors, although the actual calculations may be done
by others.

2. INCOME TAXES: It is each Portfolio's intention to qualify as a regulated
investment company and distribute all
<PAGE>

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)

JUNE 30, 1997

of its taxable and tax-exempt income. Accordingly, no provision for Federal
income taxes is required in the financial statements.

A Portfolio may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on income and/or capital gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation as income and/or capital gains
are earned.

3. REPURCHASE AGREEMENTS: Each Portfolio may enter into repurchase agreements
under which a Portfolio lends cash and takes possession of securities with an
agreement that the counterparty will repurchase such securities. In connection
with transactions in repurchase agreements, a bank as custodian for the Fund
takes possession of the underlying securities which are held as collateral,
with a market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is marked-to-
market on a daily basis to determine the adequacy of the collateral. In the
event of default on the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.

4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the mean of the bid and asked prices of such
currencies against U.S. dollars last quoted by a major bank as follows:

. investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;

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

Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the period, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency
gains (losses) are included in the reported net realized and unrealized gains
(losses) on investment transactions and balances. However, pursuant to U.S.
Federal income tax regulations, gains and losses from certain foreign currency
transactions and the foreign currency portion of gains and losses realized on
sales and maturities of foreign denominated debt securities are treated as
ordinary income for U.S. Federal income tax purposes.

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 at June 30, 1997, the
Portfolios value the foreign shares at the closing exchange price of the local
shares. Such securities are reflected as fair valued in the Statement of Net
Assets.

5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Portfolios may enter into foreign
currency exchange contracts 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 Portfolios as unrealized gain or loss. The Portfolios record realized
gains or losses when the contract is
<PAGE>

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)

JUNE 30, 1997

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: Each
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 a month or more (not to exceed 120 days) after
the date of the transaction. Additionally, each 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 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. 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 Portfolios may invest in fixed and floating rate loans
("Loans") arranged through private negotiations between an issuer of sovereign
debt obligations and one or more financial institutions ("Lenders") deemed to
be creditworthy by the investment adviser. A Portfolio's investments in Loans
may be in the form of participations in Loans ("Participations") or assignments
of all or a portion of Loans ("Assignments") from third parties. A Portfolio's
investment in Participations typically results in the Portfolio having a
contractual relationship with only the Lender and not with the borrower. The
Portfolio has the right to receive payments of principal, interest and any fees
to which it is entitled only upon receipt by the Lender of the payments from
the borrower. The Portfolio generally has no right to enforce compliance by the
borrower with the terms of the loan agreement. As a result, the Portfolio may
be subject to the credit risk of both the borrower and the Lender that is
selling the Participation. When a Portfolio purchases Assignments from Lenders,
it 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. ORGANIZATIONAL COSTS: The organizational costs of the Fund are being
amortized on a straight line basis over a period of five years beginning with
the Emerging Markets Equity Portfolio's commencement of operations. Morgan
Stanley Asset Management Inc. has agreed that in the event any of its initial
shares which comprised the Fund at its inception are redeemed, the proceeds on
redemption will be reduced by the pro-rata portion of any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the initial shares held at time of redemption.

9. 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 identified cost basis. Dividend income is
recorded on the ex-dividend date (except for certain foreign dividends which
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 U.S. Real Estate Portfolio owns shares of real estate investment trusts
("REITs") which report information on the source of their distributions
annually. A portion of distributions received from REITs during the year is
estimated to be a return of capital and is recorded as a reduction of their
cost.

B. ADVISERS: Morgan Stanley Asset Management Inc. ("MSAM"), a wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co., provides the
following Portfolios with investment advisory services for a fee, paid
quarterly, at the annual rate based on average daily net assets as follows:

<TABLE>
<CAPTION>
ASSETS
-----------------------------
FIRST FROM $500 MORE
$500 MILLION TO THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
- --------- ------- ---------- ----------
<S> <C> <C> <C>
Asian Equity...................................... 0.80% 0.75% 0.70%
Emerging Markets Equity........................... 1.25 1.20 1.15
Global Equity..................................... 0.80 0.75 0.70
International Magnum.............................. 0.80 0.75 0.70
Equity Growth..................................... 0.55 0.50 0.45
U.S. Real Estate.................................. 0.80 0.75 0.70
Emerging Markets Debt............................. 0.80 0.75 0.70
</TABLE>
<PAGE>

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)

JUNE 30, 1997

Miller Anderson & Sherrerd, LLP ("MAS"), a wholly-owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co., provides the following Portfolios with
investment advisory services for a fee, paid quarterly, at the annual rate
based on average daily net assets as follows:

<TABLE>
<CAPTION>
ASSETS
-------------------------------------
FROM MORE
FIRST $500 MILLION THAN
PORTFOLIO $500 MILLION TO $1 BILLION $1 BILLION
- --------- ------------ ------------- ----------
<S> <C> <C> <C>
Mid Cap Value............................. 0.75% 0.70% 0.65%
Value..................................... 0.55 0.50 0.45
Fixed Income.............................. 0.40 0.35 0.30
High Yield................................ 0.50 0.45 0.40
</TABLE>

MSAM and MAS have agreed to reduce fees payable to them and to reimburse the
Portfolios, if necessary, if the annual operating expenses, as defined,
expressed as a percentage of average daily net assets, exceed the maximum
ratios indicated as follows:

<TABLE>
<CAPTION>
MAXIMUM
EXPENSE
PORTFOLIO RATIO
- --------- -------
<S> <C>
Asian Equity............................................................ 1.20%
Emerging Markets Equity................................................. 1.75
Global Equity........................................................... 1.15
International Magnum.................................................... 1.15
Equity Growth........................................................... 0.85
Mid Cap Value........................................................... 1.05
U.S. Real Estate........................................................ 1.10
Value................................................................... 0.85
Emerging Markets Debt................................................... 1.30
Fixed Income............................................................ 0.70
High Yield.............................................................. 0.80
</TABLE>

C. ADMINISTRATORS: MSAM and MAS (the "Administrators") also provide their
respective Portfolios 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 each Portfolio, plus reimbursement of
out-of-pocket expenses. Under an agreement between the Administrators and Chase
Global Funds Services Company ("CGFSC"), a subsidiary of The Chase Manhattan
Bank ("Chase"), CGFSC provides certain administrative services to the Fund. For
such services, each Administrator pays CGFSC a portion of the fee the
Administrators receive 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. CUSTODIANS: Morgan Stanley Trust Company ("MSTC"), a wholly-owned subsidiary
of Morgan Stanley, Dean Witter, Discover & Co., acts as custodian for the
Fund's assets held outside the United States in accordance with a custodian
agreement. Chase serves as custodian for the Fund's domestic assets in
accordance with a separate custodian agreement. Custodian fees are computed and
payable monthly based on assets held, investment purchases and sales activity,
an account maintenance fee, plus reimbursement for certain out-of-pocket
expenses. For the period ended June 30, 1997, the following Portfolios incurred
custody fees and had amounts payable to MSTC at June 30, 1997:

<TABLE>
<CAPTION>
MSTC CUSTODY CUSTODY FEES
FEES INCURRED PAYABLE TO MSTC
PORTFOLIO (000) (000)
- --------- ------------- ---------------
<S> <C> <C>
Asian Equity...................................... $11 $ 7
Emerging Markets Equity........................... 58 27
Global Equity..................................... 3 1
International Magnum.............................. 31 13
Emerging Markets Debt............................. 2 2
</TABLE>

In addition, for the period ended June 30, 1997, the following Portfolios have
earned interest income and incurred interest expense on balances with MSTC as
follows:

<TABLE>
<CAPTION>
INTEREST INTEREST
INCOME EXPENSE
PORTFOLIO (000) (000)
- --------- -------- --------
<S> <C> <C>
Asian Equity.................................................. $ -- $1
Emerging Markets Equity....................................... 1 1
</TABLE>

E. OTHER: During the period ended June 30, 1997, the following Portfolios paid
brokerage commissions to Morgan Stanley & Co., Incorporated and Dean Witter
Reynolds, Inc., affiliated broker/dealers, of approximately:

<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
(000)
-------------------------------
MORGAN STANLEY & DEAN WITTER
PORTFOLIO CO., INC. REYNOLDS, INC.
- --------- ---------------- --------------
<S> <C> <C>
Emerging Markets Equity......................... $ 2 $ --
Equity Growth................................... -- 11
</TABLE>

At June 30, 1997, 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, certain Portfolios of the Fund have shareholders that hold a
significant portion of a Portfolio's outstanding shares. Investment activities
of these shareholders could have a material impact on those Portfolios.

F. SUPPLEMENTAL PROXY INFORMATION: On May 1, 1997, a special meeting of the
stockholders of Morgan Stanley Universal Funds, Inc. (the "Fund") was held for
the purpose of voting on the following matters:

1. To approve or disapprove a new investment advisory agreement with Morgan
Stanley Asset Management Inc.; and
<PAGE>

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)

JUNE 30, 1997

2. To approve or disapprove a new investment advisory agreement with Miller
Anderson & Sherrerd, LLP.

Only Shareholders of investment portfolios (the "Portfolios") advised by Morgan
Stanley Asset Management Inc. are entitled to vote on Proposal 1. Likewise,
only Shareholders of the Portfolios advised by Miller Anderson & Sherrerd, LLP
are entitled to vote on Proposal 2. The result of the shares voted were:

<TABLE>
<CAPTION>
TOTAL
VOTED SHARES
PORTFOLIO VOTED FOR AGAINST ABSTENTIONS VOTED
- --------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Asian Equity............................ 1,000,000 -- -- 1,000,000
Emerging Markets Equity................. 1,280,015 49,199 52,793 1,382,007
Global Equity........................... 464,777 -- 43,899 508,676
International Magnum.................... 1,009,006 -- 25,236 1,034,242
Equity Growth........................... 270,061 -- -- 270,061
Mid Cap Value........................... 314,112 -- 7,559 321,671
U.S. Real Estate........................ 500,000 -- -- 500,000
Value................................... 310,552 -- -- 310,552
Fixed Income............................ 819,655 -- -- 819,655
High Yield.............................. 812,069 -- -- 812,069
</TABLE>

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

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE