MORGAN STANLEY UNIVERSAL FUNDS INC, 497, 1999-05-04

MORGAN STANLEY UNIVERSAL FUNDS INC
497, 1999-05-04

Previous: LAWRENCE EDWARD P, 13F-HR, 1999-05-04

Next: NORWEST ASSET SECURITIES CORP, 8-K, 1999-05-04

<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

MONEY MARKET PORTFOLIO
To maximize current income and preserve capital while maintaining high levels
of liquidity.

Investment Adviser

Morgan Stanley Dean Witter Investment Management Inc.

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Money Market Portfolio (the "Portfolio") is one portfolio of the Fund managed
by Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management" or the "Adviser").

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Money Market Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER AND SUB-ADVISER 3

MANAGEMENT FEE 3

SHAREHOLDER INFORMATION 4

</TABLE>
<PAGE>

MONEY MARKET PORTFOLIO
INVESTMENT SUMMARY

The Money Market Portfolio seeks to maximize current income and preserve
capital while maintaining high levels of liquidity.

Approach
The Adviser and Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors") as
investment sub-adviser, seek as high a level of current income as is
consistent with preservation of capital while maintaining liquidity by
investing in money market instruments with effective maturities of 397 days or
less. In selecting investments, the Adviser and MSDW Advisors seek to maintain
a share price of $1.00 per share.

Process
MSDW Advisors assesses current and projected market and economic conditions,
particularly interest rates. Based on this analysis and the shape of the money
market yield curve, MSDW Advisors uses gradual shifts in average maturity to
manage the Portfolio. MSDW Advisors selects particular money market securities
that it believes offer the most attractive risk/return trade-off. Portfolio
investments are primarily U.S. government and agency obligations, corporate
debt and bank obligations that pay fixed or variable rates of interest.

Risk
Investing in the Portfolio may be appropriate for you if you want to minimize
the risk of loss of principal and maintain liquidity of your investment, and
at the same time receive a return on your investment. The Portfolio invests
only in money market instruments that the Adviser and MSDW Advisors believe
present minimal credit risk. However, an investment in the Portfolio is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Although the Portfolio seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing
in the Portfolio.

There is no performance information for the Money Market Portfolio since it
has not been in operation for a full calendar year.

You may obtain the current 7-day yield of the Money Market Portfolio by
calling 1-800-281-2715.
1
<PAGE>

ADDITIONAL RISK FACTORS AND INFORMATION

INVESTMENT SUMMARY

This section discusses additional risk factors and information relating to the
Portfolio. The Portfolio's investment practices and limitations are described
in more detail in the Statement of Additional Information ("SAI") which is
legally part of this Prospectus. For details on how to obtain a copy of the
SAI and other reports and information, see the back cover of this Prospectus.

Money market instruments
The Portfolio will invest in a diversified portfolio of high quality, short-
term money market instruments. Money market instruments may include
certificates of deposits, bankers' acceptances, commercial paper, U.S.
Treasury securities and repurchase agreements. In selecting these investments,
the Adviser follows strict rules about credit risk, maturity and
diversification of the Portfolio's investments. For example, the Portfolio's
money market instruments will be rated within the two highest categories
assigned by a recognized rating organization or, if not rated, are of
comparable quality as determined by the Adviser. In addition, these
instruments will have a maximum maturity of 397 days or less.

Year 2000 risk
The management and distribution services provided to the Fund by the Adviser,
MSDW Advisors and Morgan Stanley & Co. Incorporated ("Morgan Stanley") depend
on the smooth functioning of their computer systems. Many computer software
systems in use today cannot recognize the year 2000, but revert to 1900 or
some other date, due to the manner in which dates were encoded and calculated.
That failure could have a negative impact on the handling of securities
trades, pricing and account services. The Adviser, MSDW Advisors and Morgan
Stanley have been actively working on necessary changes to their own computer
systems to deal with the year 2000 problem and expect that their systems will
be adapted before that date. There can be no assurance, however, that they
will be successful. In addition, other unaffiliated service providers may be
faced with similar problems. The Adviser, MSDW Advisors and Morgan Stanley are
monitoring their remedial efforts, however, there can be no assurance that
they and the services they provide will not be adversely affected.

In addition, it is possible that the markets for securities in which the
Portfolio invests may be detrimentally affected by computer failures
throughout the financial services industry beginning January 1, 2000.
Improperly functioning trading systems may result in settlement problems and
liquidity issues. In addition, corporate and governmental data processing
errors may result in production problems for individual companies and overall
economic uncertainties. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Accordingly, the Portfolio's
investments may be adversely affected.

2
<PAGE>

INVESTMENT ADVISER AND SUB-ADVISER

MSDW Investment Management, with principal offices at 1221 Avenue of the
Americas, New York, New York 10020, conducts a worldwide portfolio management
business and provides a broad range of portfolio management services to
customers in the United States and abroad. Morgan Stanley Dean Witter & Co.
("MSDW") is the direct parent of MSDW Investment Management and Morgan
Stanley. MSDW is a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses --
securities, asset management and credit services. As of December 31, 1998,
MSDW Investment Management and its institutional investment advisory
affiliates had approximately $163.4 billion in assets under management or
fiduciary advice.

Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), located at Two
World Trade Center, New York, New York 10048, serves as investment sub-adviser
and manager for the Money Market Portfolio on a day-to-day basis. MSDW
Advisors selects, buys and sells securities for the Portfolio under the
supervision of MSDW Investment Management and the Board of Directors

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

<TABLE>
<CAPTION>
ASSETS FEE
- ----------------------------------------
<S> <C>
First $500 million 0.30%
- ----------------------------------------
From $500 million to $1 billion 0.25%
- ----------------------------------------
More than $1 billion 0.20%
</TABLE>

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 0.55% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 0.55%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.
3
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE") is
open for business.

The Portfolio offers its shares only to insurance companies for separate
accounts they establish to fund variable life insurance and variable annuity
contracts and by other entities under qualified pension and retirement plans.
An insurance company purchases or redeems shares of the Portfolio based on,
among other things, the amount of net contract premiums or purchase payments
allocated to a separate account investment division, transfers to or from a
separate account investment division, contract loans and repayments, contract
withdrawals and surrenders, and benefit payments. The contract prospectus
describes how contract owners may allocate, transfer and withdraw amounts to,
and from, separate accounts.

The price per share will be the net asset value per share (NAV) next determined
after the Fund receives the insurance company's purchase order. NAV for one
share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of
12:00 noon Eastern Standard Time on each day that the NYSE is open for
business.

About net asset value
The Money Market Portfolio seeks to maintain a stable net asset value per share
of $1.00 by valuing portfolio securities using "amortized cost." Amortized cost
involves valuing a portfolio security at cost and, thereafter, assuming a
constant amortization to maturity of any discount or premium. This method of
valuation does not take into account any unrealized gains or losses or the
impact of fluctuating interest rates on the market value of portfolio
securities. While using amortized cost provides certainty in valuation, it may
result in periods during which the value as determined by amortized cost is
higher or lower than the price the Portfolio would receive if it sold the
security.

Dividends and distributions
The Portfolio declares dividends daily and distributes its investment income
monthly. The Portfolio makes distributions of capital gains, if any, at least
annually.

Taxes
Please consult your tax advisor regarding your specific questions about
federal, state and local income taxes. Below is summarized some important tax
issues that affect the Portfolio and its shareholders. The summary is based on
current tax laws, which may change.

The Portfolio expects that it will not have to pay income taxes if it
distributes all of its income and gains. Net income and realized capital gains
that the Portfolio distributes are not currently taxable when left to
accumulate within a variable annuity or variable life insurance contract or
under a qualified pension or retirement plan.

For information on federal income taxation of a life insurance company with
respect to its receipt of distributions from the Portfolio and federal income
taxation of owners of variable annuity or variable life insurance contracts,
refer to the contract prospectus.
4
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information
In addition to this Prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more
detailed information about the Fund and the Portfolio. The SAI is incorporated
by reference into this Prospectus and, therefore, legally forms a part of this
Prospectus.

Shareholder Reports
The Fund publishes annual and semi-annual reports containing additional
information about the Portfolio's investments. In the Fund's shareholder
reports, you will find a discussion of the market conditions and the
investment strategies that significantly affected the Portfolio's performance
during that period.

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington, D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the
Commission's web site at "http://www.sec.gov"; or (3) By mail; you may request
documents, upon payment of a duplicating fee, by writing to Securities
Exchange Commission, Public Reference Section, Washington, D.C. 20549-6009. To
aid you in obtaining this information, the Fund's Investment Company Act
registration number is 811-7607.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

FIXED INCOME PORTFOLIO
Above-average total return over a market cycle of three to five years by
investing primarily in a diversified portfolio of fixed income securities.

Investment Adviser

Miller Anderson & Sherrerd, LLP

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Fixed Income Portfolio (the "Portfolio") is one portfolio of the Fund managed
by Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser"), an affiliate of
Morgan Stanley Dean Witter Investment Management Inc.

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Fixed Income Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 5

MANAGEMENT FEE 5

PORTFOLIO MANAGERS 6

SHAREHOLDER INFORMATION 7

FINANCIAL HIGHLIGHTS 8
</TABLE>
<PAGE>

FIXED INCOME PORTFOLIO

INVESTMENT SUMMARY

The Fixed Income Portfolio seeks above-average total return over a market cycle
of three to five years by investing primarily in a diversified portfolio of
fixed income securities.

Approach
The Portfolio invests in a diversified portfolio of fixed income securities,
including U.S. Government securities, corporate bonds and mortgage securities,
including to a limited extent, foreign fixed income securities. The Portfolio
invests primarily in investment grade securities, but may also invest a portion
of its assets in high yield securities, also known as junk bonds. The Adviser
may use derivatives in managing the Portfolio. The average weighted maturity of
the Portfolio will generally be greater than 5 years.

Process
The Adviser actively manages the maturity and duration of the Portfolio in
anticipation of long-term trends in interest rates and inflation. Depending on
the Adviser's outlook for the economy, interest rates and inflation, the
Adviser may lengthen or shorten the Portfolio's average maturity or duration.
The portfolio managers as a team determine the Portfolio's overall maturity and
duration targets and sector allocations. The portfolio managers then
individually select particular securities for the Portfolio in various sectors
within those overall guidelines.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks associated with fixed income securities in the hope of earning
above average total return. Market prices of the Portfolio's holdings respond
to economic developments, especially changes in interest rates, as well as to
perceptions of the creditworthiness of individual issuers. Generally, fixed
income securities decrease in value as interest rates rise and vice versa.
Prices of fixed income securities also generally will fall if an issuer's
credit rating declines, and rise if it improves. As a result of this price
volatility, there is a risk that you
may lose money by investing in the Portfolio. The prices of
mortgage securities may be particularly sensitive to changes
in interest rates because of the risk that borrowers will
become more or less likely to refinance their mortgages. For
example, an increase in interest rates generally will reduce
prepayments, effectively lengthening the maturity of some
mortgage securities, and making them subject to more drastic
price movements. Because of prepayment issues, it is not
possible to predict the ultimate maturity of mortgage
securities. The Portfolio's investments in high yield
securities expose it to a substantial degree of credit risk.
Prices of high yield securities will rise and fall primarily
in response to changes in the issuer's financial health,
although changes in market interest rates also will affect
prices. High yield securities may experience reduced
liquidity, and sudden and substantial decreases in price,
during certain market conditions.
PERFORMANCE
<TABLE>
Commenced operations on January 2, 1997
<S> <C>
9.93% 7.90%
- --------------------------------------------------------------------------------
1997 1998

HIGH (QUARTER) LOW (QUARTER)
4/97 - 6/97 10/98 - 12/98
3.60% 0.92%

Average Annual Total Return for periods ended December 31, 1998

SALOMON SMITH BARNEY
FIXED INCOME BROAD INVESTMENT GRADE
PORTFOLIO BOND INDEX*
- ------------------------------------------------------
Past One Year 7.90% 8.72%
- ------------------------------------------------------
Since Inception 8.94% 9.45%
</TABLE>

The bar chart and table above show the
performance of the Portfolio year-by-
year and as an average over different
periods of time. This performance in-
formation does not include the impact
of any charges deducted by your insur-
ance company. If it did, returns would
be lower. The bar chart and table dem-
onstrate the variability of perfor-
mance over time and provide an indica-
tion of the risks of investing in the
Portfolio. How the Portfolio has per-
formed in the past does not necessar-
ily indicate how the Portfolio will
perform in the future.

* The Salomon Smith Barney Broad
Investment Grade Bond Index is a
fixed income market-capitalization
index, including U.S. Treasury,
agency, mortgage and investment
grade (BBB or better) corporate
securities with maturities of one
year and with amounts outstanding of
at least $25 million. An index is a
hypothetical measure of performance
based on the ups and downs of
securities that make up a particular
market. The index does not show
actual investment returns or reflect
payment of management or brokerage
fees, which would lower the index's
performance.
1
<PAGE>

ADDITIONAL RISK FACTORS AND INFORMATION

INVESTMENT SUMMARY

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Fixed income securities, regardless of credit
quality, experience price volatility, especially in response to interest rate
changes.

Derivatives
The Portfolio may use various instruments that derive their values from those
of specified securities, indices, currencies or other points of reference for
both hedging and non-hedging purposes. Derivatives include futures, options,
forward contracts, swaps, and structured notes. These derivatives, including
those used to manage risk, are themselves subject to risks of the different
markets in which they trade and, therefore, may not serve their intended
purposes.

The primary risks of derivatives are: (i) changes in the market value of
securities held by the Portfolio, and of derivatives relating to those
securities, may not be proportionate, (ii) there may not be a liquid market
for the Portfolio to sell a derivative, which could result in difficulty
closing a position and (iii) certain derivatives can magnify the extent of
losses incurred due to changes in the market value of the securities to which
they relate. In addition, derivatives are subject to counter party risk. To
minimize this risk, the Portfolio may enter into derivatives transactions with
counter parties that meet certain requirements for credit quality and
collateral. Also, the Portfolio may invest in certain derivatives that require
the Portfolio to segregate some or all of its cash or liquid securities to
cover its obligations under those instruments. At certain levels, this can
cause the Portfolio to lose flexibility in managing its investments properly,
responding to shareholder redemption requests, or meeting other obligations.
If the Portfolio is in that position, it could be forced to sell other
securities that it wanted to retain.

The 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. While the use of derivatives may be
advantageous to the Portfolio, if the Adviser is not successful in employing
them, the Portfolio's performance may be worse than if it did not make such
investments. See the Statement of Additional Information for more about the
risks of different types of derivatives.

Fixed income securities
Generally, fixed income securities decrease in value as interest rates rise
and vice versa. Certain types of fixed income securities, such as inverse
floaters, are designed to respond differently to changes in interest rates.
Fixed income securities generally are subject to risks related to changes in
interest rates and in the financial health or credit rating of the issuers.
The value of a fixed income security typically moves in the opposite direction
of prevailing interest rates: if rates rise, the value of a fixed income
security falls; if rates fall, the value increases. The maturity and duration
of a fixed income instrument also affect the extent to which the price of the
security will change in response to these and other factors. Longer term
securities tend to experience larger changes than shorter term securities
because they are more sensitive to changes in interest rates or in the credit
ratings of the issuers. The average duration of a fixed income portfolio
measures its exposure to the risk of changing interest rates. A Portfolio with
a lower average duration generally will experience less price volatility in
response to changes in interest rates as compared with a portfolio with a
higher duration.
2
<PAGE>

Foreign investing
Investing in foreign countries entails the risk that news and events unique to
a country or region will affect those markets and their issuers. These same
events will not necessarily have an effect on the U.S. economy or similar
issuers located in the United States. In addition, the Portfolio's investments
in foreign countries generally will be denominated in foreign currencies. As a
result, changes in the value of a country's currency compared to the U.S.
dollar may affect the value of the Portfolio's investments. These changes may
occur separately from and in response to events that do no otherwise affect
the value of the security in the issuer's home country. The Adviser may invest
in certain instruments, such as derivatives and may use certain techniques
such as hedging, to manage these risks. However, the Adviser cannot guarantee
that it will be practical to hedge these risks in certain markets or under
particular conditions or that it will succeed in doing so. The Adviser may use
derivatives for other purposes such as gaining exposure to foreign markets.

High yield securities
Fixed income securities that are not investment grade are commonly referred to
as "junk bonds" or high yield, high risk securities. These securities offer a
higher yield than other, higher rated securities, but they carry a greater
degree of risk and are considered speculative by the major credit rating
agencies. High yield securities may be issued by companies that are
restructuring, are smaller and less credit worthy, or are more highly indebted
than other companies. This means that they may have more difficulty making
scheduled payments of principal and interest. Changes in the value of high
yield securities are influenced more by changes in the financial and business
position of the issuing company than by changes in interest rates when
compared to investment grade securities. The Portfolio's investments in high
yield securities expose it to a substantial degree of credit risk.

Mortgage securities
Mortgage securities are fixed income securities representing an interest in a
pool of underlying mortgage loans. They are sensitive to changes in interest
rates, but may respond to these changes differently from other fixed income
securities due to the possibility of prepayment of the underlying mortgage
loans. As a result, it may not be possible to determine in advance the actual
maturity date or average life of a mortgage security. Rising interest rates
tend to discourage refinancings, with the result that the average life and
volatility of the security will increase and its market price will decrease.
When interest rates fall, however, mortgage securities may not gain as much in
market value because additional mortgage prepayments must be reinvested at
lower interest rates. Prepayment risk may make it difficult to calculate the
average maturity of a portfolio of mortgage securities and, therefore, the
ability to assess the volatility risk of that portfolio.

Collateralized Mortgage Obligations ("CMOs") and Stripped Mortgage Backed
Securities ("SMBSs") are derivatives based on mortgage securities. Both CMOs
and SMBSs are subject to the risks of price movements in response to changing
interest rates and the level of prepayments made by borrowers. Depending on
the class of CMOs or SMBSs that a Portfolio holds, these price movements may
be significantly greater than that experienced by mortgage-backed securities
generally.

Year 2000 risk
The management and distribution services provided to the Fund by the Adviser
and Morgan Stanley & Co. Incorporated ("Morgan Stanley") depend on the smooth
functioning of their computer systems. Many computer software systems in use
today cannot recognize the year 2000, but revert to 1900 or some other date,
due to the manner in which dates were encoded and calculated. That failure
could have a negative impact on the handling of securities trades, pricing and
account services. The Adviser and Morgan Stanley have been actively working on
necessary changes to their own computer systems to deal with the year 2000
problem and expect that their systems will be adapted before that date. There
can be no assurance, however, that they will be successful. In addition, other
unaffiliated service providers may be faced with similar problems. The Adviser
and Morgan Stanley are monitoring their remedial efforts, however, there can
be no assurance that they and the services they provide will not be adversely
affected.

uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Accordingly, the Portfolio's investments may be
adversely affected.

Temporary defensive investments
When the Adviser believes that changes in economic, financial or political
conditions warrant, the Portfolio may invest without limit in certain short-
and medium-term fixed income securities for temporary purposes. If the Adviser
incorrectly predicts the effects of these changes, such defensive investments
may adversely affect the Portfolio's performance and the Portfolio may not
achieve its investment objective.

Portfolio turnover
Consistent with its investment policies, the Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher
portfolio turnover (e.g. over 100% per year) will cause the Portfolio to incur
additional transaction costs and may result in taxable gains being passed
through to shareholders.
4
<PAGE>

INVESTMENT ADVISER

MAS, with principal offices at One Tower Bridge, West Conshohocken,
Pennsylvania 19428 provides investment advisory services to employee benefit
plans, endowment funds, foundations and other institutional investors and has
served as investment adviser to several open-end investment companies since
1984. MAS is a subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"). MSDW
is a preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses -- securities, asset
management and credit services. As of December 31, 1998, MAS and its
institutional advisory affiliates had approximately $163.4 billion in assets
under management or fiduciary advice.

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

<TABLE>
<CAPTION>
ASSETS FEE
- ----------------------------------------
<S> <C>
First $500 million 0.40%
- ----------------------------------------
From $500 million to $1 billion 0.35%
- ----------------------------------------
More than $1 billion 0.30%
</TABLE>

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 0.70% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 0.70%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

For the fiscal year ended December 31, 1998, MAS received a fee (net of fee
waivers) equal to 0.06% of the Portfolio's average daily net assets for
management services.
5
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

FIXED INCOME PORTFOLIO
Thomas L. Bennett, Kenneth B. Dunn and Richard B. Worley.
Thomas L. Bennett, a Managing Director of Morgan Stanley, joined MAS in 1984.
He assumed responsibility for the MAS Funds Fixed Income Portfolio in 1984,
the MAS Funds Domestic Fixed Income Portfolio in 1987, the MAS Funds High
Yield Portfolio in 1985, the MAS Funds Fixed Income Portfolio II in 1990, the
MAS Funds Special Purpose Fixed Income and Balanced Portfolios in 1992 and the
MAS Funds Multi-Asset-Class Portfolio in 1994. Mr. Bennett is Chairman of the
Board of Trustees of MAS Funds, a member of the Executive Committee of MAS and
a Director of MAS Fund Distributors, Inc. Mr. Bennett holds a B.S. in
Chemistry and an M.B.A. from the University of Cincinnati. Kenneth B. Dunn, a
Managing Director of Morgan Stanley, joined MAS in 1987. He assumed
responsibility for the MAS Funds Fixed Income and Domestic Fixed Income
Portfolios in 1987, the MAS Funds Fixed Income II Portfolio in 1990, the MAS
Funds Mortgage-Backed Securities and Special Purpose Fixed Income Portfolios
in 1992, and the MAS Funds Municipal and PA Municipal Portfolios in 1994. Mr.
Dunn received a B.S. and an M.B.A. from The Ohio State University and a Ph.D.
from Purdue University. Richard B. Worley, a Managing Director of Morgan
Stanley, joined MAS in 1978. He assumed responsibility for the MAS Funds Fixed
Income Portfolio in 1984, the MAS Funds Domestic Fixed Income Portfolio in
1987, the MAS Funds Fixed Income Portfolio II in 1990, the MAS Funds Balanced
and Special Purpose Fixed Income Portfolios in 1992, the MAS Funds Global
Fixed Income and International Fixed Income Portfolios in 1993 and the MAS
Funds Multi-Asset-Class Portfolio in 1994. Mr. Worley received a B.A. in
Economics from the University of Tennessee and attended the Graduate School of
Economics at the University of Texas. Messrs. Bennett, Dunn and Worley have
shared primary responsibility for managing the Portfolio's assets since its
inception.
6
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of one
hour after the close of the bond markets (normally 4:00 p.m. Eastern Time) on
each day that the Portfolio is open for business.

About net asset value
In calculating NAV, the Portfolio generally values its portfolio securities at
their market price. If market prices are unavailable or the Portfolio thinks
that they are unreliable because of events occurring after the close of
trading, the Portfolio may determine fair value prices using methods approved
by the Board of Directors. The Portfolio may hold portfolio securities that
are listed on foreign exchanges. These securities may trade on weekends or
other days when the Portfolio does not calculate NAV. As a result, the value
of these investments may change on days when you cannot purchase or sell
shares.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

FIXED INCOME PORTFOLIO

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the
Portfolio's financial performance since its inception. Certain information
reflects financial results for a single Portfolio share. The total returns in
the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP, whose unqualified report thereon appears in the Portfolio's Annual Report
to Shareholders and is incorporated by reference in the Statement of
Additional Information. The Annual Report and the financial statements
therein, as well as the Statement of Additional Information, are available at
no cost from the Fund at the toll free number noted on the back cover to this
Prospectus or from your insurance company.

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 2, 1997* TO
DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
SELECTED PER SHARE DATA AND RATIOS
Net Asset Value, Beginning of Period $ 10.41 $ 10.00
------- -------
Income From Investment Operations
Net Investment Income 0.37 0.46
Net Realized and Unrealized Gain 0.45 0.53
------- -------
Total From Investment Operations 0.82 0.99
------- -------
Distributions
Net Investment Income (0.36) (0.45)
In Excess of Net Investment Income (0.01) --
Net Realized Gain (0.11) (0.13)
In Excess of Net Realized Gain (0.05) --
------- -------
Total Distributions (0.53) (0.58)
------- -------
Net Asset Value, End of Period $10.70 $ 10.41
======= =======
Total Return 7.90 % 9.93 %
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $43,356 $12,760
Ratio of Expenses to Average Net Assets 0.70 % 0.70 %**
Ratio of Net Investment Income to
Average Net Assets 5.37 % 5.66 %**
Portfolio Turnover Rate 117 % 185 %
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income $0.02 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.04 % 1.71 %**
Net Investment Income to Average Net
Assets 5.03 % 4.65 %**
</TABLE>
- -------
* Commencement of operations
** Annualized
8
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

Supplement dated May 1, 1999
to Prospectus dated May 1, 1999

High Yield Portfolio

of the

Morgan Stanley Dean Witter Universal Funds, Inc.
P. O. Box 2798
Boston, Massachusetts
02208-2798

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

The Prospectus is hereby amended and supplemented to reflect changes in the
portfolio management of the High Yield Portfolio. Stephen F. Esser, Robert E.
Angevine, Thomas L. Bennett and Gordon W. Loery now share primary
responsibility for managing the assets of the High Yield Portfolio.
Accordingly, the section "Portfolio Managers." on page 6 is hereby deleted and
replaced with the following:

PORTFOLIO MANAGERS
The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

HIGH YIELD PORTFOLIO

Stephen F. Esser, Robert E. Angevine, Thomas L. Bennett and Gordon W.
Loery.

Stephen F. Esser, a Managing Director of Morgan Stanley, joined MAS in
1988. He assumed responsibility for the MAS Funds High Yield Portfolio in
1989. Mr. Esser is a member of the New York Society Security Analysts and
holds a B.S. degree (Summa Cum Laude and Phi Beta Kappa) from the
University of Delaware. Robert Angevine, a Principal of Morgan Stanley and
MSDW Investment Management, and a Portfolio Manager for high yield
investments, joined Morgan Stanley in October 1988. Mr. Angevine received a
B.A. in Economics from Lafayette College and an M.B.A. from Fairleigh
Dickinson University. Thomas L. Bennett, a Managing Director of Morgan
Stanley, joined MAS in 1984. He assumed responsibility for the MAS Funds
Fixed Income Portfolio in 1984, the MAS Funds Domestic Fixed Income
Portfolio in 1987, the MAS Funds High Yield Portfolio in 1985, the MAS
Funds Fixed Income Portfolio II in 1990, the MAS Funds Special Purpose
Fixed Income and Balanced Portfolios in 1992 and the MAS Funds Multi-Asset-
Class Portfolio in 1994. Mr. Bennett is Chairman of the Board of Trustees
of MAS Funds, a member of the Executive Committee of MAS and a Director of
MAS Fund Distributors, Inc. Mr. Bennett holds a B.S. in Chemistry and an
M.B.A. from the University of Cincinnati. Gordon W. Loery, a Principal of
MSDW Investment Management, joined MAS in 1996. He served as a Fixed Income
Analyst at MSDW Investment Management (formerly Morgan Stanley Asset
Management Inc.) from 1990 to 1996. Messrs. Esser, Bennett and Angevine
have shared primary responsibility for managing the Portfolio's assets
since its inception. Mr. Loery has shared primary responsibility for
managing the Portfolio's assets since April 1999.

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

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>

PROSPECTUS May 1, 1999
A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

HIGH YIELD PORTFOLIO
Above-average total return over a market cycle of three to five years by
investing primarily in a diversified portfolio of fixed income securities.

Investment Adviser

Miller Anderson & Sherrerd, LLP

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
High Yield Portfolio (the "Portfolio") is one portfolio of the Fund managed
by Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser"), an affiliate of
Morgan Stanley Dean Witter Investment Management Inc.

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

High Yield Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 5

MANAGEMENT FEE 5

PORTFOLIO MANAGERS 6

SHAREHOLDER INFORMATION 7

FINANCIAL HIGHLIGHTS 8

</TABLE>
<PAGE>

INVESTMENT SUMMARY
HIGH YIELD PORTFOLIO

The High Yield Portfolio seeks above-average total return over a market cycle
of three to five years by investing primarily in a portfolio of high yield
securities.

Approach
The Portfolio invests primarily in high yield securities (commonly referred to
as "junk bonds"). The Portfolio also may invest in other fixed income
securities, including U.S. Government securities, mortgage securities, and
investment grade corporate bonds. The Portfolio may invest to a limited extent
in foreign fixed income securities, including emerging market securities. The
Adviser may use derivatives in managing the Portfolio. The average weighted
maturity of the Portfolio will generally be greater than 5 years.

Process
The Adviser uses equity and fixed income valuation techniques, together with
analyses of economic and industry trends, to determine the Portfolio's overall
structure, sector allocation and desired maturity. The Adviser emphasizes
securities of companies that have strong industry positions and favorable
outlooks for cash flow and asset values. The Adviser conducts a credit analysis
for each security considered for investment to evaluate its attractiveness
relative to the level of risk it presents. The Portfolio maintains a high level
of diversification to minimize its exposure to the risks associated with any
particular issuer.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks associated with high yield securities in the hope of earning
above-average total return. Market prices of the Portfolio's fixed income
securities holdings respond to economic developments, especially changes in
interest rates, as well as to perceptions of the creditworthiness of individual
issuers. As a result of this price volatility, there is a risk that you may
lose money by investing in the Portfolio. The Portfolio's investments in high
yield securities expose it to a substantial degree of credit risk. These
investments are considered speculative under
traditional investment standards. Prices of high yield
securities will rise and fall primarily in response to
changes in the issuer's financial health, although changes
in market interest rates also will affect prices. High yield
securities may experience reduced liquidity, and sudden and
substantial decreases in price, during certain market
conditions.
PERFORMANCE

Commenced operations on January 2, 1997

13.53% 4.80%

- ---------------------------------------
1997 1998

HIGH (QUARTER) LOW (QUARTER)
<TABLE>
<S> <C>
4/97 - 6/97 7/98 - 9/98
5.91% -4.55%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN for
periods ended December 31, 1998
<TABLE>
<CAPTION>
HIGH YIELD SALOMON SMITH BARNEY
PORTFOLIO HIGH-YIELD MARKET INDEX*
- ------------------------------------------------------
<S> <C> <C>
Past One Year 4.80% 3.61%
- ------------------------------------------------------
Since Inception 9.10% 8.49%
</TABLE>

* The Salomon Smith Barney High Yield
Market Index includes public, non-
convertible corporate bond issues
with at least one year remaining to
maturity and $50 billion in par
amount outstanding which carry a
below investment grade quality
rating from either Standard & Poor's
or Moody's Rating Services. An index
is a hypothetical measure of
performance based on the ups and
downs of securities that make up a
particular market. The index does
not show actual investment returns
or reflect payment of management or
brokerage fees, which would lower
the index's performance.
1
<PAGE>

INVESTMENT SUMMARY

ADDITIONAL RISK FACTORS AND INFORMATION

Emerging market risks
Emerging market countries are foreign countries that major international
financial institutions, such as the World Bank, generally consider to be less
economically mature than developed nations, such as the United States or most
nations in Western Europe. Emerging market countries can include every nation
in the world except the United States, Canada, Japan, Australia, New Zealand,
Singapore and most nations located in Western Europe. Emerging market
countries may be more likely to experience political turmoil or rapid changes
in economic conditions than more developed countries, and the financial
condition of issuers in emerging market countries may be more precarious than
in other countries. These characteristics result in greater risk of price
volatility in emerging market countries, which may be heightened by currency
fluctuations relative to the U.S. dollar.

INVESTMENT ADVISER

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

<TABLE>
<CAPTION>
ASSETS FEE
- ----------------------------------------
<S> <C>
First $500 million 0.50%
- ----------------------------------------
From $500 million to $1 billion 0.45%
- ----------------------------------------
More than $1 billion 0.40%
</TABLE>

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 0.80% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 0.80%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

For the fiscal year ended December 31, 1998, MAS received a fee (net of fee
waivers) equal to 0.15% of the Portfolio's average daily net assets for
management services.
5
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

HIGH YIELD PORTFOLIO
Stephen F. Esser, Robert E. Angevine, Thomas L. Bennett and Gordon W. Loery

Stephen F. Esser, a Managing Director of Morgan Stanley, joined MAS in 1988.
He assumed responsibility for the MAS Funds High Yield Portfolio in 1989. Mr.
Esser is a member of the New York Society Security Analysts and holds a B.S.
degree (Summa Cum Laude and Phi Beta Kappa) from the University of Delaware.
Robert Angevine, a Principal of Morgan Stanley and MSDW Investment Management,
and a Portfolio Manager for high yield investments, joined Morgan Stanley in
October 1988. Mr. Angevine received a B.A. in Economics from Lafayette College
and an M.B.A. from Fairleigh Dickinson University. Thomas L. Bennett, a
Managing Director of Morgan Stanley, joined MAS in 1984. He assumed
responsibility for the MAS Funds Fixed Income Portfolio in 1984, the MAS Funds
Domestic Fixed Income Portfolio in 1987, the MAS Funds High Yield Portfolio in
1985, the MAS Funds Fixed Income Portfolio II in 1990, the MAS Funds Special
Purpose Fixed Income and Balanced Portfolios in 1992 and the MAS Funds Multi-
Asset-Class Portfolio in 1994. Mr. Bennett is Chairman of the Board of
Trustees of MAS Funds, a member of the Executive Committee of MAS and a
Director of MAS Fund Distributors, Inc. Mr. Bennett holds a B.S. in Chemistry
and an M.B.A. from the University of Cincinnati. Gordon W. Loery, a Principal
of MSDW Investment Management, joined MAS in 1996. He served as a Fixed Income
Analyst at MSDW Investment Management (formerly Morgan Stanley Asset
Management Inc.) from 1990 to 1996. Messrs. Esser, Bennett and Angevine have
shared primary responsibility for managing the Portfolio's assets since its
inception. Mr. Loery has shared primary responsibility for managing the
Portfolio's assets since April 1999.
6
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of one
hour after the close of the bond markets (normally 4:00 p.m. Eastern Time) on
each day that the Portfolio is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

FINANCIAL HIGHLIGHTS

HIGH YIELD PORTFOLIO

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 2, 1997* TO
DECEMBER 31, 1998 DECEMBER 31, 1997

<S> <C> <C>
SELECTED PER SHARE DATA AND RATIOS
Net Asset Value, Beginning of Period $ 10.59 $ 10.00
------- -------
Income From Investment Operations
Net Investment Income 0.63 0.63
Net Realized and Unrealized Gain (Loss) (0.13) 0.72
------- -------
Total From Investment Operations 0.50 1.35
------- -------
Distributions
Net Investment Income (0.62) (0.63)
Net Realized Gain (0.08) (0.13)
In Excess of Realized Gain (0.04) --
------- -------
Total Distributions (0.74) (0.76)
------- -------
Net Asset Value, End of Period $ 10.35 $ 10.59
======= =======
Total Return 4.80 % 13.53 %
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $33,059 $12,490
Ratio of Expenses to Average Net Assets 0.80 % 0.81 %**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense N/A 0.80 %**
Ratio of Net Investment Income to
Average Net Assets 8.42 % 7.41 %**
Portfolio Turnover Rate 48 % 78 %
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income $ 0.03 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.15 % 1.68 %**
Net Investment Income to Average Net
Assets 8.07 % 6.53 %**
</TABLE>
- -------
* Commencement of operations
** Annualized
8
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999
A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

HIGH YIELD PORTFOLIO
Above-average total return over a market cycle of three to five years by
investing primarily in a diversified portfolio of fixed income securities.

Investment Adviser

Miller Anderson & Sherrerd, LLP

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
High Yield Portfolio (the "Portfolio") is one portfolio of the Fund managed
by Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser"), an affiliate of
Morgan Stanley Dean Witter Investment Management Inc.

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

High Yield Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 5

MANAGEMENT FEE 5

PORTFOLIO MANAGERS 6

SHAREHOLDER INFORMATION 7

FINANCIAL HIGHLIGHTS 8

</TABLE>
<PAGE>

INVESTMENT SUMMARY
HIGH YIELD PORTFOLIO

The High Yield Portfolio seeks above-average total return over a market cycle
of three to five years by investing primarily in a portfolio of high yield
securities.

Commenced operations on January 2, 1997

13.53% 4.80%

- ---------------------------------------
1997 1998

HIGH (QUARTER) LOW (QUARTER)
<TABLE>
<S> <C>
4/97 - 6/97 7/98 - 9/98
5.91% -4.55%
</TABLE>

INVESTMENT SUMMARY

ADDITIONAL RISK FACTORS AND INFORMATION

INVESTMENT ADVISER

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 0.80% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 0.80%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

For the fiscal year ended December 31, 1998, MAS received a fee (net of fee
waivers) equal to 0.15% of the Portfolio's average daily net assets for
management services.
5
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

HIGH YIELD PORTFOLIO
Stephen F. Esser, Robert E. Angevine, Thomas L. Bennett and Gordon W. Loery

Stephen F. Esser, a Managing Director of Morgan Stanley, joined MAS in 1988.
He assumed responsibility for the MAS Funds High Yield Portfolio in 1989. Mr.
Esser is a member of the New York Society Security Analysts and holds a B.S.
degree (Summa Cum Laude and Phi Beta Kappa) from the University of Delaware.
Robert Angevine, a Principal of Morgan Stanley and MSDW Investment Management,
and a Portfolio Manager for high yield investments, joined Morgan Stanley in
October 1988. Mr. Angevine received a B.A. in Economics from Lafayette College
and an M.B.A. from Fairleigh Dickinson University. Thomas L. Bennett, a
Managing Director of Morgan Stanley, joined MAS in 1984. He assumed
responsibility for the MAS Funds Fixed Income Portfolio in 1984, the MAS Funds
Domestic Fixed Income Portfolio in 1987, the MAS Funds High Yield Portfolio in
1985, the MAS Funds Fixed Income Portfolio II in 1990, the MAS Funds Special
Purpose Fixed Income and Balanced Portfolios in 1992 and the MAS Funds Multi-
Asset-Class Portfolio in 1994. Mr. Bennett is Chairman of the Board of
Trustees of MAS Funds, a member of the Executive Committee of MAS and a
Director of MAS Fund Distributors, Inc. Mr. Bennett holds a B.S. in Chemistry
and an M.B.A. from the University of Cincinnati. Gordon W. Loery, a Principal
of MSDW Investment Management, joined MAS in 1996. He served as a Fixed Income
Analyst at MSDW Investment Management (formerly Morgan Stanley Asset
Management Inc.) from 1990 to 1996. Messrs. Esser, Bennett and Angevine have
shared primary responsibility for managing the Portfolio's assets since its
inception. Mr. Loery has shared primary responsibility for managing the
Portfolio's assets since April 1999.
6
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of one
hour after the close of the bond markets (normally 4:00 p.m. Eastern Time) on
each day that the Portfolio is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

FINANCIAL HIGHLIGHTS

HIGH YIELD PORTFOLIO

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 2, 1997* TO
DECEMBER 31, 1998 DECEMBER 31, 1997

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

CORE EQUITY PORTFOLIO
Above-average total return over a market cycle of three to five years by
investing primarily in common stocks and other equity securities of large
companies.

Investment Adviser

Miller Anderson & Sherrerd, LLP

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Core Equity Portfolio (the "Portfolio") is one portfolio of the Fund managed
by Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser"), an affiliate of
Morgan Stanley Dean Witter Investment Management Inc.

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Core Equity Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 3

MANAGEMENT FEE 3

PORTFOLIO MANAGERS 4

SHAREHOLDER INFORMATION 5
</TABLE>
<PAGE>

INVESTMENT SUMMARY
CORE EQUITY PORTFOLIO

The Core Equity Portfolio seeks above-average total return over a market cycle
of three to five years by investing primarily in common stocks and other
equity securities of large companies.

Approach
The Portfolio invests primarily in common stocks and other equity securities
of large companies. The Portfolio also makes targeted investments in stocks of
small companies and invests to a limited extent in foreign equity securities.

Process
A team of portfolio managers, organized into "value" and "growth" units,
manages the Portfolio. While the Portfolio's overall sector allocation is
driven by bottom-up stock selection, the Adviser tries to diversify the
Portfolio's investments across market sectors, seeking the best values within
each sector.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks and uncertainties of equity securities in the hope of earning
superior returns. In general, prices of equity securities are more volatile
than those of fixed income securities. The prices of equity securities will
rise and fall in response to a number of different factors. In particular,
prices of equity securities will respond to events which affect entire
financial markets or industries (changes in inflation or consumer demand, for
example) and to events that affect particular issuers (news about the success
or failure of a new product, for example). As a result of this price
volatility, there is a risk that you may lose money by investing in the
Portfolio. Investments in smaller companies may involve greater risk than
investments in larger, more established companies, and smaller companies'
securities may be subject to more abrupt or erratic price movements.

There is no performance information for the Core Equity Portfolio since it has
not commenced operations as of the date of this Prospectus.
1
<PAGE>

INVESTMENT SUMMARY
ADDITIONAL RISK FACTORS AND INFORMATION

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.

Foreign investing
Investing in foreign countries entails the risk that news and events unique to
a country or region will affect those markets and their issuers. These same
events will not necessarily have an effect on the U.S. economy or similar
issuers located in the United States. In addition, the Portfolio's investments
in foreign countries generally will be denominated in foreign currencies. As a
result, changes in the value of a country's currency compared to the U.S.
dollar may affect the value of the Portfolio's investments. These changes may
happen separately from and in response to events that do no otherwise affect
the value of the security in the issuer's home country. The Adviser may invest
in certain instruments, such as derivatives and may use certain techniques
such as hedging, to manage these risks. However, the Adviser cannot guarantee
that it will be practical to hedge these risks or that it will succeed in
doing so. The Adviser may use derivatives for other purposes such as gaining
exposure to foreign markets.

Temporary defensive investments
When the Adviser believes that changes in economic, financial or political
conditions warrant, the Portfolio may invest without limit in certain short
and medium-term fixed income securities for temporary purposes. If the Adviser
incorrectly predicts the effects of these changes, such defensive investments
may adversely affect the Portfolio's performance and the Portfolio may not
achieve its investment objective.

INVESTMENT ADVISER

MAS, with principal offices at One Tower Bridge, West Conshohocken,
Pennsylvania 19428 provides investment advisory services to employee benefit
plans, endowment funds, foundations and other institutional investors and has
served as investment adviser to several openend investment companies since
1984. MAS is a subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"). MSDW is
a preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses -- securities, asset
management and credit services. As of December 31, 1998, MAS and its
institutional advisory affiliates had approximately $163.4 billion in assets
under management or fiduciary advice.
The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

MANAGEMENT FEE
<TABLE>
<CAPTION>
ASSETS FEE
- ----------------------------------------
<S> <C>
First $500 million 0.55%
- ----------------------------------------
From $500 million to $1 billion 0.50%
- ----------------------------------------
More than $1 billion 0.45%
</TABLE>

However, the Adviser has voluntarily agreed to reduce its management fee and/or
reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 0.85% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio, including
these expenses, after fee waivers and/or reimbursements may be higher than
0.85%. Fee waivers and/or expense reimbursements are voluntary and the Adviser
reserves the right to terminate any waiver and/or reimbursement at any time
without notice.
3
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

CORE EQUITY PORTFOLIO
Arden C. Armstrong, Philip W. Friedman, James J. Jolinger, Nicholas J. Kovich,
Robert J. Marcin, Gary G. Schlarbaum and Brian Kramp
Arden C. Armstrong, a Managing Director of Morgan Stanley, joined MAS in 1986.
She assumed responsibility for the MAS Funds Mid Cap Growth Portfolio in 1990,
the MAS Funds Growth Portfolio in 1993 and the MAS Funds Equity Portfolio in
1994. Ms. Armstrong received a B.A. (Magna Cum Laude) in Economics from Brown
University, an M.B.A. from the Wharton School at University of Pennsylvania
and is a Chartered Financial Analyst. Philip W. Friedman is a Managing
Director of Morgan Stanley and MSDW Investment Management and is head of the
Institutional Equity Group of MSDW Investment Management. In addition to
portfolio management, his equity research responsibilities include business
equipment and services, capital goods, consumer durables, multi-industry and
transportation. Prior to joining MSDW Investment Management in 1997, he was
the North American Director of Equity Research at Morgan Stanley. From 1990 to
1995, he was a member of Morgan Stanley's Equity Research team. Mr. Friedman
graduated from Rutgers University with a B.A. (Phi Beta Kappa and Summa Cum
Laude) in Economics. He also holds a Masters of Management from the J. L.
Kellogg School of Management at Northwestern University. James J. Jolinger, a
Vice President of Morgan Stanley, joined MAS in 1994. He served as Equity
Analyst for Oppenheimer Capital from 1987 to 1994. Nicholas J. Kovich, a
Managing Director of Morgan Stanley, joined MAS in 1988. He assumed
responsibility for the MAS Funds Equity Portfolio in 1994. Mr. Kovich received
a B.S. in Chemical Engineering and an M.B.A. from University of Kansas. Robert
J. Marcin, a Managing Director of Morgan Stanley, joined MAS in 1988. He
assumed responsibility for the MAS Funds Value Portfolio in 1990 and the MAS
Funds Equity Portfolio in 1994. Mr. Marcin holds a B.A. (Cum Laude) from
Dartmouth College and is a Chartered Financial Analyst. 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. Brian Kramp, a Vice
President of Morgan Stanley, joined MAS in 1997. He served as
Analyst/Portfolio Manager for Meridian Asset Management and its successor,
CoreStates Investment Advisors from 1985-1997. Ms. Armstrong and Messrs.
Friedman, Jolinger, Kovich, Marcin, Schlarbaum and Kramp have shared primary
responsibility for managing the Portfolio's assets since its inception.
4
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

EQUITY GROWTH PORTFOLIO
Long-term capital appreciation by investing primarily in growth-oriented
equity securities of medium and large capitalization companies.

Investment Adviser

Morgan Stanley Dean Witter Investment Management Inc.

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Equity Growth Portfolio (the "Portfolio") is one portfolio of the Fund
managed by Morgan Stanley Dean Witter Investment Management Inc. ("MSDW
Investment Management" or the "Adviser").

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Equity Growth Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 3

MANAGEMENT FEE 3

PORTFOLIO MANAGERS 4

SHAREHOLDER INFORMATION 5

FINANCIAL HIGHLIGHTS 6

</TABLE>
<PAGE>

INVESTMENT SUMMARY EQUITY GROWTH PORTFOLIO

The Equity Growth Portfolio seeks long-term capital appreciation by investing
primarily in growth-oriented equity securities of medium and large
capitalization companies.

Approach
The Adviser seeks to maximize long-term capital appreciation by investing
primarily in the equity securities of U.S. and, to a limited extent, foreign
companies that exhibit strong or accelerating earnings growth. The universe of
eligible companies generally includes those with market capitalizations of $1
billion or more. The Adviser emphasizes individual security selection and may
focus the Portfolio's holdings within the limits permissible for a diversified
fund.

Process
The Adviser follows a flexible investment program in looking for companies with
above-average capital appreciation potential. The Adviser focuses on companies
with consistent or rising earnings growth records and compelling business
strategies. The Adviser continually and rigorously studies company
developments, including business strategy, management focus and financial
results, to identify companies with earnings growth and business momentum. In
addition, the Adviser closely monitors analysts' expectations to identify
issuers that have the potential for positive earnings surprises versus
consensus expectations. Valuation is of secondary importance and is viewed in
the context of prospects for sustainable earnings growth and the potential for
positive earnings surprises in relation to consensus expectations. The Adviser
considers selling securities of issuers that no longer meet its criteria.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks and uncertainties of investing in equity securities in the
hope of earning superior returns. In
general, prices of equity securities are more volatile than
those of fixed income securities. The prices of equity
securities will rise and fall in response to a number of
different factors. In particular, prices of equity
securities will respond to events that affect entire
financial markets or industries (changes in inflation or
consumer demand, for example) and to events that affect
particular issuers (news about the success or failure of a
new product, for example). As a result of this price
volatility, there is a risk that you may lose money by
investing in the Portfolio. In addition, at times the
Portfolio's market sector, mid- to large-capitalization
growth-oriented equity securities, may under perform
relative to other sectors.
PERFORMANCE

Commenced operations on January 2, 1997

33.05% 19.29%

- -------------------------------------------------------------------------------
1997 1998

HIGH (QUARTER) LOW (QUARTER)

Average Annual Total Return for
periods ended December 31, 1998
<TABLE>
<CAPTION>
EQUITY GROWTH STANDARD & POOR'S
PORTFOLIO 500 COMPOSITE INDEX*
- -----------------------------------------------------
<S> <C> <C>
Past One Year 19.29% 28.57%
- -----------------------------------------------------
Since Inception 26.06% 31.36%
</TABLE>

* The S&P 500 is a stock index
comprised of 500 large-cap U.S.
companies with market capitalization
of $1 billion or more. These 500
companies are a representative
sample of some 100 industries,
chosen mainly for market size,
liquidity and industry group
representation. The S&P 500 is a
market-value weighted index (stock
price times number of shares
outstanding), with each stock's
weight in the index proportionate to
its market value. An index is a
hypothetical measure of performance
based on the ups and downs of
securities that make up a particular
market. The index does not show
actual investment returns or reflect
payment of management or brokerage
fees, which would lower the index's
performance.
1
<PAGE>

INVESTMENT SUMMARY

ADDITIONAL RISK FACTORS AND INFORMATION

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.

Foreign investing
Investing in foreign countries, particularly emerging markets, entails the
risk that news and events unique to a country or region will affect those
markets and their issuers. These same events will not necessarily have an
effect on the U.S. economy or similar issuers located in the United States. In
addition, the Portfolio's investments in foreign countries generally will be
denominated in foreign currencies. As a result, changes in the value of a
country's currency compared to the U.S. dollar may affect the value of the
Portfolio's investments. These changes may occur separately from and in
response to events that do not otherwise affect the value of the security in
the issuer's home country. The Adviser may invest in certain instruments, such
as derivatives and may use certain techniques such as hedging, to manage these
risks. However, the Adviser cannot guarantee that it will be practical to
hedge these risks in certain markets or under particular conditions or that it
will succeed in doing so. The Adviser may use derivatives for other purposes
such as gaining exposure to foreign markets.

INVESTMENT ADVISER

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

<TABLE>
<CAPTION>
ASSETS FEE
- ----------------------------------------
<S> <C>
First $500 million 0.55%
- ----------------------------------------
From $500 million to $1 billion 0.50%
- ----------------------------------------
More than $1 billion 0.45%
</TABLE>

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 0.85% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 0.85%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

For the fiscal year ended December 31, 1998, MSDW Investment Management
received a fee (net of fee waivers) equal to 0.09% of the Portfolio's average
daily net assets for management services.
3
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

EQUITY GROWTH PORTFOLIO
Philip W. Friedman, Margaret K. Johnson and William S. Auslander
Philip W. Friedman is a Managing Director of MSDW Investment Management and
Morgan Stanley and is head of the Institutional Equity Group of MSDW
Investment Management. In addition to portfolio management, his equity
research responsibilities include capital goods, consumer durables, multi-
industry and transportation. Prior to joining MSDW Investment Management in
1997, he was the North American Director of Equity Research at Morgan Stanley.
From 1990 to 1995, he was a member of Morgan Stanley's Equity Research team.
Mr. Friedman Graduated from Rutgers University with a B.A. (Phi Beta Kappa and
Summa Cum Laude) in Economics. He also holds a Masters of Management from the
J. L. Kellogg School of Management at Northwestern University. Margaret K.
Johnson is a Principal of MSDW Investment Management and Morgan Stanley and a
portfolio manager in the Institutional Equity Group. She joined MSDW
Investment Management in 1984. She holds a B.A. degree from Yale College and
is a Chartered Financial Analyst. William S. Auslander is a Principal of MSDW
Investment Management and Morgan Stanley and a portfolio manager in the
Institutional Equity Group. He joined MSDW Investment Management in 1995 as an
equity analyst in the Institutional Equity Group. Prior to joining MSDW
Investment Management, he worked at Icahn & Co. for nine years as an equity
analyst. He graduated from the University of Wisconsin at Madison with a B.A.
in Economics and received an M.B.A. from Columbia University. Ms. Johnson has
shared primary responsibility for managing the Portfolio's assets since its
inception. Messrs. Friedman and Auslander have shared primary responsibility
for managing the Portfolio's assets since September 1998.
4
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

For information on federal income taxation of a life insurance company with to
its receipt of distributions from the Portfolio and federal income taxation of
owners of variable annuity or variable life insurance contracts, refer to the
contract prospectus.
5
<PAGE>

FINANCIAL HIGHLIGHTS

EQUITY GROWTH PORTFOLIO

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 2, 1997* TO
DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
SELECTED PER SHARE DATA AND RATIOS
Net Asset Value, Beginning of Period $ 12.74 $ 10.00
------- -------
Income From Investment Operations
Net Investment Income 0.02 0.02
Net Realized and Unrealized Gain 2.43 3.27
------- -------
Total From Investment Operations 2.45 3.29
------- -------
Distributions
Net Investment Income -- (0.02)
Net Realized Gain (0.09) (0.53)
------- -------
Total Distributions (0.09) (0.55)
------- -------
Net Asset Value, End of Period $ 15.10 $ 12.74
======= =======
Total Return 19.29 % 33.05 %
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $56,215 $12,419
Ratio of Expenses to Average Net Assets 0.85 % 0.85 %**
Ratio of Net Investment Income to
Average Net Assets 0.28 % 0.41 %**
Portfolio Turnover Rate 149 % 172 %
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income $ 0.04 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.31 % 2.05 %**
Net Investment Loss to Average Net
Assets (0.18)% (0.80)%**
</TABLE>
- -------
* Commencement of operations
** Annualized
6
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

VALUE PORTFOLIO
Above-average total return over a market cycle of three to five years by
investing primarily in a portfolio of common stocks and other equity
securities.

Investment Adviser

Miller Anderson & Sherrerd, LLP

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Value Portfolio (the "Portfolio") is one portfolio of the Fund managed by
Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser"), an affiliate of
Morgan Stanley Dean Witter Investment Management Inc.

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Value Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 3

MANAGEMENT FEE 3

PORTFOLIO MANAGERS 4

SHAREHOLDER INFORMATION 5

FINANCIAL HIGHLIGHTS 6

</TABLE>
<PAGE>

INVESTMENT SUMMARY

VALUE PORTFOLIO

The Value Portfolio seeks above-average total return over a market cycle of
three to five years by investing primarily in a portfolio of common stocks and
other equity securities.

Approach
The Portfolio invests primarily in common stocks and other equity securities
with equity capitalizations greater than $1.5 billion. The Portfolio focuses on
stocks that are undervalued in comparison with the stock market as a whole, as
measured by the S&P 500 Index. While value stocks typically pay dividends, the
Portfolio may purchase stocks that do not pay dividends based on other value
characteristics. The Portfolio may invest, to a limited extent in foreign
equity securities.

Process
The Adviser narrows the Portfolio's universe of possible investments through a
three part analysis. The Adviser selects stocks having the lowest
price/earnings ratios. The Adviser applies fundamental analysis and its
investment judgment to determine which of those securities are the most
attractive. The Adviser also may favor securities of companies that are in
undervalued industries. The Adviser employs a formal sell discipline, under
which the Portfolio sells securities when their price/earnings ratios rise.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks and uncertainties of equity securities in the hope of earning
superior returns. In general, prices of equity securities are more volatile
than those of fixed income securities. The prices of equity securities will
rise and fall in response to a number of different factors. In particular,
prices of equity securities will respond to events which affect entire
financial markets or industries (changes in inflation or consumer demand, for
example) and to events that affect particular issuers (news about the success
or failure of a new product, for example). As a result of this price
volatility, there is a risk that you may lose money by investing in the
Portfolio. Investments in smaller companies may involve
greater risk than investments in larger, more established
companies, and smaller companies' securities may be subject
to more abrupt or erratic price movements. Certain market
conditions may favor value stocks, while other conditions
may favor growth stocks. Accordingly, a portfolio of value
stocks may, over periods of time, underperform a portfolio
of growth stocks.
PERFORMANCE

Commenced operations on January 2, 1997

20.98%

- --------------------------------------------------------------------------------
1997
-2.13%
1998

HIGH (QUARTER) LOW (QUARTER)
<TABLE>
<S> <C>
4/97 - 6/97 7/98 - 9/98
14.07% -18.26%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN for
periods ended December 31, 1998
<TABLE>
<CAPTION>
STANDARD & POOR'S
VALUE PORTFOLIO 500 COMPOSITE INDEX*
- -------------------------------------------------------
<S> <C> <C>
Past One Year -2.13% 28.57%
- -------------------------------------------------------
Since Inception 8.84% 31.36%
</TABLE>

INVESTMENT SUMMARY
ADDITIONAL RISK FACTORS AND INFORMATION

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.

INVESTMENT ADVISER

MAS, with principal offices at One Tower Bridge, West Conshohocken,
Pennsylvania 19428 provides investment advisory services to employee benefit
plans, endowment funds, foundations and other institutional investors and has
served as investment adviser to several open-end investment companies since
1984. MAS is a subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"). MSDW
is a preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses -- securities, asset
management and credit services. As of December 31, 1998, MAS and it
institutional advisory affiliates had approximately $163.4 billion in assets
under management or fiduciary advice.

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 0.85% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 0.85%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

For the fiscal year ended December 31, 1998, MAS received a fee (net of fee
waivers) equal to 0.08% of the Portfolio's average daily net assets for
management services.
3
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

VALUE PORTFOLIO
Robert J. Marcin, Richard M. Behler and Nicholas J. Kovich

Robert J. Marcin, a Managing Director of Morgan Stanley, joined MAS in 1988.
He assumed responsibility for the MAS Funds Value Portfolio in 1990 and the
MAS Funds Equity Portfolio in 1994. Mr. Marcin holds a B.A. (Cum Laude) from
Dartmouth College and is a Chartered Financial Analyst. Richard M. Behler, a
Principal of Morgan Stanley, joined MAS in 1995. He served as a Portfolio
Manager from 1992 through 1995 for Moore Capital Management and as a Senior
Vice President for Merrill Lynch Economics from 1987 through 1992. He assumed
responsibility for the MAS Funds Value Portfolio in 1996. Mr. Behler received
a B.A. (Cum Laude) in Economics from Villanova University and an M.A. and a
Ph.D. in Economics from the University of Notre Dame. Nicholas J. Kovich, a
Managing Director of Morgan Stanley, joined MAS in 1988. He assumed
responsibility for the MAS Funds Equity Portfolio in 1994. Mr. Kovich received
a B.S. in Chemical Engineering and an M.B.A. from University of Kansas. Mr.
Behler and Mr. Marcin have shared primary responsibility for managing the
Portfolio's assets since its inception. Mr. Kovich assumed responsibilities
with the Value Portfolio in 1997.
4
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

FINANCIAL HIGHLIGHTS

VALUE PORTFOLIO

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 2, 1997* TO
DECEMBER 31, 1998++ DECEMBER 31, 1997
<S> <C> <C>
SELECTED PER SHARE DATA AND RATIOS
Net Asset Value, Beginning of Period $ 11.78 $ 10.00
------- -------
Income From Investment Operations
Net Investment Income 0.19 0.10
Net Realized and Unrealized Gain
(Loss) (0.45) 1.99
------- -------
Total From Investment Operations (0.26) 2.09
------- -------
Distributions
Net Investment Income (0.16) (0.10)
In Excess of Net Investment Income -- 0.00+
Net Realized Gain (0.17) (0.21)
In Excess of Net Realized Gain (0.09) 0.00+
------- -------
Total Distributions (0.42) (0.31)
------- -------
Net Asset Value, End of Period $ 11.10 $ 11.78
======= =======
Total Return (2.13)% 20.98 %
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $26,090 $14,664
Ratio of Expenses to Average Net
Assets 0.85% 0.85 %**
Ratio of Net Investment Income to
Average Net Assets 1.57% 1.70 %**
Portfolio Turnover Rate 45% 34 %
Effect of Voluntary Expense
Limitation During the Period:
Per Share Benefit to Net Investment
Income $ 0.05 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.32% 1.87 %**
Net Investment Income to Average Net
Assets 1.10% 0.68 %**
</TABLE>
- -------
* Commencement of operations
** Annualized
+ Amount is less than $0.01 per share.
++ Per share amounts for the year ended December 31, 1998 are based on average
shares outstanding.
6
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

MID CAP GROWTH PORTFOLIO
Long-term capital growth by investing primarily in common stocks and other
equity securities.

Investment Adviser

Miller Anderson & Sherrerd, LLP

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Mid Cap Growth Portfolio (the "Portfolio") is one portfolio of the Fund
managed by Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser"), an
affiliate of Morgan Stanley Dean Witter Investment Management Inc.

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Mid Cap Growth Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 3

MANAGEMENT FEE 3

PORTFOLIO MANAGERS 4

SHAREHOLDER INFORMATION 5
</TABLE>
<PAGE>

INVESTMENT SUMMARY

MID CAP GROWTH PORTFOLIO
The Mid Cap Growth Portfolio seeks long-term capital growth by investing
primarily in common stocks and other equity securities.

Approach
The Adviser particularly focuses on the expectations of stock analysts and
invests the Portfolio in stocks of companies that it believes will report
earnings growth exceeding analysts' expectations. The equity capitalization of
these companies will generally match those in the S&P Mid Cap 400 Index
(currently $500 million to $6 billion). The Portfolio may invest to a limited
extent in foreign equity securities.

Process
The Adviser uses a quantitative screen to sort stocks based on revisions to
analysts' earnings predictions. The Adviser then conducts extensive fundamental
research into those companies with the most attractive earnings revisions.
Finally, the Adviser evaluates the valuation of the stocks to eliminate from
consideration the most overvalued stocks. The Adviser also follows a strict
sell discipline. The Portfolio sells stocks when their earnings revision scores
fall to unacceptable levels, fundamental research reveals unfavorable trends,
or their valuations exceed levels that are reasonable in relation to the
stocks' growth prospects.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risk and uncertainties of investing in mid-cap equity securities in
the hope of earning superior total returns. In general, prices of equity
securities are more volatile than those of fixed income securities. The prices
of equity securities will rise and fall in response to a number of different
factors. In particular, prices of equity securities will respond to events
which affect entire financial markets or industries (changes in inflation or
consumer demand, for example) and to events that affect particular issuers
(news about the success or failure of a new product, for example). As a result
of this price volatility, there is a risk that you may lose money by investing
in the Portfolio. Investments in smaller companies may involve greater risk
than investments in larger, more established companies, and smaller companies'
securities may be subject to more abrupt or erratic price movements. Certain
market conditions may favor growth stocks or stocks of mid-sized companies,
while other conditions may favor value stocks or stocks of larger or smaller
companies. Accordingly, a portfolio of mid- cap growth stocks may, over certain
periods of time, underperform a portfolio of value stocks or stocks of larger
or smaller companies.

There is no performance information for the Mid Cap Growth Portfolio since it
has not commenced operations as of the date of this Prospectus.
1
<PAGE>

INVESTMENT SUMMARY

ADDITIONAL RISK FACTORS AND INFORMATION
This section discusses additional risk factors and information relating to the
Portfolio. The Portfolio's investment practices and limitations are described
in more detail in the Statement of Additional Information ("SAI") which is
legally part of this Prospectus. For details on how to obtain a copy of the SAI
and other reports and information, see the back cover of this Prospectus.

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.

Foreign investing
Investing in foreign countries entails the risk that news and events unique to
a country or region will affect those markets and their issuers. These same
events will not necessarily have an effect on the U.S. economy or similar
issuers located in the United States. In addition, the Portfolio's investments
in foreign countries generally will be denominated in foreign currencies. As a
result, changes in the value of a country's currency compared to the U.S.
dollar may affect the value of the Portfolio's investments. These changes may
happen separately from and in response to events that do no otherwise affect
the value of the security in the issuer's home country. The Adviser may invest
in certain instruments, such as derivatives and may use certain techniques
such as hedging, to manage these risks. However, the Adviser cannot guarantee
that it will be practical to hedge these risks or that it will succeed in
doing so. The Adviser may use derivatives for other purposes such as gaining
exposure to foreign markets.

2
<PAGE>

INVESTMENT ADVISER

MANAGEMENT FEE
The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

<TABLE>
<CAPTION>
ASSETS FEE
- ----------------------------------------
<S> <C>
First $500 million 0.75%
- ----------------------------------------
From $500 million to $1 billion 0.70%
- ----------------------------------------
More than $1 billion 0.65%
- ----------------------------------------
</TABLE>

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 1.05% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 1.05%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

3
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

MID CAP GROWTH PORTFOLIO
Arden C. Armstrong and Abhi Y Kanitkar
Arden C. Armstrong, a Managing Director of Morgan Stanley, joined MAS in 1986.
She assumed responsibility for the MAS Funds Mid Cap Growth Portfolio in 1990,
the MAS Funds Growth Portfolio in 1993 and the MAS Funds Equity Portfolio in
1994. Ms. Armstrong received a B.A. (Magna Cum Laude) in Economics from Brown
University, an M.B.A. from the Wharton School at University of Pennsylvania
and is a Chartered Financial Analyst. Abhi Y. Kanitkar, a Vice-President of
Morgan Stanley, joined MAS in 1994. He served as an Investment Analyst from
1993 through 1994 for Newbold's Asset Management and as Director & Investment
Analyst from 1990 through 1993 for Kanitkar Investment Services, Inc. He
assumed responsibility for the MAS Funds Mid Cap Growth Portfolio in 1996. Mr.
Kanitkar received a B.S. (Magna Cum Laude, Tau Beta Pi) in Electrical
Engineering from University of Michigan and an M.B.A. from the Wharton School
at University of Pennsylvania. Ms. Armstrong and Mr. Kanitkar have shared
primary responsibility for managing the Portfolio's assets since its
inception.
4
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

MID CAP VALUE PORTFOLIO
Above-average total return over a market cycle of three to five years by
investing in common stocks and other equity securities.

Investment Adviser

Miller Anderson & Sherrerd, LLP

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Mid Cap Value Portfolio (the "Portfolio") is one portfolio of the Fund
managed by Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser"), an
affiliate of Morgan Stanley Dean Witter Investment Management Inc.

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Mid Cap Value Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 3

MANAGEMENT FEE 3

PORTFOLIO MANAGERS 4

SHAREHOLDER INFORMATION 5

FINANCIAL HIGHLIGHTS 6

</TABLE>
<PAGE>

INVESTMENT SUMMARY MID CAP VALUE PORTFOLIO

The Mid Cap Value Portfolio seeks above-average total return over a market
cycle of three to five years by investing in common stocks and other equity
securities.

Approach
The Portfolio focuses on stocks that the Adviser believes are undervalued based
on its proprietary measures of value. While value stocks typically pay
dividends, the Portfolio may purchase stocks that do not pay dividends if they
possess other value characteristics. The equity capitalization of the companies
the Portfolio invests in will generally match those in the S&P MidCap 400 Index
(currently $500 million to $6 billion). The Portfolio may invest to a limited
extent in foreign equity securities.

Process
The Adviser continually measures the relative attractiveness of the Portfolio's
current holdings against potential purchases, analyzing each security on a
fundamental basis. The Portfolio's holdings typically will have lower
price/earnings ratios than the average stock included in the S&P MidCap 400
Index. Sector weightings normally are kept within 5% of those of the S&P MidCap
400 Index.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks and uncertainties of investing in mid-cap equity securities in
the hope of earning superior returns. In general, prices of equity securities
are more volatile than those of fixed income securities. The prices of equity
securities will rise and fall in response to a number of different factors. In
particular, prices of equity securities will respond to events which affect
entire financial markets or industries (changes in inflation or consumer
demand, for example) and to events that affect particular issuers (news about
the success or failure of a new product, for example). As a result of this
price volatility, there is a risk that you may lose money by in-
vesting in the Portfolio. Investments in smaller companies
may involve greater risk than investments in larger, more
established companies, and smaller companies' securities may
be subject to more abrupt or erratic price movements.
Certain market conditions may favor value stocks or stocks
of mid-sized companies, while other conditions may favor
growth stocks or stocks of larger or smaller companies.
Accordingly, a portfolio of mid-cap value stocks may, over
certain periods of time, underperform a portfolio of growth
stocks or stocks of larger or smaller companies.
PERFORMANCE

Commenced operations on January 2, 1997

40.93%

15.85%

- ---------------------------------------
1997 1998

HIGH (QUARTER) LOW (QUARTER)
<TABLE>
<S> <C>
7/97 - 9/97 7/98 - 9/98
20.57% -13.04%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN for
periods ended December 31, 1998
<TABLE>
<CAPTION>
MID CAP VALUE STANDARD & POOR'S
PORTFOLIO MIDCAP 400 INDEX*
- --------------------------------------------------
<S> <C> <C>
Past One Year 15.85% 19.12%
- --------------------------------------------------
Since Inception 27.86% 26.45%
</TABLE>

* The S&P MidCap 400 Index is a value
weighted index. The companies chosen
for the Index generally have market
values between $500 million and $6
billion, depending on current market
valuation and represent a broad
range of industry segments within
the U.S. economy. An index is a
hypothetical measure of performance
based on the ups and downs of
securities that make up a particular
market. The index does not show
actual investment returns or reflect
payment of management or brokerage
fees, which would lower the index's
performance.
1
<PAGE>

ADDITIONAL RISK FACTORS AND INFORMATION
INVESTMENT SUMMARY
This section discusses additional risk factors and information relating to the
Portfolio. The Portfolio's investment practices and limitations are described
in more detail in the Statement of Additional Information ("SAI") which is
legally part of this Prospectus. For details on how to obtain a copy of the
SAI and other reports and information, see the back cover of this Prospectus.

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.

2
<PAGE>

INVESTMENT ADVISER
MAS, with principal offices at One Tower Bridge, West Conshohocken,
Pennsylvania 19428 provides investment advisory services to employee benefit
plans, endowment funds, foundations and other institutional investors and has
served as investment adviser to several open-end investment companies since
1984. MAS is a subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"). MSDW
is a preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses -- securities, asset
management and credit services. As of December 31, 1998, MAS and its
institutional advisory affiliates had approximately $163.4 billion in assets
under management or fiduciary advice.

MANAGEMENT FEE
The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 1.05% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 1.05%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

For the fiscal year ended December 31, 1998, MAS received a fee (net of fee
waivers) equal to 0.23% of the Portfolio's average daily net assets for
management services.
3

<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

MID CAP VALUE PORTFOLIO
William B. Gerlach, Gary G. Schlarbaum, Bradley S. Daniels and Chris Leavy

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. degree
from Coe College and a Ph.D. from the University of Pennsylvania. Bradley S.
Daniels, a Vice President of Morgan Stanley, joined MAS in 1985. Chris Leavy
joined MAS in 1997. He served as a Portfolio Manager for Capitoline Investment
Services from 1995-1997; a Portfolio Manager for Premier Trust Company from
1994 to 1995; and as a Research Analyst for Leavy Investment Management from
1993-1994. Messrs. Gerlach, Schlarbaum, Daniels and Leavy have had primary
responsibility for managing the Portfolio's assets since its inception.
4
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

MID CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolio's financial performance since its inception. Certain information
reflects financial results for a single Portfolio share. The total returns in
the table represent the rate that an investor would have earned (or lost) on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP, whose unqualified report thereon appears in the Portfolio's Annual Report
to Shareholders and is incorporated by reference in the Statement of
Additional Information. The Annual Report and the financial statements
therein, as well as the Statement of Additional Information, are available at
no cost from the Fund at the toll free number noted on the back cover to this
Prospectus or from your insurance company.

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 2, 1997* TO
DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
SELECTED PER SHARE DATA
AND RATIOS
Net Asset Value, Beginning of Period $ 13.32 $ 10.00
------- -------
Income From Investment Operations
Net Investment Income 0.04 0.02
Net Realized and Unrealized Gain 2.04 4.05
------- -------
Total From Investment Operations 2.08 4.07
------- -------
Distributions
Net Investment Income (0.03) (0.02)
Net Realized Gain (0.45) (0.73)
------- -------
Total Distributions (0.48) (0.75)
------- -------
Net Asset Value, End of Period $ 14.92 $ 13.32
======= =======
Total Return 15.85 % 40.93 %
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $31,381 $11,461
Ratio of Expenses to Average Net Assets 1.05 % 1.05 %**
Ratio of Net Investment Income to
Average Net Assets 0.42 % 0.19 %**
Portfolio Turnover Rate 228 % 141 %
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income $ 0.05 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.57 % 2.13 %**
Net Investment Loss to Average Net
Assets (0.10)% (0.89)%**
</TABLE>
- -------
* Commencement of operations
** Annualized
6

<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715

<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

U.S. REAL ESTATE PORTFOLIO

Above average current income and long-term capital appreciation by investing
primarily in equity securities of companies in the U.S. real estate industry,
including real estate investment trusts ("REITs").

Investment Adviser

Morgan Stanley Dean Witter Investment Management Inc.

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
U.S. Real Estate Portfolio (the "Portfolio") is one portfolio of the Fund
managed by Morgan Stanley Dean Witter Investment Management Inc. ("MSDW
Investment Management" or the "Adviser").

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.

<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

U.S. Real Estate Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 3

MANAGEMENT FEE 3

PORTFOLIO MANAGERS 4

SHAREHOLDER INFORMATION 5

FINANCIAL HIGHLIGHTS 6

</TABLE>
<PAGE>

INVESTMENT SUMMARY
U. S. REAL ESTATE PORTFOLIO

The U.S. Real Estate Portfolio seeks above average current income and long-term
capital appreciation by investing primarily in equity securities of companies
in the U.S. real estate industry, including real estate investment trusts
("REITs").

Approach
The Adviser seeks a combination of current income and long-term gain by
constructing a portfolio of equity securities of companies that are in the U.S.
real estate business. The Portfolio focuses on REITs as well as real estate
operating companies and diversifies its investments as to issuers, property
types and region. The Adviser's approach emphasizes bottom-up stock selection
with a top-down asset allocation overlay.

Process
The Adviser actively manages the Portfolio using a combination of top-down and
bottom-up methodologies. The top-down asset allocation overlay is determined by
focusing on key regional criteria, which include demographic and macroeconomic
considerations (for example, population, employment, household formation and
income). The Adviser employs a value-driven approach to bottom-up security
selection which emphasizes underlying asset values, values per square foot and
property yields. In seeking an optimal matrix of regional and property market
exposure, the Adviser considers broad demographic and macroeconomic factors as
well as criteria such as space demand, new construction and rental patterns.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks and uncertainties of the U.S. real estate market in the hope
of earning current income and long-term gain while diversifying your investment
portfolio. In general, prices of equity securities are more volatile than those
of fixed income securities. The prices of equity securities will rise and fall
in response to a number of different factors. In particular, prices of equity
securities will respond to events which affect entire financial markets or
industries
(changes in inflation or consumer demand, for example) and
to events that affect particular issuers (news about the
success or failure of a new product, for example). As a
result of this price volatility, there is a risk that you
may lose money by investing in the Portfolio. Investing in
real estate companies entails the risks of the real estate
business generally, including sensitivity to economic and
business cycles, changing demographic patterns and
government actions. These risks may be intensified because
the Portfolio is non-diversified which means it may invest
in securities of a limited number of issuers. As a result,
the performance of a particular investment or a small group
of investments may affect the Portfolio's performance more
than if the Portfolio were diversified. In addition, at
times the Portfolio's market sector, U.S. real estate
securities, may underperform relative to other sectors.

Investing in REITs exposes investors to the risks of owning
real estate directly as well as to risks that relate
specifically to the way in which REITs are organized and
operated. REITs generally invest directly in real estate
(equity REITs), in mortgages (mortgage REITs) or in some
combination of the two (hybrid REITs). The Portfolio will
invest primarily in equity REITs. Operating REITs requires
specialized management skills and the Portfolio indirectly
bears REIT management expenses along with the direct
expenses of the Portfolio. Individual REITs may own a
limited number of properties and may concentrate in a
particular region or property type. REITs also must satisfy
specific Internal Revenue Code requirements in order to
qualify for the tax-free pass through of income.
PERFORMANCE

Commenced operations on March 3, 1997

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

-10.86%
1998

HIGH (QUARTER) LOW (QUARTER)
<TABLE>
<S> <C>
10/98 - 12/98 7/98 - 9/98
2.60% -8.80%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN for
periods ended December 31, 1998
<TABLE>
<CAPTION>
NATIONAL ASSOCIATION OF
REAL ESTATE INVESTMENT
U.S. REAL ESTATE TRUSTS (NAREIT) EQUITY
PORTFOLIO INDEX*
- -----------------------------------------------------------
<S> <C> <C>
Past One Year -10.86% -17.50%
- -----------------------------------------------------------
Since Inception 2.79% -0.92%
</TABLE>

The bar chart and table above show the
performance of the Portfolio over the
last year and as an average over dif-
ferent periods of time. This perfor-
mance information does not include the
impact of any charges deducted by your
insurance company. If it did, returns
would be lower. The bar chart and ta-
ble demonstrate the variability of
performance over time and provide an
indication of the risks of investing
in the Portfolio. How the Portfolio
has performed in the past does not
necessarily indicate how the Portfolio
will perform in the future.

* The NAREIT Equity Index is an
unmanaged market weighted index of
tax-qualified REITs listed on the
New York and American Stock
Exchanges and the NASDAQ National
Market System (including dividends).
An index is a hypothetical measure
of performance based on the ups and
downs of securities that make up a
particular market. The index does
not show actual investment returns
or reflect payment of management or
brokerage fees, which would lower
the index's performance.
1
<PAGE>

INVESTMENT SUMMARY

ADDITIONAL RISK FACTORS AND INFORMATION

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.

Real estate investing
The Portfolio invests in companies that are mainly in the real estate business
(that is, they either (i) derived at least 50% of their revenues or profits
from the ownership, construction, management, financing or sale of
residential, commercial or industrial real estate, or (ii) have at least 50%
of the fair market value of their assets invested in residential, commercial
or industrial real estate). As a result, these companies (and, therefore, the
Portfolio) will experience the risks of investing in real estate directly.
Real estate is a cyclical business, highly sensitive to general and local
economic developments and characterized by intense competition and periodic
overbuilding. Real estate income and values may also be greatly affected by
demographic trends, such as population shifts or changing tastes on values.
Government actions, such as tax increases, zoning law changes or environmental
regulations, may also have a major impact on real estate. Changing interest
rates and credit quality requirements will also affect the cash flow of real
estate companies and their ability to meet capital needs.

INVESTMENT ADVISER

MSDW Investment Management, with principal offices at 1221 Avenue of the
Americas, New York, New York 10020, conducts a worldwide portfolio management
business, and provides a broad range of portfolio management services to
customers in the United States and abroad. Morgan Stanley Dean Witter & Co.
("MSDW") is the direct parent of MSDW Investment Management and Morgan
Stanley. MSDW is a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses --
securities, asset management and credit services. As of December 31, 1998,
MSDW Investment Management and its institutional investment advisory
affiliates had approximately $163.4 billion in assets under management or
fiduciary advice.

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

<TABLE>
<CAPTION>
ASSETS FEE
- ----------------------------------------
<S> <C>
First $500 million 0.80%
- ----------------------------------------
From $500 million to $1 billion 0.75%
- ----------------------------------------
More than $1 billion 0.70%
</TABLE>

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 1.10% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 1.10%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

For the fiscal year ended December 31, 1998, MSDW Investment Management
received a fee (net of fee waivers) equal to 0.17% of the Portfolio's average
daily net assets for management services.
3
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

U.S. REAL ESTATE PORTFOLIO
Theodore R. Bigman and Douglas A. Funke
Theodore R. Bigman joined Morgan Stanley in 1995 and currently is a Principal
of MSDW Investment Management and Morgan Stanley. He has primary
responsibility for managing MSDW Investment Management's global real estate
securities business. Prior to joining MSDW Investment Management, he was a
Director at CS First Boston, where he worked for eight years in the Real
Estate Group. While at CS First Boston, Mr. Bigman established and managed
that firm's REIT effort, including primary responsibility for $2.5 billion of
initial public offerings by REITs. Mr. Bigman graduated from Brandeis
University in 1983 with a B.A. in Economics and received his M.B.A. from
Harvard University in 1987. Douglas A. Funke joined Morgan Stanley in 1993 as
a Financial Analyst. Currently, he is Vice President of MSDW Investment
Management and Morgan Stanley and is responsible for providing research and
analytical support for the group's real estate securities investment business.
Prior to joining MSDW Investment Management, he was a member of Morgan
Stanley's Interest Rate and Foreign Exchange Risk Management Group, where he
assisted in the execution of more than $3 billion of structured financings and
firm-related risk management projects. He graduated from the University of
Chicago in 1993 with a B.A. in Economics and Political Science. He is a member
of the National Association of Real Estate Investment Trusts and the New York
Society of Securities Analysts. Mr. Bigman has shared primary responsibility
for managing the Portfolio's assets since its inception. Mr. Funke has shared
primary responsibility for managing the Portfolio's assets since January 1999.
4
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

FINANCIAL HIGHLIGHTS

U.S. REAL ESTATE PORTFOLIO

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MARCH 3, 1997* TO
DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
SELECTED PER SHARE DATA AND RATIOS
Net Asset Value, Beginning of Period $ 11.41 $ 10.00
------- -------
Income From Investment Operations
Net Investment Income 0.40 0.17
Net Realized and Unrealized Gain (Loss) (1.63) 1.61
------- -------
Total From Investment Operations (1.23) 1.78
------- -------
Distributions
Net Investment Income (0.29) (0.17)
Net Realized Gain (0.09) (0.20)
------- -------
Total Distributions (0.38) (0.37)
------- -------
Net Asset Value, End of Period $ 9.80 $ 11.41
======= =======
Total Return (10.86)% 17.99%
======= =======
Ratios and Supplemental Data:
Net Assets, End of Period (000's) $15,134 $13,055
Ratio of Expenses to Average Net Assets 1.10% 1.10%**
Ratio of Net Investment Income to Average
Net Assets 4.14% 3.14%**
Portfolio Turnover Rate 100% 114%
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income $0.06 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.73% 2.32%**
Net Investment Income to Average Net
Assets 3.51% 1.92%**
</TABLE>
- -------
* Commencement of operations
** Annualized
6
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715

<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

INTERNATIONAL FIXED INCOME PORTFOLIO
Above-average total return over a market cycle of three to five years by
investing primarily in investment grade foreign bonds.

Investment Adviser

Miller Anderson & Sherrerd, LLP

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
International Fixed Income Portfolio (the "Portfolio") is one portfolio of
the Fund managed by Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser"),
an affiliate of Morgan Stanley Dean Witter Investment Management Inc.

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

International Fixed Income Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 4

MANAGEMENT FEE 4

PORTFOLIO MANAGERS 5

SHAREHOLDER INFORMATION 6
</TABLE>
<PAGE>

INVESTMENT SUMMARY

INTERNATIONAL FIXED INCOME PORTFOLIO

The International Fixed Income Portfolio seeks above-average total return over
a market cycle of three to five years by investing primarily in investment
grade foreign bonds.

Approach
The Portfolio invests primarily in high grade foreign fixed income securities.
The Portfolio may invest to a limited degree in high yield securities and
emerging market fixed income securities. The Adviser may use derivatives in
managing the Portfolio. The average weighted maturity of the Portfolio will
generally be greater than 5 years.

Process
The portfolio management team determines the desired country, currency and
duration exposures for the Portfolio. The Adviser manages the Portfolio's
duration and exposure to particular countries and currencies by conducting
fundamental research on relative values and analyzing economic, interest rate
and exchange rate trends. The portfolio managers select particular securities
for the Portfolio in various sectors within the overall guidelines set by the
team.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks of investing in investment grade international fixed income
securities in the hope of achieving above-average total return while
diversifying your investment portfolio. Market prices of fixed income
securities respond to economic developments, especially changes in interest
rates, and perceptions of the creditworthiness of individual issuers. As a
result of this price volatility, there is a risk that you may lose money by
investing in the Portfolio. Generally, fixed income securities decrease in
value as interest rates rise and vice versa. Prices of fixed income securities
also generally will fall if an issuer's credit rating declines, and rise if it
improves.

The Adviser may invest in certain instruments, such as derivatives and may use
certain techniques such as hedging, to manage these risks. However, the
Adviser cannot guarantee that it will be practical to hedge these risks in
certain markets or under particular conditions or that it will succeed in
doing so. The Adviser may use derivatives for other purposes such as gaining
exposure to foreign markets. The risks of investing in the Portfolio may be
intensified because the Portfolio is non-diversified, which means that it may
invest in securities of a limited number of issuers. As a result, the
performance of a particular investment or a small group of investments may
affect the Portfolio's performance more than if the Portfolio were
diversified.

There is no performance information for the International Fixed Income
Portfolio since it has not commenced operations as of the date of this
Prospectus.
1
<PAGE>

INVESTMENT SUMMARY

ADDITIONAL RISK FACTORS AND INFORMATION

Fixed income securities
Generally, fixed income securities decrease in value as interest rates rise
and vice versa. Certain types of fixed income securities, such as inverse
floaters, are designed to respond differently to changes in interest rates.
Fixed income securities generally are subject to risks related to changes in
interest rates and in the financial health or credit rating of the issuers.
The value of a fixed income security typically moves in the opposite direction
of prevailing interest rates: if rates rise, the value of a fixed income
security falls; if rates fall, the value increases. The maturity and duration
of a fixed income instrument also affect the extent to which the price of the
security will change in response to these and other factors. Longer term
securities tend to experience larger changes than shorter term securities
because they are more sensitive to changes in interest rates or in the credit
ratings of the issuers. The average duration of a fixed income portfolio
measures its exposure to the risk of changing interest rates. A portfolio with
a lower average duration generally will experience less price volatility in
response to changes in interest rates as compared with a portfolio with a
higher duration.

High yield securities
Fixed income securities that are not investment grade are commonly referred to
as junk bonds or high yield, high risk securities. These securities offer a
higher yield than other, higher rated securities, but they carry a greater
degree of risk and are considered speculative by the major credit rating
agencies. High yield securities may be issued by companies that are
restructuring, are smaller and less credit worthy, or are more highly indebted
than other companies. This means that they may have more difficulty making
scheduled payments of principal and interest. Changes in the value of high
yield securities are influenced more by changes in the financial and business
position of the issuing company than by changes in interest rates when
compared to investment grade securities. The Portfolio's investments in high
yield securities expose it to a substantial degree of credit risk.

INVESTMENT ADVISER

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 0.80% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 0.80%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.
4
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

INTERNATIONAL FIXED INCOME PORTFOLIO
J. David Germany, Michael Kushma and Paul F. O'Brien
J. David Germany, a Managing Director of Morgan Stanley, joined MAS in 1991
and MSDW Investment Management in 1996. He assumed responsibility for the MAS
Funds Global Fixed Income and International Fixed Income Portfolios in 1993
and the MAS Funds Multi-Asset-Class Portfolio in 1994. He was Vice President
and Senior Economist for Morgan Stanley from 1989 to 1991. Mr. Germany holds
an A.B. degree (Valedictorian) from Princeton University and a Ph.D. in
Economics from Massachusetts Institute of Technology. Michael Kushma, a
Principal of Morgan Stanley, joined Morgan Stanley in 1987. He was a member of
Morgan Stanley's global fixed income strategy group in the fixed income
division from 1987 to 1995, where he became the division's senior government
bond strategist. He joined MSDW Investment Management in 1995, where he took
responsibility for global fixed income bond strategy. He assumed
responsibility for the Morgan Stanley Dean Witter Institutional Fund, Inc.
("MSDWIF") Global Fixed Income and MSDWIF International Fixed Income
Portfolios in 1996. Mr. Kushma, received an A.B. in economics from Princeton
University, a Masters in economics from London School of Economics and a
Masters of Philosophy in Economics from Columbia University. Paul F. O'Brien,
a Principal of Morgan Stanley, joined MAS and MSDW Investment Management in
1996. He was Head of European Economics from 1993 through 1995 for JP Morgan
and a Principal Administrator from 1991 through 1992 for the Organization for
Economic Cooperation and Development. He assumed responsibility for the Global
Fixed Income and International Fixed Income Portfolios in 1996. Mr. O'Brien
attended the United States Naval Academy and holds a B.S. degree from
Massachusetts Institute of Technology and a Ph.D. in Economics from the
University of Minnesota. Messrs. Germany, Kushma and O'Brien have shared
primary responsibility for managing the Portfolio's assets since its
inception.

5
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of one
hour after the close of the bond markets (normally 4:00 p.m. Eastern Time) on
each day that the Portfolio is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington, D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the
Commission's web site at "http://www.sec.gov"; or (3) By mail; you may request
documents, upon payment of a duplicating fee, by writing to Securities
Exchange Commission Public Reference Section, Washington, D.C. 20549-6009. To
aid you in obtaining this information, the Fund's Investment Company Act
registration number is 811-7607.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

EMERGING MARKETS DEBT PORTFOLIO
High total return by investing primarily in fixed income securities of
government and government-related issuers and, to a lesser extent, of
corporate issuers in emerging market countries.

Investment Adviser

Morgan Stanley Dean Witter Investment Management Inc.

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Emerging Markets Debt Portfolio (the "Portfolio") is one portfolio of the
Fund managed by Morgan Stanley Dean Witter Investment Management Inc. ("MSDW
Investment Management" or the "Adviser").

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Emerging Markets Debt Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 4

MANAGEMENT FEE 4

PORTFOLIO MANAGERS 5

SHAREHOLDER INFORMATION 6

FINANCIAL HIGHLIGHTS 7
</TABLE>
<PAGE>

INVESTMENT SUMMARY
EMERGING MARKETS DEBT PORTFOLIO

The Emerging Markets Debt Portfolio seeks high total return by investing
primarily in fixed income securities of government and government-related
issuers and, to a lesser extent, of corporate issuers in emerging market
countries.

Approach
The Adviser seeks high total return by investing in a portfolio of emerging
market debt that offers low correlation to many other asset classes. Using
macroeconomic and fundamental analysis, the Adviser seeks to identify
developing countries that are undervalued and have attractive or improving
fundamentals. After the country allocation is determined, the sector and
security selection is made within each country.

Process
The Adviser's global allocation team analyzes the global economic environment
and its impact on emerging markets. The Adviser focuses on investing in
countries that show signs of positive fundamental change. This analysis
considers macroeconomic factors, such as GDP growth, inflation, monetary
policy, fiscal policy and interest rates and sociopolitical factors such as
political risk, leadership, social stability and commitment to reform. In
selecting securities, the Adviser first examines yield curves with respect to a
country and then considers instrument-specific criteria, including: (i) spread
duration; (ii) real interest rates; and (iii) liquidity. The Portfolio's
holdings may range in maturity from overnight to 30 years or more and will not
be subject to any minimum credit rating standard. The Adviser may, when or if
available, use hedging strategies, including the use of derivatives to protect
the Portfolio from overvalued currencies or to take advantage of undervalued
currencies.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks and uncertainties of investing in lower-rated and unrated
fixed income securities in emerging markets in the hope of earning superior
total return and diversifying your investment portfolio. Market prices of fixed
income securities respond to economic developments as well as to perceptions of
the creditworthiness of individual issuers, including governments.
Generally, fixed income securities decrease in value as
interest rates rise and vice versa. Investing in emerging
markets intensifies risk, because lower quality fixed income
securities are more volatile in price. As a result of this
price volatility, there is a risk that you may lose money by
investing in the Portfolio. The Portfolio invests in many
fixed income securities that are rated below "investment
grade" or are not rated, but are of equivalent quality.
These fixed income securities are often referred to as "high
yield securities" or "junk bonds." High yield securities
range from those for which the prospect for repayment of
principal and interest is predominantly speculative to those
which are currently in default on principal or interest
payments. When the Portfolio invests in high yield
securities, it generally seeks to receive a correspondingly
higher return on the securities it holds to compensate it
for the additional credit risk and market risk it has
assumed. Prices of longer term fixed income securities also
are generally more volatile, so the average maturity of the
securities in the Portfolio affects risk. At times the
Portfolio's market sector, emerging markets debt securities,
may underperform relative to other sectors. In addition, the
Portfolio may borrow money for investment purposes.
Borrowing for investment purposes is a speculative activity
that creates leverage. Leverage will magnify the effect of
increases and decreases in prices of portfolio securities.
The risks of investing in the Portfolio may be intensified
because the Portfolio is non-diversified, which means that
it may invest in securities of a limited number of issuers.
As a result, the performance of a particular investment or a
small group of investments may affect the Portfolio's
performance more than if the Portfolio were diversified.

PERFORMANCE

Commenced operations on June 16, 1997

-28.38%
- ---------------------------------------
1998

HIGH (QUARTER) LOW (QUARTER)

AVERAGE ANNUAL TOTAL RETURN for
periods ended December 31, 1998
<TABLE>
<CAPTION>
EMERGING MARKETS JP MORGAN EMERGING
DEBT PORTFOLIO MARKETS BOND PLUS INDEX*
- ------------------------------------------------------------
<S> <C> <C>
Past One Year -28.38% -14.35%
- ------------------------------------------------------------
Since Inception -19.06% -8.49%
</TABLE>

*The J.P. Morgan Emerging Markets Bond
Plus Index is a market weighted index
composed of Brady bonds, loans and
Eurobonds, as well as U.S. dollar
local market instruments outstanding
and includes Argentina, Brazil,
Bulgaria, Mexico, Nigeria, the
Philippines, Poland, Russia, South
Africa and Venezuela. An index is a
hypothetical measure of performance
based on the ups and downs of
securities that make up a particular
market. The index does not show actual
investment returns or reflect payment
of management or brokerage fees, which
would lower the index's performance.
1
<PAGE>

INVESTMENT SUMMARY
ADDITIONAL RISK FACTORS AND INFORMATION

The Portfolio will limit its use of derivatives, for non-hedging purposes, to
33 1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. While the use of derivatives may be advantageous to
the Portfolio, if the Adviser is not successful in employing them, the
Portfolio's performance may be worse than if it did not make such investments.
See the Statement of Additional Information for more about the risks of
different types of derivatives.

INVESTMENT ADVISER

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 1.30% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 1.30%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

For the fiscal year ended December 31, 1998, MSDW Investment Management
received a fee (net of fee waivers) equal to 0.27% of the Portfolio's average
daily net assets for management services.

4
<PAGE>

PORTFOLIO MANAGERS
The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

EMERGING MARKETS DEBT PORTFOLIO

Thomas L. Bennett, Stephen F. Esser and Abigail L. McKenna.

Thomas L. Bennett, a Managing Director of Morgan Stanley, joined MAS in 1984.
He assumed responsibility for the MAS Funds Fixed Income Portfolio in 1984,
the MAS Funds Domestic Fixed Income Portfolio in 1987, the MAS Funds High
Yield Portfolio in 1985, the MAS Funds Fixed Income Portfolio II in 1990, the
MAS Funds Special Purpose Fixed Income and Balanced Portfolios in 1992 and the
MAS Funds Multi-Asset-Class Portfolio in 1994. Mr. Bennett is the Chairman of
the Board of Trustees of MAS Funds, a member of the Executive Committee of MAS
and a Director of MAS Fund Distributors, Inc. Mr. Bennett holds a B.S. in
Chemistry and an M.B.A. from University of Cincinnati. Stephen F. Esser, a
Managing Director of Morgan Stanley, joined MAS in 1988. He assumed
responsibility for the MAS Funds High Yield Portfolio in 1989. Mr. Esser is a
member of the New York Society of Security Analysts and has a B.S. degree
(Summa Cum Laude and Phi Beta Kappa) from the University of Delaware. Abigail
L. McKenna is a Principal of MSDW Investment Management and Morgan Stanley.
Ms. McKenna focuses primarily on the trading and management of the emerging
markets debt portfolios. Prior to joining MSDW Investment Management, she was
a Senior Portfolio Manager at MIMCO from 1995 to 1996 and a Limited Partner at
Weiss Peck & Greer from 1991 to 1995, where she was responsible for the
portfolio management of Corporate Bond Portfolios. Ms. McKenna holds a B.A. in
International Relations from Georgetown University and is a Chartered
Financial Analyst. Messrs. Bennett and Esser and Ms. McKenna have shared
primary responsibility for managing the Portfolio's assets since October 1998.
5
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

FINANCIAL HIGHLIGHTS

EMERGING MARKETS DEBT PORTFOLIO

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JUNE 16, 1997* TO
DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
SELECTED PER SHARE DATA AND RATIOS
Net Asset Value, Beginning of Period $ 9.67 $ 10.00
------- -------
Income From Investment Operations
Net Investment Income 0.85 0.28
Net Realized and Unrealized Loss (3.60) (0.22)
------- -------
Total From Investment Operations (2.75) 0.06
------- -------
Distributions
Net Investment Income (0.82) (0.27)
Net Realized Gain -- (0.02)
In Excess of Net Realized Gain -- (0.10)
------- -------
Total Distributions (0.82) (0.39)
------- -------
Net Asset Value, End of Period $ 6.10 $ 9.67
======= =======
Total Return (28.38)% 0.76 %
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $24,932 $26,378
Ratio of Expenses to Average Net Assets 1.52 % 1.35 %**
Ratio of Expenses to Average Net Assets
Excluding
Interest and Foreign Tax Expense 1.30 % 1.30 %**
Ratio of Net Investment Income to Average
Net Assets 10.94 % 8.10 %**
Portfolio Turnover Rate 449 % 173 %
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 2.05 % 2.06 %**
Net Investment Income to Average Net
Assets 10.41 % 7.39 %**
</TABLE>

- -------
* Commencement of operations
** Annualized
7
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999
A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

GLOBAL EQUITY PORTFOLIO
Long-term capital appreciation by investing primarily in equity securities of
issuers throughout the world, including U.S. issuers.

Investment Adviser

Morgan Stanley Dean Witter Investment Management Inc.

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Global Equity Portfolio (the "Portfolio") is one portfolio of the Fund
managed by Morgan Stanley Dean Witter Investment Management Inc. ("MSDW
Investment Management" or the "Adviser").

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Global Equity Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 4

MANAGEMENT FEE 4

PORTFOLIO MANAGERS 5

SHAREHOLDER INFORMATION 6

FINANCIAL HIGHLIGHTS 7
</TABLE>
<PAGE>

INVESTMENT SUMMARY
GLOBAL EQUITY PORTFOLIO

The Global Equity Portfolio seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including U.S.
issuers.

Approach
The Adviser seeks to maintain a diversified portfolio of global equity
securities based on individual stock selection and emphasizes a bottom-up
approach to investing that seeks to identify securities of undervalued issuers.

Process
The Adviser selects securities for investment from a universe of eligible
issuers consisting of approximately 3,200 companies in the Morgan Stanley
Capital International (MSCI) World Index. The Adviser expects to invest at
least 20% of the Portfolio's total assets in the common stocks of U.S. issuers.
The investment process is value driven and based on individual stock selection.
In assessing investment opportunities, the Adviser considers value criteria
with an emphasis on cash flow and the intrinsic value of company assets.
Securities which appear undervalued according to these criteria are then
subjected to in-depth fundamental analysis. The Adviser conducts a thorough
investigation of the issuer's balance sheet, cash flow and income statement and
assesses the company's business franchise, including product competitiveness,
market positioning and industry structure. Meetings with senior company
management are integral to the investment process.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks and uncertainties of investing in a portfolio of equity
securities of issuers throughout the world. In general, prices of equity
securities are more volatile than those of fixed income securities. The prices
of equity securities will rise and fall in response to a number of different
factors. In particular, prices of equity securities will respond to events that
affect entire financial markets or industries (changes in inflation or consumer
demand, for example) and to events that affect particular issuers (news about
the success or failure of a new product, for
example). As a result of this price volatility, there is a
risk that you may lose money by investing in the Portfolio.
In addition, at times the Portfolio's market sector, foreign
and domestic equity securities, may underperform relative to
other sectors.

Investing in foreign countries entails the risk that news
and events unique to a country or region will affect those
markets and their issuers. These same events will not
necessarily have an effect on the U.S. economy or similar
issuers located in the United States. In addition, the
Portfolio's investments in foreign countries generally will
be denominated in foreign currencies. As a result, changes
in the value of a country's currency compared to the U.S.
dollar may affect the value of the Portfolio's investments.
These changes may happen separately from and in response to
events that do not otherwise affect the value of the
security in the issuer's home country. The Adviser may
invest in certain instruments, such as derivatives and may
use certain techniques such as hedging, to manage these
risks. However, the Adviser cannot guarantee that it will be
practical to hedge these risks in certain markets or under
particular conditions or that it will succeed in doing so.
The Adviser may use derivatives for other purposes such as
gaining exposure to foreign markets.
PERFORMANCE

Commenced operations on January 2, 1997

20.04%

13.47%

- ---------------------------------------
1997 1998

HIGH (QUARTER) LOW (QUARTER)
<TABLE>
<S> <C>
4/97 - 6/97 7/98 - 9/98
12.87% -12.53%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN for
periods ended December 31, 1998
<TABLE>
<CAPTION>
MORGAN STANLEY CAPITAL
GLOBAL EQUITY INTERNATIONAL (MSCI)
PORTFOLIO WORLD INDEX*
- -------------------------------------------------------
<S> <C> <C>
Past One Year 13.47% 24.34%
- -------------------------------------------------------
Since Inception 16.76% 20.50%
</TABLE>

* The MSCI World Index is an unmanaged
index of common stocks and includes
securities representative of the
market structure of 22 developed
market countries and the
Asia/Pacific Region (includes
dividends). An index is a
hypothetical measure of performance
based on the ups and downs of
securities that make up a particular
market. The index does not show
actual investment returns or reflect
payment of management or brokerage
fees, which would lower the index's
performance.
1
<PAGE>

INVESTMENT SUMMARY

ADDITIONAL RISK FACTORS AND INFORMATION
This section discusses additional risk factors and information relating to the
Portfolio. The Portfolio's investment practices and limitations are described
in more detail in the Statement of Additional Information ("SAI") which is
legally part of this Prospectus. For details on how to obtain a copy of the
SAI and other reports and information, see the back cover of this Prospectus.

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.

be substantial and may be reported inconsistently in U.S. and foreign
financial statements. Accordingly, the Portfolio's investments may be
adversely affected.

3
<PAGE>

INVESTMENT ADVISER

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 1.15% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 1.15%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

For the fiscal year ended December 31, 1998, MSDW Investment Management
received a fee (net of fee waivers) equal to 0.32% of the Portfolio's average
daily net assets for management services.
4
<PAGE>

PORTFOLIO MANAGERS
The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

GLOBAL EQUITY PORTFOLIO
Frances Campion, Richard Boon and Paul Boyne.
Frances Campion joined MSDW Investment Management in 1990 as a Global Equity
Fund Manager and is now a Managing Director of MSDW Investment Management and
Morgan Stanley. Her responsibilities include day-to-day management of the
Global Equity product. Ms. Campion has ten years' global investment
experience. She is a graduate of University College, Dublin. Ms. Campion has
had primary responsibility for managing the Portfolio's assets since its
inception. Richard Boon and Paul Boyne work with Ms. Campion in managing the
Portfolio's assets. Mr. Boon joined the MSDW Investment Management Global
Equity team in September 1995 and became a Principal in December 1998. In
addition to portfolio management, his responsibilities include security
analysis on North American and Australasian equities. Prior to joining MSDW
Investment Management, he worked at Deutsche Bank as a member of their Equity
Capital Markets Group and advised the UK Post Office in its proposed
privatization. He is a graduate of both Canterbury and Victoria Universities,
New Zealand. Mr. Boyne joined MSDW Investment Management in 1993 and became a
Principal in December 1998. At MSDW Investment Management, he assists in the
implementation of the Global Equity Program and the analysis of North American
and Irish equities. Prior to joining MSDW Investment Management, he was a
Chartered Accountant with Grant Thornton International in Dublin.
5
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

FINANCIAL HIGHLIGHTS
GLOBAL EQUITY PORTFOLIO

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 2, 1997* TO
DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
SELECTED PER SHARE DATA AND RATIOS
Net Asset Value, Beginning of Period $ 11.74 $ 10.00
------- -------
Income From Investment Operations
Net Investment Income 0.10 0.08
Net Realized and Unrealized Gain 1.48 1.92
------- -------
Total From Investment Operations 1.58 2.00
------- -------
Distributions
Net Investment Income (0.09) (0.08)
Net Realized Gain (0.09) (0.18)
------- -------
Total Distributions (0.18) (0.26)
------- -------
Net Asset Value, End of Period $ 13.14 $ 11.74
======= =======
Total Return 13.47% 20.04 %
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $43,553 $14,707
Ratio of Expenses to Average Net Assets 1.15% 1.15 %**
Ratio of Net Investment Income to
Average Net Assets 1.03% 1.24 %**
Portfolio Turnover Rate 22% 20 %
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income $ 0.04 $ 0.09
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.63% 2.43 %**
Net Investment Income/Loss to Average
Net Assets 0.56% (0.04)%**
</TABLE>
- -------
* Commencement of operations
** Annualized
7
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999
A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

INTERNATIONAL MAGNUM PORTFOLIO
Long-term capital appreciation by investing primarily in equity securities of
non-U.S. issuers domiciled in EAFE countries.

Investment Adviser

Morgan Stanley Dean Witter Investment Management Inc.

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual fund
that provides investment vehicles for variable annuity contracts and variable
life insurance policies and for certain tax-qualified investors. The
International Magnum Portfolio (the "Portfolio") is one portfolio of the Fund
managed by Morgan Stanley Dean Witter Investment Management Inc. ("MSDW
Investment Management" or the "Adviser").

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

International Magnum Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 4

MANAGEMENT FEE 4

PORTFOLIO MANAGER 5

SHAREHOLDER INFORMATION 6

FINANCIAL HIGHLIGHTS 7
</TABLE>
<PAGE>

INVESTMENT SUMMARY

INTERNATIONAL MAGNUM PORTFOLIO

The International Magnum Portfolio seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers domiciled in EAFE
countries.

Approach
The Adviser seeks to achieve superior long-term returns by creating a diversi-
fied portfolio of undervalued international equity securities. To achieve this
goal, the Adviser uses a combination of strategic geographic asset allocation
and fundamental, value oriented stock selection.

Process
The Portfolio is managed using a two-part process combining the expertise of
investment teams based in New York, London, Tokyo and Singapore. The New York-
based portfolio management team decides upon the appropriate allocation of the
Portfolio's assets among Europe, Japan and developed Asia, including Australia
and New Zealand. Regional allocation decisions are based on a variety of
factors, including relative valuations, earnings expectations, macroeconomic
factors, as well as input from the regional stock selection teams and from the
Adviser's Asset Allocation Committee, which is made up of several of the
Adviser's most senior investment officers. Once the allocations to Europe, Asia
and Japan have been determined, three overseas investment teams in London (for
European stocks), Tokyo (for Japanese stocks) and Singapore (for Asian stocks)
decide which stocks to purchase for their respective geographic regions. The
regional portfolio management teams look for stocks that they believe to be
undervalued by the market. The regional specialists analyze each company's
finances, products and management, typically meeting with each company's
management before a stock is purchased for the Portfolio. The Portfolio invests
primarily in countries comprising the MSCI Europe, Australasia, Far East (EAFE)
Index (the "EAFE Index"). EAFE countries include Japan, most nations in Western
Europe and the more developed nations of Asia, such as Australia, New Zealand,
Hong Kong and Singapore. However, the Portfolio also may invest up to 5% of its
assets in countries not included in the EAFE Index.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks and uncertainties of investing in the equity securities of
non-U.S. issuers in the hope of earning superior returns and diversifying your
investment portfolio. In general, prices of
equity securities are more volatile than those of fixed
income securities. The prices of equity securities will rise
and fall in response to a number of different factors. In
particular, prices of equity securities will respond to
events which affect entire financial markets or industries
(changes in inflation or consumer demand, for example) and
to events that affect particular issuers (news about the
success or failure of a new product, for example). As a
result of this price volatility, there is a risk that you
may lose money by investing in the Portfolio. In addition,
at times the Portfolio's market sector, foreign equity
securities, may underperform relative to other sectors.

Investing in foreign countries entails the risk that news
and events unique to a country or region will affect those
markets and their issuers. These same events will not
necessarily have an effect on the U.S. economy or similar
issuers located in the United States. In addition, the
Portfolio's investments in foreign countries generally will
be denominated in foreign currencies. As a result, changes
in the value of a country's currency compared to the U.S.
dollar may affect the value of the Portfolio's investments.
These changes may occur separately from and in response to
events that do not otherwise affect the value of the
security in the issuer's home country. The Adviser may
invest in certain instruments, such as derivatives and may
use certain techniques such as hedging, to manage these
risks. However, the Adviser cannot guarantee that it will be
practical to hedge these risks in certain markets or under
particular conditions or that it will succeed in doing so.
The Adviser may use derivatives for other purposes such as
gaining exposure to foreign markets. The risks of investing
in the Portfolio may be intensified because the Portfolio is
non-diversified, which means that it may invest in
securities of a limited number of issuers. As a result, the
performance of a particular investment or a small group of
investments may affect the Portfolio's performance more than
if the Portfolio were diversified.
PERFORMANCE
Commenced operations on January 2, 1997

8.97%
7.31%

<PAGE>

- ---------------------------------------
1997 1998

HIGH (QUARTER) LOW (QUARTER)
<TABLE>
<S> <C>
4/97 - 6/97 7/98 - 9/98
13.30% -16.34%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN for
periods ended December 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL MAGNUM MSCI EAFE
PORTFOLIO INDEX*

- -------------------------------------------------
<S> <C> <C>
Past One Year 8.97% 20.00%
- -------------------------------------------------
Since Inception 8.16% 11.10%
</TABLE>

*The MSCI EAFE Index is an unmanaged
index of common stocks and includes
Europe, Australasia and the Far East
(includes dividends net of withholding
taxes). An index is a hypothetical
measure of performance based on the
ups and downs of securities that make
up a particular market. The index does
not show actual investment returns or
reflect payment of management or
brokerage fees, which would lower the
index's performance.
1
<PAGE>

INVESTMENT SUMMARY

ADDITIONAL RISK FACTORS AND INFORMATION

Price volatility

The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.

Emerging market risks

Emerging market countries are foreign countries that major international
financial institutions, such as the World Bank, generally consider to be less
economically mature than developed nations, such as the United States or most
nations in Western Europe. Emerging market countries can include every nation
in the world except the United States, Canada, Japan, Australia, New Zealand,
Singapore and most nations located in Western Europe. Emerging market
countries may be more likely to experience political turmoil or rapid changes
in economic conditions than more developed countries, and the financial
condition of issuers in emerging market countries may be more precarious than
in other countries. These characteristics result in greater risk of price
volatility in emerging market countries, which may be heightened by currency
fluctuations relative to the U.S. dollar.

Derivatives

The Portfolio may use various instruments that derive their values from those
of specified securities, indices, currencies or other points of reference for
both hedging and non-hedging purposes. Derivatives include futures, options,
forward contracts, swaps, and structured notes. These derivatives, including
those used to manage risk, are themselves subject to risks of the different
markets in which they trade and, therefore, may not serve their intended
purposes.

Year 2000 risk

The management and distribution services provided to the Fund by the Adviser
and Morgan Stanley & Co. Incorporated ("Morgan Stanley") depend on the smooth
functioning of their computer systems. Many computer software systems in use
today cannot recognize the year 2000, but revert to 1900 or some other date,
due to the manner in which dates were encoded and calculated. That failure
could have a negative impact on the handling of securities trades, pricing and
account services. The Adviser and Morgan Stanley have been actively working on
necessary changes to their own computer systems to deal with the year 2000
problem and
2
<PAGE>

expect that their systems will be adapted before that date. There can be no
assurance, however, that they will be successful. In addition, other
unaffiliated service providers may be faced with similar problems. The Adviser
and Morgan Stanley are monitoring their remedial efforts, however, there can
be no assurance that they and the services they provide will not be adversely
affected.

Temporary defensive investments

When the Adviser believes that changes in economic, financial or political
conditions warrant, the Portfolio may invest without limit in certain short-
and medium-term fixed income securities for temporary purposes. If the Adviser
incorrectly predicts the effects of these changes, such defensive investments
may adversely affect the Portfolio's performance and the Portfolio may not
achieve its investment objective.

Portfolio turnover

Consistent with its investment policies, the Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher
portfolio turnover (e.g. over 100% per year) will cause the Portfolio to incur
additional transaction costs and may result in taxable gains being passed
through to shareholders.
3
<PAGE>

INVESTMENT ADVISER

MANAGEMENT FEE
The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio, so that total annual operating expenses of the
Portfolio will not exceed 1.15% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 1.15%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

For the fiscal year ended December 31, 1998, MSDW Investment Management
received a fee (net of fee waivers) equal to 0.15% of the Portfolio's average
daily net assets for management services.
4
<PAGE>

PORTFOLIO MANAGER

The following individual has primary day-to-day portfolio management
responsibility for the Portfolio:

INTERNATIONAL MAGNUM PORTFOLIO

Francine J. Bovich
Francine J. Bovich, a Managing Director of MSDW Investment Management and
Morgan Stanley, joined MSDW Investment Management in 1993. Prior to joining the
Firm, she was a Principal and Executive Vice President of Westwood Management
Corp., a registered investment adviser. She began her investment career at
Bankers Trust Company. She was also a Managing Director of Citicorp Investment
Management, Inc. where she had responsibility for the Institutional Investment
Management Group. Ms. Bovich was appointed and serves as the U.S.
Representative to the United Nations Investment Committee. Additionally, she
serves as an Emeritus Trustee and Chair of the Investment Sub-Committee for
Connecticut College. She is a former board member of the YWCA Retirement Fund.
She graduated from Connecticut College with a B.A. in Economics and received
her M.B.A. in Finance from New York University. Ms. Bovich has had primary
responsibility for managing the Portfolio's assets since its inception.
5
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares

Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

FINANCIAL HIGHLIGHTS

INTERNATIONAL MAGNUM PORTFOLIO

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 2, 1997* TO
DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
SELECTED PER SHARE DATA AND RATIOS
Net Asset Value, Beginning of Period $ 10.38 $ 10.00
------- -------
Income From Investment Operations
Net Investment Income 0.12 0.13
Net Realized and Unrealized Gain 0.81 0.59
------- -------
Total From Investment Operations 0.93 0.72
------- -------
Distributions
Net Investment Income (0.04) (0.32)
Net Realized Gain (0.04) (0.02)
------- -------
Total Distributions (0.08) (0.34)
------- -------
Net Asset Value, End of Period $ 11.23 $ 10.38
======= =======
Total Return 8.97% 7.31 %
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $44,062 $18,855
Ratio of Expenses to Average Net Assets 1.15% 1.16 %**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense N/A 1.15 %**
Ratio of Net Investment Income to
Average Net Assets 1.22% 1.43 %**
Portfolio Turnover Rate 36% 41 %
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income $ 0.06 $ 0.15
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.80% 2.78 %**
Net Investment Income (Loss) to Average
Net Assets 0.58% (0.19)%**
</TABLE>
- -------
* Commencement of operations
** Annualized
7
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

EMERGING MARKETS EQUITY PORTFOLIO
Long-term capital appreciation by investing primarily in equity securities of
issuers in emerging market countries.

Investment Adviser

Morgan Stanley Dean Witter Investment Management Inc.

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Emerging Markets Equity Portfolio (the "Portfolio") is one portfolio of the
Fund managed by Morgan Stanley Dean Witter Investment Management Inc. ("MSDW
Investment Management" or the "Adviser").

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.

<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Emerging Markets Equity Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 4

MANAGEMENT FEE 4

PORTFOLIO MANAGERS 5

SHAREHOLDER INFORMATION 6

FINANCIAL HIGHLIGHTS 7
</TABLE>
<PAGE>

INVESTMENT SUMMARY

EMERGING MARKETS EQUITY PORTFOLIO

The Emerging Markets Equity Portfolio seeks long-term capital appreciation by
investing primarily in equity securities of issuers in emerging market
countries.

Approach
The Adviser seeks to maximize returns by investing in growth-oriented equity
securities in emerging markets. The Adviser's investment approach combines top-
down country allocation with bottom-up stock selection. Investment selection
criteria include attractive growth characteristics, reasonable valuations and
managements with a strong shareholder value orientation.

Process
The Adviser's global allocation team analyzes the global economic environment,
particularly its impact on emerging markets and allocates the Portfolio's
assets among emerging markets based on relative economic, political and social
fundamentals, stock valuations and investor sentiment. The Adviser invests
within countries based on the work of country specialists who conduct extensive
fundamental analysis of issuers within these markets and seek to identify
issuers with strong earnings growth prospects. To manage risk, the Adviser
emphasizes thorough macroeconomic and fundamental research.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks and uncertainties of investing in the equity securities of
issuers in emerging markets in the hope of earning superior returns and
diversifying your investment portfolio. In general, prices
of equity securities are more volatile than those of fixed
income securities. The prices of equity securities will rise
and fall in response to a number of different factors. In
particular, prices of equity securities will respond to
events which affect entire financial markets or industries
(changes in inflation or consumer demand, for example) and
to events that affect particular issuers (news about the
success or failure of a new product, for example). As a
result of this price volatility, there is a risk that you
may lose money by investing in the Portfolio. In addition,
at times the Portfolio's market sector, emerging markets
equity securities, may underperform relative to other
sectors.

Investing in foreign countries, particularly emerging
markets, entails the risk that news and events unique to a
country or region will affect those markets and their
issuers. These same events will not necessarily have an
effect on the U.S. economy or similar issuers located in the
United States. In addition, the Portfolio's investments in
foreign countries generally will be denominated in foreign
currencies. As a result, changes in the value of a country's
currency compared to the U.S. dollar may affect the value of
the Portfolio's investments. These changes may occur
separately from and in response to events that do not
otherwise affect the value of the security in the issuer's
home country. The Adviser may invest in certain instruments,
such as derivatives and may use certain techniques such as
hedging, to manage these risks. However, the Adviser cannot
guarantee that it will be practical to hedge these risks in
certain markets or under particular conditions or that it
will succeed in doing so. The Adviser may use derivatives
for other purposes such as gaining exposure to foreign
markets. The risks of investing in the Portfolio may be
intensified because the Portfolio is non-diversified, which
means that it may invest in securities of a limited number
of issuers. As a result, the performance of a particular
investment or a small group of investments may affect the
Portfolio's performance more than if the Portfolio were
diversified.
PERFORMANCE
Commenced operations on October 1, 1996

0.52%

- ---------------------------------------
1997

-24.34%
1998

HIGH (QUARTER) LOW (QUARTER)

AVERAGE ANNUAL TOTAL RETURN for
periods ended December 31, 1998
<TABLE>
<CAPTION>
EMERGING
MARKETS IFC GLOBAL MSCI EMERGING
EQUITY TOTAL RETURN MARKETS FREE
PORTFOLIO COMPOSITE INDEX*+ INDEX**+
- --------------------------------------------------------------
<S> <C> <C> <C>
Past One Year -24.34% -21.08% -25.34%
- --------------------------------------------------------------
Since Inception -12.26% -16.77% -17.21%
</TABLE>

* The IFC Global Total Return Composite Index is an unmanaged index of common
stocks and includes developing countries in Latin America, East and South
Asia, Europe, the Middle East and Africa (includes dividends).
** The Morgan Stanley Capital International (MSCI) Emerging Markets Free Index
is a market capitalization weighted equity index composed of companies that
are representative of the market structure of the following countries:
Argentina, Brazil, Chile, China Free, Columbia, Czech Republic, Greece,
Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico Free,
Pakistan, Peru, Phillippines Free, Poland, Portugal, Russia, South Africa,
Sri Lanka, Taiwan (at 50%), Thailand, Turkey and Venezuela Free.
+ An index is a hypothetical measure of performance based on the ups and downs
of securities that make up a particular market. The index does not show
actual investment returns or reflect payment of management or brokerage fees,
which would lower the index's performance.
1
<PAGE>

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.

Emerging market risks
Emerging market countries are foreign countries that major international
financial institutions, such as the World Bank, generally consider to be less
economically mature than developed nations, such as the United States or most
nations in Western Europe. Emerging market countries can include every nation
in the world except the United States, Canada, Japan, Australia, New Zealand,
Singapore, and most nations located in Western Europe. Emerging market
countries may be more likely to experience political turmoil or rapid changes
in economic conditions than more developed countries, and the financial
condition of issuers in emerging market countries may be more precarious than
in other countries. These characteristics result in greater risk of price
volatility in emerging market countries, which may be heightened by currency
fluctuations relative to the U.S. dollar.

Year 2000 risks
The management and distribution services provided to the Fund by the Adviser
and Morgan Stanley & Co. Incorporated ("Morgan Stanley") depend on the smooth
functioning of their computer systems. Many computer software systems in use
today cannot recognize the year 2000, but revert to 1900 or some other date,
due to the manner in which dates were encoded and calculated. That failure
could have a negative impact on the handling of securities trades, pricing and
account services. The Adviser and Morgan Stanley have been actively working on
necessary changes to their own computer systems to deal with the year 2000
problem and expect that their systems will be adapted before that date. There
can be no assurance,
2
<PAGE>

however, that they will be successful. In addition, other unaffiliated service
providers may be faced with similar problems. The Adviser and Morgan Stanley
are monitoring their remedial efforts, however, there can be no assurance that
they and the services they provide will not be adversely affected.

INVESTMENT ADVISER
MSDW Investment Management, with principal offices at 1221 Avenue of the
Americas, New York, New York 10020, conducts a worldwide portfolio management
business and provides a broad range of portfolio management services to
customers in the United States and abroad. Morgan Stanley Dean Witter & Co.
("MSDW") is the direct parent of MSDW Investment Management and Morgan
Stanley. MSDW is a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses --
securities, asset management and credit services. As of December 31, 1998,
MSDW Investment Management and its institutional investment advisory
affiliates had approximately $163.4 billion in assets under management or
fiduciary advice.

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

<TABLE>
<CAPTION>
ASSETS FEE
- ----------------------------------------
<S> <C>
First $500 million 1.25%
- ----------------------------------------
From $500 million to $1 billion 1.20%
- ----------------------------------------
More than $1 billion 1.15%
</TABLE>

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio, so that total annual operating expenses of the
Portfolio will not exceed 1.75% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 1.75%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

For the fiscal year ended December 31, 1998, MSDW Investment Management
received no fee from the Portfolio for management services due to fee waivers.
In addition, for the same period MSDW Investment Management reimbursed
expenses of approximately $87,000.
4
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

EMERGING MARKETS EQUITY PORTFOLIO
Robert L. Meyer and Andy Skov
Robert L. Meyer joined MSDW Investment Management in 1989 and is a Managing
Director of MSDW Investment Management and Morgan Stanley. He is head of and a
Portfolio Manager in the Emerging Markets Equity Group. 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. Andy Skov joined MSDW Investment
Management in 1994. He is a Principal of MSDW Investment Management and Morgan
Stanley and Portfolio Manager in the Emerging Markets Equity Group. Prior to
joining MSDW Investment Management, he worked in the Latin America group at
Bankers Trust Company in corporate finance, research and sales; two of those
years he spent in Argentina. He graduated from the University of California at
Berkeley with a B.A. (Phi Beta Kappa) in Political Science and Economic
Development. Mr. Meyer has assisted in managing the Portfolio's assets since
its inception and assumed primary responsibility for managing the Portfolio's
assets in September 1997. Mr. Skov has shared primary responsibility for
managing the Portfolio's assets since October 1998.
5
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

EMERGING MARKETS EQUITY PORTFOLIO

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED YEAR ENDED OCTOBER 1, 1996* TO
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
SELECTED PER SHARE DATA
AND RATIOS
Net Asset Value,
Beginning of Period $ 9.45 $ 9.78 $ 10.00
------- ------- -------
Income From Investment
Operations
Net Investment Income 0.06 0.04 0.01
Net Realized and
Unrealized Loss (2.36) -- (0.21)
------- ------- -------
Total From Investment
Operations (2.30) 0.04 (0.20)
------- ------- -------
Distributions
Net Investment Income (0.04) (0.07) (0.02)
Net Realized Gain -- (0.02) --
In Excess of Net
Realized Gain -- (0.28) --
------- ------- -------
Total Distributions (0.04) (0.37) (0.02)
------- ------- -------
Net Asset Value, End of
Period $ 7.11 $ 9.45 $ 9.78
======= ======= =======
Total Return (24.34)% 0.52 % (2.03)%
======= ======= =======
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of
Period (000's) $36,313 $34,098 $11,789
Ratio of Expenses to
Average Net Assets 1.95 % 1.80 % 1.79 %**
Ratio of Expenses to
Average Net Assets
Excluding Interest
Expense and Foreign Tax
Expense 1.75 % 1.75 % 1.75 %**
Ratio of Net Investment
Income to Average Net
Assets 0.83 % 0.47 % 0.32 %**
Portfolio Turnover Rate 100 % 87 % 9 %
Effect of Voluntary
Expense Limitation
During the Period:
Per Share Benefit to
Net Investment Income $ 0.11 $ 0.17 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.45 % 4.12 % 6.17 %**
Net Investment Loss to
Average Net Assets (0.66)% (1.84)% (4.06)%**
</TABLE>
- -------
* Commencement of operations
** Annualized
7
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington, D.C. (for information call
1- 800-SEC-0330); (2) On-line: you may retrieve information from the
Commission's web site at "http://www.sec.gov"; or (3) By mail; you may request
documents, upon payment of a duplicating fee, by writing to Securities
Exchange Commission, Public Reference Section, Washington, D.C. 20549-6009. To
aid you in obtaining this information, the Fund's Investment Company Act
registration number is 811-7607
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

ASIAN EQUITY PORTFOLIO
Long-term capital appreciation by investing primarily in equity securities of
Asian issuers.

Investment Adviser

Morgan Stanley Dean Witter Investment Management Inc.

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Asian Equity Portfolio (the "Portfolio") is one portfolio of the Fund managed
by Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management" or the "Adviser").

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Asian Equity Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 4

MANAGEMENT FEE 4

PORTFOLIO MANAGERS 5

SHAREHOLDER INFORMATION 6

FINANCIAL HIGHLIGHTS 7
</TABLE>
<PAGE>

ASIAN EQUITY PORTFOLIO

INVESTMENT SUMMARY

The Asian Equity Portfolio seeks long-term capital appreciation by investing
primarily in equity securities of Asian issuers.

Approach
The Adviser seeks to achieve long-term capital appreciation by investing in a
diversified portfolio of equity securities of issuers in Asian countries,
excluding Japan. The Adviser employs a disciplined, value-oriented approach to
security selection, focusing on larger companies with strong management teams.
The Adviser evaluates top-down country risk factors and opportunities when
determining position sizes and overall exposure to individual markets.

Process
The Adviser emphasizes internal research of the leading companies as the basis
for stock selection. This research process encompasses analysis of historical
financial statements, identification of the potential for future earnings and
cash flows, valuation of key assets, discussions with analysts to determine
consensus expectations and an evaluation of the strength and depth of
management. Visits with management are central to this process. Depending on
the type of company, factors considered in selecting securities include price
to sales, price to earnings, price to cash flow, price to book value and price
to replacement value of assets. The Adviser considers valuation on an absolute
basis and relative to market average and comparable companies in the region and
emphasizes stocks where a catalyst can be identified which will correct
undervaluation. The Adviser tempers bottom-up stock evaluation with a thorough
analysis of risk factors and opportunities within individual Asian countries.
The team evaluates macroeconomic and political factors when determining overall
exposures within individual countries.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks and uncertainties of investing in the equity securities of
issuers in emerging markets in the
hope of earning superior returns and diversifying your
investment portfolio. In general, prices of equity
securities are more volatile than those of fixed income
securities. The prices of equity securities will rise and
fall in response to a number of different factors. In
particular, prices of equity securities will respond to
events which affect entire financial markets or industries
(changes in inflation or consumer demand, for example) and
to events that affect particular issuers (news about the
success or failure of a new product, for example.) As a
result of this price volatility, there is a risk that you
may lose money by investing in the Portfolio. In addition,
at times the Portfolio's market sector, equity securities of
Asian issuers, may underperform relative to other sectors.

Investing in Asian countries, particularly emerging markets,
entails the risk that news and events unique to Asia and
Asian countries will affect those markets and their issuers.
These same events will not necessarily have an effect on the
U.S. economy or similar issuers located in the United
States. In addition, the Portfolio's investments in Asian
countries generally will be denominated in foreign
currencies. As a result, changes in the value of a country's
currency compared to the U.S. dollar may affect the value of
the Portfolio's investments. These changes may occur
separately from and in response to events that do not
otherwise affect the value of the security in the issuer's
home country. The Adviser may invest in certain instruments,
such as derivatives and may use certain techniques such as
hedging, to manage these risks. However, the Adviser cannot
guarantee that it will be practical to hedge these risks in
certain markets or under particular conditions or that it
will succeed in doing so. The Adviser may use derivatives
for other purposes such as gaining exposure to Asian
markets.
PERFORMANCE

Commenced operations on March 3, 1997

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

-6.45%
1998

HIGH (QUARTER) LOW (QUARTER)
<TABLE>
<CAPTION>
<S> <C>
10/98 - 12/98 4/98 - 6/98
26.30% -25.65%
</TABLE>

Average Annual Total Return for
periods ended December 31, 1998
<TABLE>
<CAPTION>
MORGAN STANLEY CAPITAL
INTERNATIONAL (MSCI)
ALL COUNTRY FAR-
ASIAN EQUITY EAST FREE
PORTFOLIO EX-JAPAN INDEX*
- ------------------------------------------------------
<S> <C> <C>
Past One Year -6.45% -7.39%
- ------------------------------------------------------
Since Inception -29.43% -31.71%
</TABLE>

* The MSCI All Country Far East Free
ex-Japan Index is an unmanaged index
of common stocks and includes
Indonesia, Hong Kong, Malaysia, the
Philippines, Korea, Singapore,
Taiwan and Thailand (includes
dividends). An index is a
hypothetical measure of performance
based on the ups and downs of
securities that make up a particular
market. The index does not show
actual investment returns or reflect
payment of management or brokerage
fees, which would lower the index's
performance.
1
<PAGE>

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.

INVESTMENT ADVISER

MSDW Investment Management, with principal offices at 1221 Avenue of the
Americas, New York, New York 10020, conducts a worldwide portfolio management
business and provides a broad range of portfolio management services to
customers in the United States and abroad. Morgan Stanley Dean Witter & Co.
("MSDW") is the direct parent of MSDW Investment Management and Morgan
Stanley. MSDW is a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses - securities,
asset management and credit services. As of December 31, 1998, MSDW Investment
Management and its institutional investment advisory affiliates had
approximately $163.4 billion in assets under management or fiduciary advice.

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 1.20% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 1.20%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

ASIAN EQUITY PORTFOLIO
Timothy Jensen and Ashutosh Sinha
Timothy Jensen joined MSDW Investment Management in 1998. He is a Principal of
MSDW Investment Management and Morgan Stanley and a senior member of MSDW
Investment Management's emerging markets group focusing primarily on Asian
markets other than Japan. Prior to joining MSDW Investment Management, he was
a Partner at Ardsley Partners, where he managed a portion of the emerging
markets assets. Prior to that, he was a Vice President at Bankers Trust
Company where he was responsible for a Latin American equity portfolio. He
graduated from Harvard College with a B.A. in History and received an M.B.A.
in Finance from UCLA. Ashutosh Sinha joined MSDW Investment Management in
1995. He is a Vice President of MSDW Investment Management and Morgan Stanley
and a member of MSDW Investment Management's emerging markets group focusing
primarily on Asian markets other than Japan. Prior to joining MSDW Investment
Management, he spent two years at SBI Funds Management Ltd., where he was an
analyst for the India Magnum Fund. Previous to that, he worked for three years
as a consultant for Citicorp Overseas Software Ltd. He graduated from the
Indian Institute of Technology Kanpur, with a degree in Electrical Engineering
and received an M.B.A. from the Indian Institute of Management, Calcutta. Mr.
Jensen and Mr. Sinha have shared primary responsibility for managing the
Portfolio's assets since August 1998.
5
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

ASIAN EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MARCH 3, 1997* TO
DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
SELECTED PER SHARE DATA AND RATIOS
Net Asset Value, Beginning of Period $ 5.64 $ 10.00
------- -------
Income From Investment Operations
Net Investment Income 0.05 0.01
Net Realized and Unrealized Loss (0.42) (4.36)
------- -------
Total From Investment Operations (0.37) (4.35)
------- -------
Distributions
Net Investment Income (0.04) (0.01)
------- -------
Net Asset Value, End of Period $ 5.23 $ 5.64
======= =======
Total Return (6.45)% (43.52)%
======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $12,504 $12,571
Ratio of Expenses to Average Net Assets 1.21 % 1.35 %**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense and Foreign
Tax Expense 1.20 % 1.20 %**
Ratio of Net Investment Income to Average
Net Assets 1.14 % 0.32 %**
Portfolio Turnover Rate 121 % 130 %
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net Investment
Income $ 0.07 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.80 % 3.10 %**
Net Investment Loss to Average Net Assets (0.45)% (1.43)%**
</TABLE>
- -------
* Commencement of operations
** Annualized
7
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

LATIN AMERICAN PORTFOLIO
Long-term capital appreciation by investing primarily in equity securities of
Latin American issuers.

Investment Adviser

Morgan Stanley Dean Witter Investment Management Inc.

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Latin American Portfolio (the "Portfolio") is one portfolio of the Fund
managed by Morgan Stanley Dean Witter Investment Management Inc. ("MSDW
Investment Management" or the "Adviser").

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Latin American Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 4

MANAGEMENT FEE 4

PORTFOLIO MANAGERS 5

SHAREHOLDER INFORMATION 6
</TABLE>
<PAGE>

INVESTMENT SUMMARY LATIN AMERICAN PORTFOLIO

The Latin American Portfolio seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers.

Approach
The Adviser seeks to maximize returns by investing in growth oriented
securities in undervalued Latin American markets. The Adviser's investment
approach combines top-down country allocation with bottom-up stock selection.
Investment selection criteria include attractive growth characteristics,
reasonable valuations and managements that have strong shareholder value
orientation.

Process
The Adviser's global allocation team analyzes the global economic environment
and its impact on Latin America. The Adviser allocates the Portfolio's assets
among Latin American countries based on relative economic, political and social
fundamentals, stock valuations and investor sentiment. The Adviser invests
within countries based on the work of country specialists who conduct extensive
fundamental analysis of Latin American issuers and seek to identify issuers
with strong earnings growth potential. The Portfolio may concentrate in the
Latin American telecommunications or financial services industries because of
the relatively small number of Latin American issuers and the possibility that
one or more Latin American markets may become dominated by issuers engaged in
these industries.

Risk
Investing in the Portfolio may be appropriate for you if you are willing to
accept the risks and uncertainties of investing in the equity securities of
issuers in Latin America in the hope of achieving superior returns and
diversifying your investment portfolio. In general, prices of equity securities
are more volatile than those of fixed income securities. The prices of equity
securities will rise and fall in response to a number of different factors. In
particular, prices of equity securities will respond to events which affect
entire financial markets or industries (changes in inflation or consumer
demand, for example) and to events that affect particular issuers (news about
the success or failure of a new product, for example). As a result of this
price volatility, there is a risk that you may lose money by investing in the
Portfolio. In addition, at times the Portfolio's market sector, equity
securities of Latin American issuers, may underperform relative to other
sectors.

Investing in Latin American countries entails the risk that news and events
unique to a country or that region will affect those markets and their issuers.
These same events will not necessarily have an effect on the U.S. economy or
similar issuers located in the United States. In addition, the Portfolio's
investments in Latin American countries generally will be denominated in
foreign currencies. As a result, changes in the value of those currencies
compared to the U.S. dollar may affect the value of the Portfolio's
investments. These changes may occur separately from and in response to events
that do not otherwise affect the value of the security in the issuer's home
country. The Portfolio's ability to concentrate its investments in the
communications or financial services sectors may expose it to risks unique to
those sectors. The Adviser may invest in certain instruments, such as
derivatives and may use certain techniques such as hedging, to manage these
risks. However, the Adviser cannot guarantee that it will be practical to hedge
these risks in certain markets or under particular conditions or that it will
succeed in doing so. The Adviser may use derivatives for other purposes such as
gaining exposure to Latin American markets. The risks of investing in the
Portfolio may be intensified because the Portfolio is non-diversified, which
means that it may invest in securities of a limited number of issuers. As a
result, the performance of a particular investment or a small group of
investments may affect the Portfolio's performance more than if the Portfolio
were diversified.

There is no performance information for the Latin American Portfolio since it
has not commenced operations as of the date of this Prospectus.
1
<PAGE>

INVESTMENT SUMMARY ADDITIONAL RISK FACTORS AND INFORMATION

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.

INVESTMENT ADVISER

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

<TABLE>
<CAPTION>
ASSETS FEE
- ----------------------------------------
<S> <C>
First $500 million 1.10%
- ----------------------------------------
From $500 million to $1 billion 1.05%
- ----------------------------------------
More than $1 billion 1.00%
</TABLE>

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 1.75% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 1.75%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.
4
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

LATIN AMERICAN PORTFOLIO
Robert L. Meyer, Andy Skov and Michael Perl
Robert L. Meyer joined MSDW Investment Management in 1989 and is a Managing
Director of MSDW Investment Management and Morgan Stanley. He is head of and a
Portfolio Manager in the Emerging Markets Equity Group. 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. Andy Skov joined MSDW Investment
Management in 1994. He is a Principal of MSDW Investment Management and Morgan
Stanley and a Portfolio Manager in the Emerging Markets Equity Group. Prior to
joining MSDW Investment Management, he worked in the Latin America group at
Bankers Trust Company in corporate finance, research and sales; two of those
years he spent in Argentina. He graduated from the University of California at
Berkeley with a B.A. (Phi Beta Kappa) in Political Science and Economic
Development. Michael Perl joined MSDW Investment Management in 1998. He is a
Vice President and Portfolio Manager in the Emerging Markets Equity Group.
Prior to joining MSDW Investment Management, he worked as a Latin American
Portfolio Manager at Bankers Trust Australia from 1992 to 1998. Mr. Perl
graduated from the University of New South Wales with a Bachelor of Commerce
(Honors), majoring in Finance, Accounting and Taxation. Mr. Meyer has had
primary responsibility for managing the Portfolio's assets since its
inception. Mr. Skov has assisted Mr. Meyer in managing the Portfolio's assets
since its inception and assumed shared primary responsibility for managing the
Portfolio's assets in May 1997. Mr. Perl has shared primary responsibility for
managing the Portfolio's assets since November 1998.
5
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
close of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day
that the NYSE is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS LOGO APPEARS HERE]

BALANCED PORTFOLIO
Above-average total return over a market cycle of three to five years by
investing primarily in a portfolio of equity and fixed income securities.

Investment Adviser

Miller Anderson & Sherrerd, LLP

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Balanced Portfolio (the "Portfolio") is one portfolio of the Fund managed by
Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser"), an affiliate of
Morgan Stanley Dean Witter Investment Management Inc..

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Balanced Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 5

MANAGEMENT FEE 5

PORTFOLIO MANAGERS 6

SHAREHOLDER INFORMATION 7
</TABLE>
<PAGE>

INVESTMENT SUMMARY BALANCED PORTFOLIO

The Balanced Portfolio seeks above-average total return over a market cycle of
three to five years by investing primarily in a portfolio of equity and fixed
income securities.

Approach
The Portfolio invests in a mix of equity and fixed income securities. The
Portfolio normally invests 45-75% of its assets in equity securities and 25-55%
of its assets in fixed income securities. The Portfolio may invest up to 25% of
its assets in foreign equity and foreign fixed income securities, including
emerging markets securities. Equity securities generally will be issued by
larger corporations. Fixed income securities will include U.S. Government
securities, corporate bonds, mortgage securities, high yield securities
(commonly called "junk bonds") and foreign bonds. The Adviser may use
derivatives in managing the Portfolio.

Process
The Adviser determines the Portfolio's equity and fixed income investment
strategies separately and then determines the mix of those strategies that will
maximize the return available from both the stock and bond markets, based on
proprietary valuation disciplines and analysis. The Adviser evaluates
international economic developments in determining the amount to invest in
foreign securities.

Risk
Investing in the Portfolio may be appropriate for you if you are seeking
superior returns through an approach that attempts to moderate risk by
balancing equity and fixed income investments. In general, prices of equity
securities are more volatile than those of fixed income securities. The prices
of equity securities will rise and fall in response to a number of different
factors. In particular, prices of equity securities will respond to events
which affect entire financial markets or industries (changes in inflation or
consumer demand, for example) and to events that affect particular issuers
(news about the success or failure of a new product, for example). Market
prices of the Portfolio's fixed income securities respond to economic
developments, especially changes in interest rates, as well as to perceptions
of the creditworthiness of individual issuers. As a result of this price
volatility, there is a risk that you may lose money by investing in the
Portfolio. The prices of mortgage securities may be particularly sensitive to
changes in interest rates because of the risk that borrowers will become more
or less likely to refinance their mortgages. For example, an increase in
interest rates generally will reduce prepayments, effectively lengthening the
maturity of some mortgage securities, and making them subject to more drastic
price movements. Because of prepayment issues, it is not possible to predict
the ultimate maturity of mortgage securities.

At various times, equity securities may perform better or worse than fixed
income securities. There is a risk that the Portfolio could invest too much or
too little in an asset class, which could adversely affect performance.

There is no performance information for the Balanced Portfolio since it has not
commenced operations as of the date of this Prospectus.
1
<PAGE>

INVESTMENT SUMMARY

ADDITIONAL RISK FACTORS AND INFORMATION

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.
Fixed income securities, regardless of credit quality, experience price
volatility, especially in response to interest rate changes.

Fixed income securities
Generally, fixed income securities decrease in value as interest rates rise
and vice versa. Certain types of fixed income securities, such as inverse
floaters, are designed to respond differently to changes in interest rates.
Fixed income securities generally are subject to risks related to changes in
interest rates and in the financial health or credit rating of the issuers.
The value of a fixed income security typically moves in the opposite direction
of prevailing interest rates: if rates rise, the value of a fixed income
security falls; if rates fall, the value increases. The maturity and duration
of a fixed income instrument also affect the extent to which the price of the
security will change in response to these and other factors. Longer term
securities tend to experience larger changes than shorter term securities
because they are more sensitive to changes in interest rates or in the credit
ratings of the issuers. The average duration of a fixed income portfolio
measures its exposure to the risk of changing interest rates. A portfolio with
a lower average duration generally will experience less price volatility in
response to changes in interest rates as compared with a portfolio with a
higher duration.

Foreign investing
Investing in foreign countries, particularly emerging markets, entails the
risk that news and events unique to a country or region will affect those
markets and their issuers. These same events will not necessarily have an
effect on the U.S. economy or similar issuers located in the United States. In
addition, the Portfolio's investments in foreign countries generally will be
denominated in foreign currencies. As a result, changes in the value of a
country's currency compared to the U.S. dollar may affect the value of the
Portfolio's investments. These changes may occur separately from and in
response to events that do not otherwise affect the value of the security in
the issuer's home country. The Adviser may invest in certain instruments, such
as derivatives and may use certain techniques such as hedging, to manage these
risks. However, the Adviser cannot guarantee that it will be practical to
hedge these risks or that it will succeed in doing so. The Adviser may use
derivatives for other purposes such as gaining exposure to foreign markets.

Collateralized Mortgage Obligations ("CMOs") and Stripped Mortgage Backed
Securities ("SMBSs") are derivatives based on mortgage securities. Both CMOs
and SMBSs are subject to the risks of price movements in response to changing
interest rates and the level of prepayments made by borrowers. Depending on
the class of CMO or SMBS that a Portfolio holds, these price movements may be
significantly greater than that experienced by mortgage securities generally.

efforts, however, there can be no assurance that they and the services they
provide will not be adversely affected.

INVESTMENT ADVISER

MANAGEMENT FEE

The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 0.80% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 0.80%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.
5
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

BALANCED PORTFOLIO
Thomas L. Bennett, Richard B. Worley, Gary G. Schlarbaum and Horatio A. Valieras
Thomas L. Bennett, a Managing Director of Morgan Stanley, joined MAS in 1984.
He assumed responsibility for the MAS Funds Fixed Income Portfolio in 1984,
the MAS Funds Domestic Fixed Income Portfolio in 1987, the MAS Funds High
Yield Portfolio in 1985, the MAS Funds Fixed Income Portfolio II in 1990, the
MAS Funds Special Purpose Fixed Income and Balanced Portfolios in 1992 and the
MAS Funds Multi-Asset-Class Portfolio in 1994. Mr. Bennett is Chairman of the
Board of Trustees of MAS Funds, a member of the Executive Committee of MAS and
a Director of MAS Fund Distributors, Inc. Mr. Bennett holds a B.S. in
Chemistry and an M.B.A. from the University of Cincinnati. Richard B. Worley,
a Managing Director of Morgan Stanley, joined MAS in 1978. He assumed
responsibility for the MAS Funds Fixed Income Portfolio in 1984, the MAS Funds
Domestic Fixed Income Portfolio in 1987, the MAS Funds Fixed Income Portfolio
II in 1990, the MAS Funds Balanced and Special Purpose Fixed Income Portfolios
in 1992, the MAS Funds Global Fixed Income and International Fixed Income
Portfolios in 1993 and the MAS Funds Multi-Asset-Class Portfolio in 1994. Mr.
Worley received a B.A. in Economics from the University of Tennessee and
attended the Graduate School of Economics at the University of Texas. 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 the University of Pennsylvania. Horatio A.
Valieras, a Managing Director of Morgan Stanley, joined MAS in 1992. He served
as an International Strategist from 1989 through 1992 for Credit Suisse First
Boston and as Director-Equity Research in 1992. He assumed responsibility for
the International Equity Portfolio in 1992, the MAS Funds Emerging Markets
Portfolio in 1993, the MAS Funds Multi-Asset-Class Portfolio in 1994 and the
Balanced Portfolio in 1996. Mr. Valieras received a B.S. in Chemical
Engineering from Virginia Tech, an M.S. and Engineer's Degree from the
Massachusetts Institute of Technology and an M.B.A. from the University of
California, Berkeley. Messrs. Bennett, Schlarbaum, Valieras and Worley have
shared primary responsibility for managing the Portfolio's assets since its
inception.
6
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The Portfolio offers its shares only to insurance companies for separate
accounts they establish to fund variable life insurance and variable annuity
contracts and by other entities under qualified pension and retirement plans.
An insurance company purchases or redeems shares of the Portfolio based on,
among other things, the amount of net contract premiums or purchase payments
Allocated to a separate account investment division, transfers to or from a
separate account investment division, contract loans and repayments, contract
Withdrawals and surrenders, and benefit payments. The contract prospectus
describes how contract owners may allocate, transfer and withdraw amounts to,
and from, separate accounts.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
later of the close of the NYSE (normally 4:00 p.m. Eastern Time) or one hour
after the close of the bond markets (normally 4:00 p.m. Eastern Time) on each
day that the Portfolio is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

PROSPECTUS May 1, 1999

A Portfolio of
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

MULTI-ASSET-CLASS PORTFOLIO
Above-average total return over a market cycle of three to five years by
investing primarily in a portfolio of equity and fixed income securities of
domestic and foreign issuers.

Investment Adviser

Miller Anderson & Sherrerd, LLP

Distributor

Morgan Stanley & Co. Incorporated

Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual
fund that provides investment vehicles for variable annuity contracts and
variable life insurance policies and for certain tax-qualified investors. The
Multi- Asset-Class Portfolio (the "Portfolio") is one portfolio of the Fund
managed by Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser"), an
affiliate of Morgan Stanley Dean Witter Investment Management Inc.

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT SUMMARY

Multi-Asset-Class Portfolio 1

Additional Risk Factors and Information 2

INVESTMENT ADVISER 5

MANAGEMENT FEE 5

PORTFOLIO MANAGERS 6

SHAREHOLDER INFORMATION 7
</TABLE>
<PAGE>

INVESTMENT SUMMARY
MULTI-ASSET-CLASS PORTFOLIO

The Multi-Asset-Class Portfolio seeks above-average total return over a market
cycle of three to five years by investing primarily in a portfolio of equity
and fixed income securities of domestic and foreign issuers.

Approach
The advisor seeks to invest in a combination of asset classes whose prices do
not move in tandem. Using this approach, the Adviser attempts to improve
potential return while controlling the Portfolio's overall risks. The
Portfolio invests in equity securities and fixed income securities of U.S. and
foreign issuers, including emerging market securities, in accordance with the
Adviser's target allocation among certain asset classes. The Portfolio's
equity securities generally will be issued by larger corporations. Fixed
income securities will include U.S. Government securities, foreign government
securities, corporate bonds, mortgage securities and high yield securities
(commonly called "junk bonds"). The Portfolio's neutral position is generally
50% domestic equity securities, 24% domestic fixed income securities, 14%
foreign equity securities, 6% foreign fixed income securities and 6% high
yield securities. The Adviser may use derivatives in managing the Portfolio.

Process
The Adviser makes strategic judgments based on proprietary measures used to
compare the relative risks and returns of stock and bond markets around the
world. The Adviser's asset allocation team sets the target exposures for
domestic and international equity and fixed income securities, high yield
securities and cash, depending on the Adviser's appraisal of the relative
attractiveness of each type of investment.

Risk
Investing in the Portfolio may be appropriate for you if you are seeking
superior returns through an approach that attempts to moderate risk by
diversifying investments among domestic and foreign equity and fixed income
investments. In general, prices of equity securities are more volatile than
those of fixed income securities. The prices of equity securities will rise
and fall in response to a number of different factors. In particular, prices
of equity securities will respond to events which affect entire financial
markets or industries (changes in inflation or consumer demand, for example)
and to events that affect particular issuers (news about the success or
failure of a new product, for example). Market prices of the Portfolio's fixed
income securities respond to economic developments, especially changes in
interest rates, as well as to perceptions of the creditworthiness of
individual issuers. As a result of this price volatility, there is a risk that
you may lose money by investing in the Portfolio. The prices of mortgage
securities may be particularly sensitive to changes in interest because of the
risk that borrowers will become more or less likely to refinance their
mortgages. For example, an increase in interest rates generally will reduce
prepayments, effectively lengthening the maturity of some mortgage securities,
and making them subject to more drastic price movements. Because of prepayment
issues, it is not possible to predict the ultimate maturity of mortgage
securities.

At various times, some asset classes will perform better or worse than others.
There is a risk that the Portfolio could invest too much or too little in
particular asset classes, which could adversely affect performance.

There is no performance information for the Multi-Asset-Class Portfolio since
it has not commenced operations as of the date of this Prospectus.
1
<PAGE>

INVESTMENT SUMMARY

ADDITIONAL RISK FACTORS AND INFORMATION

Price volatility
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These
price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in
which the securities trade. Over time, equity securities have generally shown
superior gains, but they have tended to be more volatile in the short term.
Fixed income securities, regardless of credit quality, experience price
volatility, especially in response to interest rate changes.

Fixed income securities
Generally, fixed income securities decrease in value as interest rates rise
and vice versa. Certain types of fixed income securities, such as inverse
floaters, are designed to respond differently to changes in interest rates.
Fixed income securities generally are subject to risks related to changes in
interest rates and in the financial health or credit rating of the issuers.
The value of a fixed income security typically moves in the opposite direction
of prevailing interest rates: if rates rise, the value of a fixed income
security falls; if rates fall, the value increases. The maturity and duration
of a fixed income instrument also affect the extent to which the price of the
security will change in response to these and other factors. Longer term
securities tend to experience larger changes than shorter term securities
cause they are more sensitive to changes in interest rates or in the credit
ratings of the issuers. The average duration of a fixed income portfolio
measures its exposure to the risk of changing interest rates. A portfolio with
a lower average duration generally will experience less price volatility in
response to changes in interest rates as compared with a portfolio with a
higher duration.

Foreign investing
Investing in foreign countries, particularly emerging markets, entails the
risk that news and events unique to a country or region will affect those
markets and their issuers. These same events will not necessarily have an
effect on the U.S. economy or similar issuers located in the United States. In
addition, the Portfolio's investments in foreign countries generally will be
denominated in foreign currencies. As a result, changes in the value of a
country's currency compared to the U.S. dollar may affect the value of the
Portfolio's investments. These changes may happen separately from and in
response to events that do not otherwise affect the value of the security in
the issuer's home country. The Adviser may invest in certain instruments, such
as derivatives and may use certain techniques such as hedging, to manage these
risks. However, the Adviser cannot guarantee that it will be practical to
hedge these risks or that it will succeed in doing so. The Adviser may use
derivatives for other purposes such as gaining exposure to foreign markets.

2
<PAGE>

Collateralized Mortgage Obligations ("CMOs") and Stripped Mortgage Backed
Securities ("SMBSs") are derivatives based on mortgage securities. Both CMOs
and SMBSs are subject to the risks of price movements in response to changing
interest rates and the level of prepayments made by borrowers. Depending on
the class of CMO or SMBS that a Portfolio holds, these price movements may be
significantly greater than that experienced by mortgage securities generally.

INVESTMENT ADVISER

MAS, with principal offices at One Tower Bridge, West Conshohocken,
Pennsylvania 19428 provides investment advisory services to employee benefit
plans, endowment funds, foundations and other institutional investors and has
served as investment adviser to several open-end investment companies since
MAS is a subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"). MSDW is a
preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses -- securities asset
management and credit services. As of December 31, 1998, MAS and its
institutional advisory affiliates had approximately $163.4 billion in assets
under management or fiduciary advice.

MANAGEMENT FEE
The Adviser is entitled to receive a management fee at an annual percentage of
the Portfolio's average daily net assets as follows:

<TABLE>
<CAPTION>
ASSETS FEE
- ----------------------------------------
<S> <C>
First $500 million 0.65%
- ----------------------------------------
From $500 million to $1 billion 0.60%
- ----------------------------------------
More than $1 billion 0.55%
</TABLE>

However, the Adviser has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses of the
Portfolio will not exceed 0.95% of its average daily assets. For purposes of
determining the amount of the voluntary management fee waiver and/or
reimbursement, if any, the annual operating expenses of the Portfolio exclude
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. As a result, the expense ratio,
including these expenses, after fee waivers and/or reimbursements may be
higher than 0.95%. Fee waivers and/or expense reimbursements are voluntary and
the Adviser reserves the right to terminate any waiver and/or reimbursement at
any time without notice.
5
<PAGE>

PORTFOLIO MANAGERS
The following individuals have primary day-to-day portfolio management
responsibility for the Portfolio:

MULTI-ASSET-CLASS PORTFOLIO
Thomas L. Bennett, J. David Germany, Gary G. Schlarbaum, Horatio A. Valieras
and Richard B. Worley
Thomas L. Bennett, a Managing Director of Morgan Stanley, joined MAS in 1984.
He assumed responsibility for the MAS Funds Fixed Income Portfolio in 1984,
the MAS Funds Domestic Fixed Income Portfolio in 1987, the MAS Funds High
Yield Portfolio in 1985, the MAS Funds Fixed Income Portfolio II in 1990, the
MAS Funds Special Purpose Fixed Income and Balanced Portfolios in 1992 and the
MAS Funds Multi-Asset-Class Portfolio in 1994. Mr. Bennett is Chairman of the
Board of Trustees of MAS Funds, a member of the Executive Committee of MAS and
a Director of MAS Fund Distributors, Inc. Mr. Bennett holds a B.S. in
Chemistry and an M.B.A. from the University of Cincinnati. J. David Germany, a
Managing Director of Morgan Stanley, joined MAS in 1991. He assumed
responsibility for the MAS Funds Global Fixed Income and International Fixed
Income Portfolios in 1993 and the MAS Funds Multi-Asset-Class Portfolio in
1984. Mr. Germany was a Vice President and Senior Economist for Morgan Stanley
from 1989 to 1991. He holds an A.B. degree (Valedictorian) from Princeton
University and a Ph.D. in Economics from Massachusetts Institute of
Technology. 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. degree from Coe College and a Ph.D. from the University of
Pennsylvania. Horatio A. Valieras, a Managing Director of Morgan Stanley,
joined MAS in 1992. He served as an International Strategist from 1989 through
1992 for Credit Suisse First Boston and as Director-Equity Research in 1992.
He assumed responsibility for the International Equity Portfolio in 1992, the
MAS Funds Emerging Markets Portfolio in 1993, the MAS Funds Multi-Asset-Class
Portfolio in 1994 and the Balanced Portfolio in 1996. Mr. Valieras received a
B.S. in Chemical Engineering from Virginia Tech, an M.S. and Engineer's Degree
from the Massachusetts Institute of Technology and an M.B.A. from the
University of California, Berkeley. Richard B. Worley, a Managing Director of
Morgan Stanley, joined MAS in 1978. He assumed responsibility for the MAS
Funds Fixed Income Portfolio in 1984, the MAS Funds Domestic Fixed Income
Portfolio in 1987, the MAS Funds Fixed Income Portfolio II in 1990, the MAS
Funds Balanced and Special Purpose Fixed Income Portfolios in 1992, the MAS
Funds Global Fixed Income and International Fixed Income Portfolios in 1993
and the MAS Funds Multi-Asset-Class Portfolio in 1994. Mr. Worley received a
B.A. in Economics from the University of Tennessee and attended the Graduate
School of Economics at the University of Texas. Messrs. Bennett, Germany,
Schlarbaum, Valieras and Worley have shared primary responsibility for
managing the Portfolio's assets since its inception.
6
<PAGE>

SHAREHOLDER INFORMATION

Purchasing and selling Fund shares
Shares are offered on each day that the New York Stock Exchange (the "NYSE")
is open for business.

The Portfolio offers its shares only to insurance companies for separate
accounts they establish to fund variable life insurance and variable annuity
contracts and by other entities under qualified pension and retirement plans.
An insurance company purchases or redeems shares of the Portfolio based on,
Among other things, the amount of net contract premiums or purchase payments
Allocated to a separate account investment division, transfers to or from a
separate account investment division, contract loans and repayments, contract
Withdrawals and surrenders, and benefit payments. The contract prospectus
describes how contract owners may allocate, transfer and withdraw amounts to,
and from, separate accounts.

The price per share will be the net asset value per share (NAV) next
determined after the Fund receives the insurance company's purchase order. NAV
for one share is the value of that share's portion of all of the assets in the
Portfolio. The Fund determines the net asset value for the Portfolio as of the
later of the close of the NYSE (normally 4:00 p.m. Eastern Time) or one hour
after the close of the bond markets (normally 4:00 p.m. Eastern Time) on each
day that the Portfolio is open for business.

Dividends and distributions
The Portfolio distributes its investment income annually as dividends and
makes distributions of capital gains, if any, at least annually.

WHERE TO FIND ADDITIONAL INFORMATION

For additional Fund information, including information regarding the
investments comprising the Portfolio, please call 1-800-281-2715 or contact
your insurance company.

You may obtain the SAI and shareholder reports without charge by contacting
the Fund at the toll-free number above or your insurance company.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
[MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. LOGO APPEARS HERE]
P.O. Box 2798
Boston, Massachusetts 02208-2798

For information call 1-800-281-2715
<PAGE>

Morgan Stanley Dean Witter Universal Funds, Inc.

P.O. Box 2798, Boston, MA 02208-2798

STATEMENT OF ADDITIONAL INFORMATION
Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a no-load,
open-end management investment company with diversified and non-diversified
series ("Portfolios"). The Fund currently consists of 18 Portfolios offering a
broad range of investment choices. Shares of each Portfolio are offered with no
sales charge or exchange or redemption fee.

Shares of each Portfolio may be purchased only by insurance companies for the
purpose of funding variable annuity contracts and variable life insurance
policies and by certain tax-qualified investors. The variable annuity contract
and variable life insurance policy holders incur fees and expenses separate
from the fees and expenses charged by the Portfolios. This Statement of
Additional Information addresses information of the Fund applicable to each of
the 18 Portfolios.

The Fund was incorporated under the laws of the State of Maryland on March 26,
1996. The Fund filed a registration statement with the Securities and Exchange
Commission (the "SEC") registering itself as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares under the Securities Act of 1933, as amended (the "1933 Act").

The Portfolios are managed by either Morgan Stanley Dean Witter Investment
Management Inc. ("MSDW Investment Management" or an "Adviser") or Miller
Anderson & Sherrerd, LLP ("MAS" or an "Adviser") thereby making available in a
single product the combined strength of these leading investment management
firms.

This Statement of Additional Information is not a prospectus but should be read
in conjunction with the prospectus for the Fund's Portfolio(s) (the
"Prospectus"). This Statement of Additional Information is incorporated by
reference into the Prospectus in its entirety. To obtain the Prospectus, please
contact the Fund or your insurance company.

<TABLE>
<S> <C>
Table of Contents Page
Investment Policies 2
Investments and Strategies 4
Taxes 26
Purchase of Shares 28
Redemption of Shares 28
Investment Limitations 29
Determining Maturities of Certain Instruments 30
Management of the Fund 31
Net Asset Value for the Money Market Portfolio 41
Portfolio Transactions 41
Performance Information 44
General Performance Information 45
General Information 46
Description of Ratings 47
Financial Statements 48
</TABLE>

Statement of Additional Information dated May 1, 1999, relating to the Fund's
Prospectuses dated May 1, 1999.
<PAGE>

Investment Policies

The following table provides additional information about the Portfolios'
investment policies. Certain terms below have initial capital letters. These
terms are described under "Instruments and Strategies."

Fixed Income Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in Fixed
Income Securities, not more than 20% of which will
be below investment grade (commonly referred to as
high yield securities or junk bonds). The Portfolio
may invest up to 50% of its assets in MBSs.

High Yield Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in High
Yield Securities.

Core Equity Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in Equity
Securities. The Portfolio may invest up to 5% of its
total assets in Foreign Equities (other than ADRs).
The Portfolio will purchase Equity Securities of
issuers with a market capitalization of generally
greater than $1 billion.

Equity Growth Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in Equity
Securities.

Value Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in Equity
Securities. The Portfolio may invest up to 5% of its
total assets in Foreign Equities (other than ADRs).

Mid Cap Growth Under normal circumstances, the Portfolio will
Portfolio invest at least 65% of its total assets in Equity
Securities of smaller and medium-size companies. The
Portfolio may invest up to 5% of its total assets in
Foreign Equities (other than ADRs).

Mid Cap Value Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in Equity
Securities of mid-cap companies deemed to be under-
valued. The Portfolio may invest up to 5% of its
total assets in Foreign Equities (other than ADRs).

U.S. Real Estate Under normal circumstances, at least 65% of the
Portfolio Portfolio's total assets will be invested in income
producing Equity Securities of U.S. and non-U.S.
companies principally engaged in the U.S. real
estate industry.

International Fixed Under normal circumstances, at least 95% of the
Income Portfolio fixed income securities in which the Portfolio will
invest will be Investment Grade Securities. The
Portfolio's average weighted maturity ordinarily
will exceed five years and will usually be between
three and fifteen years. Under normal circumstances,
the Portfolio will invest at least 80% of its total
assets in Fixed Income Securities of issuers in at
least three countries other than the United States,
including emerging market County Securities.
Derivatives may be used to represent country
investments.

Emerging Markets Debt Under normal circumstances, the Portfolio will
Portfolio invest at least 65% of its total assets in
government Fixed Income Securities, including Loan
Participations and Assignments between governments
and financial institutions, securities issued by
government owned, controlled or sponsored entities
and securities of entities organized to restructure
outstanding debt of such issuers. The Portfoilio may
also invest in Fixed Income Securities of corporate
issuers located in or organized under the laws of
emerging market countries. The Portfolio may also
invest up to 5% of its total assets in MBSs, CMOs
and in other ABSs issued by non-governmental
entities, such as banks and other financial
institutions.

2
<PAGE>

Global Equity Portfolio Under normal circumstances, at least 65% of the
total assets of the Portfolio will be invested in
Equity Securities. In addition, under normal
circumstances, at least 20% of the Portfolio's total
assets will be invested in the Common Stocks of U.S.
issuers and the remaining equity position will be
invested in at least three countries other than the
United States.

International Magnum Under normal circumstances, at least 65% of the
Portfolio total assets of the Portfolio will be invested in
Equity Securities of issuers in at least three
different EAFE countries. The Portfolio may invest
up to 5% of its total assets in the securities of
issuers domiciled in non-EAFE countries.

Emerging Markets Equity Under normal circumstances, at least 65% of the
Portfolio Portfolio's total assets will be invested in
Emerging Market Country Equity Securities.

Asian Equity Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of the total assets of the
Portfolio in Equity Securities of Asian issuers
(excluding Japanese issuers).

Latin American The Portfolio expects, under normal circumstances,
Portfolio to have at least 55% of its total assets invested in
listed Equity Securities of issuers in these four
countries: Argentina, Brazil, Chile and Mexico.

Balanced Portfolio Under normal circumstances, the Portfolio will
invest at least 65% of its total assets in issuers
located in at least three countries, including the
United States. The Portfolio will purchase Equity
Securities of issuers with a market capitalization
of generally greater than $1 billion.

Multi-Asset-Class Under normal circumstances, the Portfolio will
Portfolio invest at least 65% of its total assets in issuers
located in at least three countries, including the
United States. The Portfolio will purchase Equity
Securities of issuers with a market capitalization
of generally greater than $1 billion.

3
<PAGE>

Investments and Strategies

This Statement of Additional Information provides additional information
about the investment policies and operations of the Fund and its investment
portfolios (each a "Portfolio") MSDW Investment Mangement or MAS act as
investment adviser to each Portfolio. Under the supervision of MSDW Investment
Management. Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors") acts as
investment sub-adviser to the Money Market Portfolio. References to MSDW
Investment Management, when used in connection with its activities as
investment adviser, include MSDW Advisors acting under its supervision.

The following tables summarize the permissible strategies and investments for
each Portfolio. These tables should be used in conjunction with the investment
summaries for each Portfolio in order to provide a complete description of such
Portfolio's investment policies.

U.S. FIXED INCOME PORTFOLIOS

<TABLE>
<CAPTION>
Fixed High Money
Income Yield Market
------ ----- ------
<S> <C> <C> <C>
STRATEGIES:
Emerging Markets Investing................................ x
Foreign Fixed Income Investing............................ x x
Foreign Investing......................................... x x
High Yield Investing...................................... x x
Maturity and Duration Management.......................... x x
Mortgage Investing........................................ x x
Value Investing........................................... x x
EQUITY SECURITIES:..........................................
ADRs......................................................
Common Stocks.............................................
Depositary Receipts.......................................
Investment Company Securities............................. x x x
Limited Partnerships......................................
REITs.....................................................
Rights....................................................
Warrants..................................................
FIXED INCOME SECURITIES:....................................
Agencies.................................................. x x x
Asset-Backed Securities................................... x x x
Cash Equivalents.......................................... x x x
CMOs...................................................... x x
Commercial Paper.......................................... x x x
Corporates................................................ x x x
Floaters.................................................. x x x
High Yield Securities..................................... x x
Inverse Floaters.......................................... x x
Investment Grade Securities............................... x x x
Loan Participations and Assignments....................... x x
MBSs...................................................... x x
Money Market Instruments.................................. x x x
Mortgage Related Securities............................... x x x
Municipals................................................ x x x
Repurchase Agreements..................................... x x x
SMBSs..................................................... x x
Temporary Investments..................................... x x x
U.S. Government Securities................................ x x x
Yankee Dollars............................................ x x
Zero Coupons, Pay-In-Kind Securities
or Deferred Payment Securities........................... x x x
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
Fixed High
Income Yield Money Market
------ ----- ------------
<S> <C> <C> <C>
FOREIGN INVESTMENT:..........................
Brady Bonds................................ x x
Emerging Market Country Securities......... x
Foreign Bonds.............................. x x
Foreign Currency Transactions.............. x x
Foreign Equity Securities.................. x
Investment Funds........................... x x
Russian Equity Securities..................
OTHER SECURITIES AND INVESTMENT TECHNIQUES:
Borrowing for Investment Purposes..........
Convertible Securities..................... x x
Loans of Portfolio Securities.............. x x x
Non-Publicly Traded Securities,
Private Placements and Restricted x x x
Securities................................ (Private Placements)
Preferred Stocks........................... x x
Reverse Repurchase Agreements.............. x x x
Short Sales................................ x x
Structured Investments..................... x x x
When-Issued and Delayed Delivery
Securities................................ x x
DERIVATIVES:.................................
Forward Contracts.......................... x x
Futures Contracts.......................... x x
Options.................................... x x
Swaps...................................... x x
</TABLE>

U.S. EQUITY PORTFOLIOS

<TABLE>
<CAPTION>
Core Equity Mid Cap Mid Cap U.S.
Equity Growth Growth Value Real Estate Value
------------ ------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STRATEGIES:
Core Equity Investing...... x
Foreign Investing.......... x x x x x x
Growth Stock Investing..... x x
Real Estate Investing...... x
Value Stock Investing...... x x
EQUITY SECURITIES:
Common Stocks.............. x x x x x x
Depositary Receipts........ x x x x x x
(ADRs ONLY) (ADRs ONLY) (ADRs ONLY) (ADRs ONLY)
Investment Company
Securities................ x x x x x x
Limited Partnerships.......
Rights..................... x x x x x x
REITS...................... x
Specialized Ownership
Vehicles.................. x
Warrants................... x x x x x x
FIXED INCOME SECURITIES:
Agencies................... x x x x x
Asset-Backed Securities....
Cash Equivalents........... x x x x x x
CMOs.......................
Commercial Paper........... x x x x x x
Corporates................. x x x x x
Floaters...................
</TABLE>

5
<PAGE>

<TABLE>
<CAPTION>
Core Equity Mid Cap Mid Cap U.S.
Equity Growth Growth Value Real Estate Value
------------ ------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
High Yield Securities......
Inverse Floaters...........
Investment Grade
Securities................ x x x x x x
Loan Participations and
Assignments...............
MBSs.......................
Money Market Instruments... x x x x x x
Mortgage Related
Securities................
Municipals.................
Repurchase Agreements...... x x x x x x
SMBSs......................
Temporary Investments...... x x x x x
U.S. Government
Securities................ x x x x x x
Yankee Dollars............. x
Zero Coupons, Pay-In-Kind
Securities or Deferred
Payment Securities........ x x x x x x
FOREIGN INVESTMENT:
Brady Bonds................
Emerging Market Country
Securities................ x
Foreign Bonds.............. x x x x x
Foreign Currency
Transactions.............. x x x x x x
Foreign Equity Securities.. x x x x x x
Investment Funds........... x x
Russian Equity Securities..
OTHER SECURITIES AND
INVESTMENT TECHNIQUES:
Borrowing for Investment
Purposes..................
Convertible Securities..... x x x x x x
Loans of Portfolio
Securities................ x x x x x x
Non-Publicly Traded
Securities, Private
Placements and Restricted
Securities................ x x x x x x
Preferred Stocks........... x x x x x x
Reverse Repurchase
Agreements................ x x x x
Short Sales................ x x x x
Structured Investments..... x x
When-Issued and Delayed
Delivery Securities....... x x x x x x
DERIVATIVES:
Forward Contracts.......... x x x x x x
Futures Contracts.......... x x x x x x
Options.................... x x x x x x
Swaps...................... x x x x x x
</TABLE>

6
<PAGE>

GLOBAL PORTFOLIOS

<TABLE>
<CAPTION>
Emerging Emerging
Asian Markets Markets Global International International Latin
Equity Debt Equity Equity Fixed Income Magnum American
------ -------- -------- ------ ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STRATEGIES:
Emerging Markets
Investing............ x x x x x
Foreign Fixed Income
Investing............ x x x x x x x
Foreign Investing..... x x x x x x x
High Yield Investing.. x x x x
Maturity and Duration
Management........... x
Mortgage Investing.... x
Value Investing....... x
EQUITY SECURITIES:
Common Stocks......... x x x x x
Depositary Receipts... x x x x x x
Investment Company
Securities........... x x x x x x x
Limited Partnerships..
Rights................ x x x x x x
Warrants.............. x x x x x x
FIXED INCOME SECURITIES:
Agencies.............. x x x * x x x
Asset-Backed
Securities........... x x
Cash Equivalents...... x x x x x x x
CMOs.................. x x
Commercial Paper...... x x x x x x x
Corporates............ x x x * x x x
Floaters.............. x x
High Yield
Securities........... x x x x
Inverse Floaters...... x x
Investment Grade
Securities........... x x x x x x x
Loan Participations
and Assignments...... x x x
MBSs.................. x x
Money Market
Instruments.......... x x x x x x x
Mortgage Related
Securities........... x x
Municipals............ x x
Repurchase
Agreements........... x x x x x x x
SMBSs................. x x
Temporary
Investments.......... x x x x x x x
U.S. Government
Securities........... x x x * x x x
Yankee Dollars........ x x x
Zero Coupons, Pay-In-
Kind Securities or
Deferred Payment
Securities........... x x x x x x
FOREIGN INVESTMENT:
Brady Bonds........... x x x x x x
Emerging Market
Country Securities... x x x x x x x
Eurodollars........... x x x x x x x
Foreign Bonds......... x x x x x x x
Foreign Currency
Transactions......... x x x x x x x
Foreign Equity
Securities........... x x x x x x
Investment Funds...... x x x x x x x
Russian Equity
Securities........... x x
OTHER SECURITIES AND
INVESTMENT TECHNIQUES:
Borrowing for
Investment Purposes.. x x
Convertible
Securities........... x x x x x x x
Loans of Portfolio
Securities........... x x x x x x x
Non-Publicly Traded
Securities, Private
Placements and
Restricted
Securities........... x x x x x x x
</TABLE>

7
<PAGE>

ASSET ALLOCATION PORTFOLIOS

<TABLE>
<CAPTION>
MULTI-ASSET-
BALANCED CLASS
---------- ------------
<S> <C> <C>
STRATEGIES:
Asset Allocation Management........................... x x
Core Equity Investing................................. x x
Emerging Markets Investing............................ x x
Fixed Income and Asset Allocation..................... x x
Foreign Fixed Income Investing........................ x x
Foreign Investing..................................... x x
High Yield Investing.................................. x x
International Equity Investing........................ x x
Maturity and Duration Management...................... x x
Mortgage Investing.................................... x x
Value Investing....................................... x x
EQUITY SECURITIES:
Common Stocks......................................... x x
Depositary Receipts................................... x x
(ADRs ONLY) (ADRs ONLY)
Investment Company Securities......................... x x
Limited Partnerships..................................
REITs.................................................
Rights................................................ x x
Warrants.............................................. x x
FIXED INCOME SECURITIES:
Agencies.............................................. x x
Asset-Backed Securities............................... x x
Cash Equivalents...................................... x x
CMOs.................................................. x x
Commercial Paper...................................... x x
Corporate Bonds....................................... x x
Floaters.............................................. x x
High Yield Securities................................. x x
Inverse Floaters...................................... x x
Investment Grade Securities........................... x x
Loan Participations and Assignments................... x x
MBSs.................................................. x x
Money Market Instruments.............................. x x
Mortgage Related Securities........................... x x
Municipals............................................ x x
Repurchase Agreements................................. x x
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
MULTI-ASSET-
BALANCED CLASS
-------- ------------
<S> <C> <C>
SMBSs................................................... x x
Temporary Investments................................... x x
U.S. Government Securities.............................. x x
Yankee Dollars.......................................... x x
Zero Coupons, Pay-In-Kind Securities
or Deferred Payment Securities......................... x x
FOREIGN INVESTMENT:
Brady Bonds............................................. x x
Emerging Market Country Securities...................... x x
Foreign Bonds........................................... x x
Foreign Currency Transactions........................... x x
Foreign Equity Securities............................... x x
Investment Funds........................................ x x
Russian Equity Securities...............................
OTHER SECURITIES AND INVESTMENT TECHNIQUES:
Borrowing for Investment Purposes.......................
Convertible Securities.................................. x x
Loans of Portfolio Securities........................... x x
Non-Publicly Traded Securities,
Private Placements and Restricted Securities........... x x
Preferred Stocks........................................ x x
Reverse Repurchase Agreements........................... x x
Short Sales............................................. x x
Structured Investments.................................. x x
DERIVATIVES:
Forward Contracts....................................... x x
Futures Contracts....................................... x x
Options................................................. x x
Swaps................................................... x x
</TABLE>

9
<PAGE>

Investment Strategies

Asset Allocation Management: The Adviser's approach to asset allocation
management is to determine investment strategies for each asset class in a
Portfolio separately, and then determine the mix of those strategies expected
to maximize the return available from each market. In its twenty-five year
history of managing balanced accounts, MAS has developed strategic judgments on
the mix among asset classes are based on valuation disciplines and tools for
analysis. Tactical asset-allocation shifts are based on comparisons of
prospective risks, returns, and the likely risk-reducing benefits derived from
combining different asset classes into a single portfolio. Experienced teams of
equity, fixed-income, and international investment professionals manage the
investments in each asset class.

Core Equity Investing: The Adviser's "core" or primary equity strategy
emphasizes common stocks of large companies, with targeted investments in small
company stocks that promise special growth opportunities. Depending on the
Adviser's outlook for the economy and different market sectors, the mix between
value stocks and growth stocks will change.

Emerging Markets Investing: The Adviser's approach to emerging markets
investing is based on the Adviser's evaluation of both short-term and long-term
international economic trends and the relative attractiveness of emerging
markets and individual emerging market securities.

Emerging markets describes any country which is generally considered to be an
emerging or developing country by the international financial community such as
the International Bank for Reconstruction and Development (more commonly known
as the World Bank) and the International Finance Corporation. Emerging markets
can include every nation in the world except the United States, Canada, Japan,
Australia, New Zealand and most nations located in Western Europe.

Currently, investing in many emerging markets is either not feasible or very
costly, or may involve unacceptable political risks. Other special risks
include the possible increased likelihood of expropriation or the return to
power of a communist regime which would institute policies to expropriate,
nationalize or otherwise confiscate investments. A Portfolio will focus its
investments on those emerging market countries in which the Adviser believes
the potential for market appreciation outweighs these risks and the cost of
investment. Investing in emerging markets also involves an extra degree of
custodial and/or market risk, especially where the securities purchased are not
traded on an official exchange or where ownership records regarding the
securities are maintained by an unregulated entity (or even the issuer itself).

Fixed Income Management and Asset Allocation: In selecting fixed-income
securities for certain Portfolios, the Adviser considers the value offered by
various segments of the fixed income securities market relative to cash
equivalents and equity securities. The Adviser may find that certain segments
of the fixed income securities market offer more or less attractive relative
value when compared to equity securities than when compared to other fixed
income securities.

For example, in a given interest rate environment, equity securities may be
judged to be fairly valued when compared to intermediate duration fixed-income
securities, but overvalued compared to long duration fixed-income securities.
Consequently, while a Portfolio investing only in fixed-income securities may
not emphasize long duration assets to the same extent, the fixed-income portion
of a balanced investment may invest a percentage of its assets in long duration
bonds on the basis of their valuation relative to equity securities.

Foreign Fixed Income Investing: The Adviser invests in foreign bonds and other
fixed-income securities denominated in foreign currencies, where, in the
opinion of the Adviser, the combination of current yield and currency value
offer attractive expected returns. When the total return opportunities in a
foreign bond market appear attractive in local currency terms, but where in the
Adviser's judgment unacceptable currency risk exists, currency futures &
options, forwards and swaps may be used to hedge the currency risk.

Foreign Investing: Investors should recognize that investing in Foreign bonds
and foreign equities involves certain special considerations which are not
typically associated with investing in domestic securities.

As non-U.S. companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to U.S. companies, there may be less publicly available information about
certain foreign securities than about U.S. securities. Foreign bonds and
Foreign equities may be less liquid and more volatile than securities of
comparable U.S. companies. There is generally less government supervision and
regulation of stock exchanges, brokers and listed companies than in the U.S.
With respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in those countries.
Additionally, there may be difficulty in obtaining and enforcing judgments
against foreign issuers.

Since foreign bonds and foreign equities may be denominated in foreign
currencies, and since a Portfolio may temporarily hold uninvested reserves in
bank deposits of foreign currencies prior to reinvestment or conversion to U.S.
dollars, a Portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies.

10
<PAGE>

Although a Portfolio will endeavor to achieve the most favorable execution
costs in its portfolio transactions in foreign securities, fixed commissions on
many foreign stock exchanges are generally higher than negotiated commissions
on U.S. exchanges. In addition, it is expected that the expenses for custodial
arrangements of a Portfolio's foreign securities will be greater than the
expenses for the custodial arrangements for handling U.S. securities of equal
value. Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income a Portfolio receives from the companies comprising the Portfolio's
investments.

Growth Stock Investing: The Adviser focuses on common stocks that generally
have higher growth rates, betas, and price/earnings ratios, and lower yields
than the stock market in general as measured by an appropriate market index.

High Yield Investing: This strategy involves investments in high yield
securities based on the Adviser's analysis of economic and industry trends and
individual security characteristics. The Adviser conducts credit analysis for
each security considered for investment to evaluate its attractiveness relative
to its risk. A high level of diversification is also maintained to limit credit
exposure to individual issuers. See "High Yield Securities," below, for further
discussion of these securities, including risks.

International Equity Investing: The Adviser's approach to international equity
investing is based on its evaluation of both short-term and long-term
international economic trends and the relative attractiveness of non-U.S.
equity markets and individual securities.

The Adviser considers fundamental investment characteristics, the principles of
valuation and diversification, and a relatively long-term investment time
horizon. Since liquidity will also be a consideration, emphasis will likely be
influenced by the relative market capitalizations of different non-U.S. stock
markets and individual securities. Portfolios seek to diversify investments
broadly among both developed and newly industrializing foreign countries. Where
appropriate, a Portfolio may also invest in regulated investment companies or
investment funds which invest in such countries to the extent allowed by
applicable law.

Maturity and Duration Management: One of two primary components of the
Adviser's fixed-income investment strategy is maturity and duration management.
The maturity and duration structure of a Portfolio investing in fixed-income
securities is actively managed in anticipation of cyclical interest rate
changes. Adjustments are not made in an effort to capture short-term, day-to-
day movements in the market, but instead are implemented in anticipation of
longer term shifts in the levels of interest rates. Adjustments made to shorten
portfolio maturity and duration are made to limit capital losses during periods
when interest rates are expected to rise. Conversely, adjustments made to
lengthen maturity are intended to produce capital appreciation in periods when
interest rates are expected to fall. The foundation for maturity and duration
strategy lies in analysis of the U.S. and global economies, focusing on levels
of real interest rates, monetary and fiscal policy actions, and cyclical
indicators. See Value Investing for a description of the second primary
component of the Adviser's fixed-income strategy.

About Maturity and Duration: Most debt obligations provide interest (coupon)
payments in addition to a final (par) payment at maturity. Some obligations
also have call provisions. Depending on the relative magnitude of these
payments and the nature of the call provisions, the market values of debt
obligations may respond differently to changes in the level and structure of
interest rates. Traditionally, a debt security's term-to-maturity has been used
as a proxy for the sensitivity of the security's price to changes in interest
rates (which is the interest rate risk or volatility of the security). However,
term-to-maturity measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments
prior to maturity.

Duration is a measure of the expected life of a fixed-income security that was
developed as a more precise alternative to the concept of term-to-maturity.
Duration incorporates a bond's yield, coupon interest payments, final maturity
and call features into one measure. Duration is one of the fundamental tools
used by the Adviser in the selection of fixed-income securities. Duration is a
measure of the expected life of a fixed-income security on a present value
basis. Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
Fixed-income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other factors
being the same, the lower the stated or coupon rate of interest of a fixed-
income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security.

There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or
more years; however, their interest rate exposure corresponds to the frequency
of the coupon reset. Another example where the interest rate exposure is not
properly captured by duration is the case of mortgage pass-through securities.
The stated final maturity of such securities is generally 30 years, but current
prepayment rates are more critical in determining the securities' interest rate
exposure. In these and other similar

11
<PAGE>

situations, the Adviser will use sophisticated analytical techniques that
incorporate the economic life of a security into the determination of its
interest rate exposure.

Mortgage Investing: As described in the prospectus, certain Portfolios may
invest greater than 50% of their assets, and other Portfolios also may invest,
in mortgage-related securities. These include mortgage securities representing
interests in pools of mortgage loans made by lenders such as commercial banks,
savings and loan associations, mortgage bankers and others. The pools are
assembled by various organizations, including the Government National Mortgage
Association ("GNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Fannie
Mae, other government agencies, and private issuers. It is expected that a
Portfolio's primary emphasis will be in mortgage securities issued by the
various government-related organizations. However, a Portfolio may invest,
without limit, in mortgage securities issued by private issuers when the
Adviser deems that the quality of the investment, the quality of the issuer,
and market conditions warrant such investments. Securities issued by private
issuers will be rated investment grade by Moody's or Standard & Poor's or be
deemed by the Adviser to be of comparable investment quality.

Real Estate Investing: Investments in securities of issuers engaged in the real
estate industry, entail special risks and considerations. In particular,
securities of such issuers may be subject to risks associated with the direct
ownership of real estate. These risks include: the cyclical nature of real
estate values, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, demographic trends and variations in rental income, changes
in zoning laws, casualty or condemnation losses, environmental risks,
regulatory limitations on rents, changes in neighborhood values, changes in the
appeal of properties to tenants, increases in interest rates and other real
estate capital market influences. Generally, increases in interest rates will
increase the costs of obtaining financing, which could directly and indirectly
decrease the value of the Portfolios' investments.

Value Investing: One of two primary components of the Adviser's fixed-income
strategy is value investing. The Adviser seeks to identify undervalued sectors
and securities through analysis of credit quality, option characteristics and
liquidity. Quantitative models are used in conjunction with judgment and
experience to evaluate and select securities with embedded put or call options
which are attractive on a risk- and option-adjusted basis. Successful value
investing will permit a Portfolio to benefit from the price appreciation of
individual securities during periods when interest rates are unchanged.

Value Stock Investing: The Adviser emphasizes common stocks that it believes
are undervalued relative to the stock market in general as measured by an
appropriate market index. The Adviser determines value using a variety of
measures, including price/earnings ratios and price/book ratios. Value stocks
generally pay dividends, but the Adviser may select non-dividend paying stocks
for their value characteristics.

Equity Securities

Equity Securities generally represent an ownership interest in an issuer, or
may be convertible into or represent a right to acquire an ownership interest
in an issuer. While there are many types of Equity Securities, prices of all
equity securities will fluctuate. Economic, political and other events may
affect the prices of broad equity markets. For example, changes in inflation or
consumer demand may affect the prices of all Equity Securities in the United
States. Similar events also may affect the prices of particular equity
securities. For example, news about the success or failure of a new product may
affect the price of a particular issuer's Equity Securities.

ADRs. For information concerning American Depositary Receipts ("ADR"), see
"Depositary Receipts" below.

Common Stocks. Common Stocks represent an ownership interest in a corporation,
entitling the stockholder to voting rights and receipt of dividends paid based
on proportionate ownership.

Depositary Receipts. Depositary Receipts represent an ownership interest in
securities of foreign companies (an "underlying issuer") that are deposited
with a depositary. Depositary Receipts are not necessarily denominated in the
same currency as the underlying securities. Depositary Receipts include
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and
other types of Depositary Receipts (which, together with ADRs and GDRs, are
hereinafter collectively referred to as "Depositary Receipts"). ADRs are
dollar-denominated Depositary Receipts typically issued by a U.S. financial
institution which evidence an ownership interest in a security or pool of
securities issued by a foreign issuer. ADRs are listed and traded in the United
States. GDRs and other types of Depositary Receipts are typically issued by
foreign banks or trust companies, although they also may be issued by U.S.
financial institutions, and evidence ownership interests in a security or pool
of securities issued by either a foreign or a U.S. corporation. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities market and Depositary Receipts in bearer form are designed for use
in securities markets outside the United States.

Depositary Receipts may be "sponsored" or "unsponsored." Sponsored Depositary
Receipts are established jointly by a depositary and the underlying issuer,
whereas unsponsored Depositary Receipts may be established by a depositary
without participation by the underlying issuer. Holders of unsponsored
Depositary Receipts generally bear all the costs associated with establishing
unsponsored Depositary

12
<PAGE>

Receipts. In addition, the issuers of the securities underlying unsponsored
Depository Receipts are not obligated to disclose material information in the
United States and, therefore, there may be less information available regarding
such issuers and there may not be a correlation between such information and
the market value of the Depositary Receipts. For purposes of a Portfolio's
investment policies, the Portfolio's investments in Depositary Receipts will be
deemed to be an investment in the underlying securities, except that ADRs may
be deemed to be issued by a U.S. issuer.

Investment Company Securities. Investment Company Securities are securities of
other open-end or closed-end investment companies. The Investment Company Act
of 1940, as amended (the "1940 Act"), generally prohibits an Underlying Fund
from acquiring more than 3% of the outstanding voting shares of an investment
company and limits such investments to no more than 5% of the Portfolio's total
assets in any one investment company and no more than 10% in any combination of
investment companies. To the extent a Portfolio invests a portion of its assets
in Investment Company Securities, those assets will be subject to the risks of
the purchased investment company's portfolio securities. The Portfolio also
will bear its proportionate share of the expenses of the purchased investment
company in addition to its own expenses.

Limited Partnerships. A limited partnership interest entitles a Portfolio to
participate in the investment return of the partnership's assets as defined by
the agreement among the partners. As a limited partner, a Portfolio generally
is not permitted to participate in the management of the partnership. However,
unlike a general partner whose liability is not limited, a limited partner's
liability generally is limited to the amount of its commitment to the
partnership.

REITs. Real Estate Investment Trusts ("REITs") pool investors' funds for
investment primarily in income producing real estate or real estate related
loans or interests. A REIT is not taxed on income distributed to its
shareholders or unitholders if it complies with regulatory requirements
relating to its organization, ownership, assets and income, and with a
regulatory requirement that it distribute to its shareholders or unitholders at
least 95% of its taxable income for each taxable year. Generally, REITs can be
classified as Equity REITs, Mortgage REITs or Hybrid REITs. Equity REITs invest
the majority of their assets directly in real property and derive their income
primarily from rents and capital gains from appreciation realized through
property sales. Equity REITs are further categorized according to the types of
real estate securities they own, e.g., apartment properties, retail shopping
centers, office and industrial properties, hotels, health-care facilities,
manufactured housing and mixed-property types. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive their income
primarily from interest payments. Hybrid REITs combine the characteristics of
both Equity and Mortgage REITs.

A shareholder in any of the Portfolios, by investing in REITs indirectly
through the Portfolio, will bear not only his proportionate share of the
expenses of the Portfolio, but also, indirectly, the management expenses of
underlying REITs. REITs may be affected by changes in the value of their
underlying properties and by defaults by borrowers or tenants. Mortgage REITs
may be affected by the quality of the credit extended. Furthermore, REITs are
dependent on specialized management skills. Some REITs may have limited
diversification and may be subject to risks inherent in investments in a
limited number of properties, in a narrow geographic area, or in a single
property type. REITs depend generally on their ability to generate cash flow to
make distributions to shareholders or unitholders, and may be subject to
defaults by borrowers and to self-liquidations. In addition, the performance of
a REIT may be affected by its failure to qualify for tax-free pass-through of
income, or its failure to maintain exemption from registration under the 1940
Act.

Rights. Rights represent the right, but not the obligation, for a fixed period
of time to purchase additional shares of an issuer's Common Stock at the time
of a new issuance, usually at a price below the initial offering price of the
Common Stock and before the Common Stock is offered to the general public.
Rights are usually freely transferrable. The risk of investing in a Right is
that the Right may expire prior to the market value of the Common Stock
exceeding the price fixed by the Right.

Specialized Ownership Vehicles. Specialized ownership vehicles pool investors'
funds for investment primarily in income-producing real estate or real estate
related loans or interests. Such specialized ownership vehicles in which the
Portfolios may invest include property unit trusts, REITs and other similar
specialized investment vehicles. Investments in such specialized ownership
vehicles may have favorable or unfavorable legal, regulatoy or tax implications
for a Portfolio and, to the extent such vehicles are structured similarly to
investment funds, may cause the Portfolios' shareholders to indirectly bear
certain certain additional operating expenses.

Warrants. Warrants give holders the right, but not the obligation, to buy
Common Stock of an issuer at a given price, usually higher than the market
price at the time of issuance, during a specified period. Warrants are usually
freely transferrable. The risk of investing in a Warrant is that the Warrant
may expire prior to the market value of the Common Stock exceeding the price
fixed by the Warrant.

Fixed Income Securities

Fixed Income Securities generally represent an issuer's obligation to repay
money that it has borrowed together with interest on the amount borrowed. Fixed
Income Securities come in many varieties and may differ in the way that
interest is calculated, the amount and frequency of payments,

13
<PAGE>

the type of collateral, if any, and some Fixed Income Securities may have other
novel features such as conversion rights. Prices of Fixed Income Securities
fluctuate and, in particular, are subject to credit risk and market risk.
Credit risk is the possibility that an issuer may be unable to meet scheduled
interest and principal payments. Market risk is the possibility that a change
in interest rates or the market's perception of the issuer's prospects may
adversely affect the value of a fixed income security. Economic, political and
other events also may affect the prices of broad fixed income markets.
Generally, the values of Fixed Income Securities vary inversely with changes in
interest rates. During periods of falling interest rates, the values of
outstanding Fixed Income Securities generally rise and during periods of rising
interest rates, the values of such securities generally decline. Prepayments
also will affect the maturity and value of Fixed Income Securities. Prepayments
generally rise in response to a decline in interest rates as debtors take
advantage of the opportunity to refinance their obligations. When this happens,
a Portfolio may be forced to reinvest in lower yielding Fixed Income
Securities.

The length of time to the final payment, or maturity, of a Fixed Income
Security also affects its price volatility. While securities with longer
maturities tend to produce higher yields, the prices of longer maturity
securities are subject to greater market fluctuation, especially as a result of
changes in interest rates. Traditionally, term to maturity has been used as a
barometer of a Fixed Income Security's sensitivity to interest rate changes.
However, this measure considers only the time until final payment and takes no
account of the pattern of payments prior to maturity. Duration is a more
precise measure of the expected life of a Fixed Income Security that combines
consideration of yield, coupon, interest payments, final maturity and call
features and measures the expected life of a Fixed Income Security on a present
value basis. The duration of a Fixed Income Security ordinarily is shorter than
its maturity.

Agencies. Agencies are Fixed Income Securities which are not guaranteed by, or
backed by the full faith and credit of the U.S. Government, but which are
issued, sponsored or guaranteed by a federal agency or federally sponsored
agency such as the Student Loan Marketing Association, or any of several other
agencies.

Asset-Backed Securities. Asset-Backed Securities ("Asset-Backeds") are
securities collateralized by shorter-term loans such as automobile loans, home
equity loans, equipment or computer leases or credit card receivables. The
payments from the collateral are passed through to the security holder. The
collateral underlying Asset-Backeds tends to have prepayment rates that usually
do not vary with interest rates. In addition, the short-term nature of the
loans reduces the impact of any change in prepayment level. However, it is
possible that prepayments (on automobile loans and other collateral) will alter
the cash flow on Asset-Backeds and it is not possible to determine in advance
the actual final maturity date or average life. Faster prepayment will shorten
the average life and slower prepayment will lengthen it. However, it is
possible to determine what the range of that movement could be and to calculate
the effect that it will have on the price of the security. The maturity of
Asset-Backeds will be based on the expected average life of the instrument. In
selecting these securities, the Advisers will look for those securities that
offer a higher yield to compensate for any variation in average maturity.

Cash Equivalents: Cash equivalents are short-term Fixed Income Securities
comprising:

(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a commercial bank
or savings and loan association. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).

A Portfolio may invest in obligations of U.S. banks, of foreign branches of
U.S. banks (Eurodollars) and of U.S. branches of foreign banks (Yankee
dollars). Euro and Yankee dollar investments will involve some of the same
risks of investing in international securities that are discussed in the
foreign investing section of the Prospectus.

A Portfolio will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in
other currencies, or, in the case of domestic banks which do not have total
assets of at least $1 billion, the aggregate investment made in any one such
bank is limited to $100,000 and the principal amount of such investment is
insured in full by the Federal Deposit Insurance Corporation ("FDIC"), (ii) in
the case of U.S. banks, it is a member of the FDIC, and (iii) in the case of
foreign branches of U.S. banks, the security is deemed by the Adviser to be of
an investment quality comparable with other fixed income securities which the
Portfolio may purchase.

(2) Commercial paper rated at time of purchase by one or more Nationally
Recognized Statistical Rating Organizations ("NRSRO") in one of their two
highest categories, (e.g., A-l or A-2 by Standard & Poor's or Prime 1 or Prime
2 by Moody's), or, if not rated, issued by a corporation having an outstanding
unsecured debt issue rated high-grade by a NRSRO (e.g., A or better by Moody's,
Standard & Poor's or Fitch).

14
<PAGE>

(3) Short-term corporate obligations rated high-grade at the time of purchase
by a NRSRO (e.g., A or better by Moody's, Standard & Poor's or Fitch);

(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the
U.S. Government and differ mainly in interest rates, maturities and dates of
issue;

(5) Government Agency securities issued or guaranteed by U.S. Government
sponsored instrumentalities and Federal agencies. These include securities
issued by the Federal Home Loan Banks, Federal Land Bank, Farmers Home
Administration, Farm Credit Banks, Federal Intermediate Credit Bank, Fannie
Mae, Federal Financing Bank, the Tennessee Valley Authority, and others;

(6) Repurchase agreements collateralized by securities listed above; and

(7) The Money Market Portfolio's investments are limited by the requirements
of Rule 2a-7 under the 1940 Act.

Commercial paper refers to short-term fixed income securities with maturities
ranging from 2 to 270 days. They are primarily issued by corporations needing
to finance large amounts of receivables, but may be issued by banks and other
borrowers. Commercial paper is issued either directly or through broker-
dealers, and may be discounted or interest-bearing. Commercial paper is
unsecured, but is almost always backed by bank lines of credit. Virtually all
commercial paper is rated by Moody's or Standard & Poor's.

Collateralized Mortgage Obligations. Collateralized mortgage obligations
("CMOs") are debt obligations or multiclass pass-through certificates issued by
agencies or instrumentalities of the U.S. Government or by private originators
or investors in mortgage loans. They are backed by mortgage-backed securities
(discussed below) or whole loans (all such assets, the "Mortgage Assets") and
are evidenced by a series of bonds or certificates issued in multiple classes.
Each class of a CMO, often referred to as a "tranche," may be issued with a
specific fixed or floating coupon rate and has a stated maturity or final
scheduled distribution date. The principal and interest on the underlying
Mortgage Assets may be allocated among the several classes of a series of CMOs
in many ways. Interest is paid or accrues on CMOs on a monthly, quarterly or
semi-annual basis.

CMOs may be issued by agencies or instrumentalities of the U.S. Government, or
by private originators of, or investors in, mortgage loans, including savings
and loan associations, mortgage bankers, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. CMOs that are issued by private
sector entities and are backed by assets lacking a guarantee of an entity
having the credit status of a governmental agency or instrumentality are
generally structured with one or more types of credit enhancement as described
below. An issuer of CMOs may elect to be treated for federal income tax
purposes as a Real Estate Mortgage Investment Conduit (a "REMIC"). An issuer of
CMOs issued after 1991 must elect to be treated as a REMIC or it will be
taxable as a corporation under rules regarding taxable mortgage pools.

The principal and interest on the Mortgage Assets may be allocated among the
several classes of a CMO in many ways. The general goal in allocating cash
flows on Mortgage Assets to the various classes of a CMO is to create certain
tranches on which the expected cash flows have a higher degree of
predictability than do the underlying Mortgage Assets. As a general matter, the
more predictable the cash flow is on a particular CMO tranche, the lower the
anticipated yield on that tranche at the time of issue will be relative to
prevailing market yields on Mortgage Assets. As part of the process of creating
more predictable cash flows on certain tranches of a CMO, one or more tranches
generally must be created that absorb most of the changes in the cash flows on
the underlying Mortgage Assets. The yields on these tranches are generally
higher than prevailing market yields on other mortgage related securities with
similar average lives. Principal prepayments on the underlying Mortgage Assets
may cause the CMOs to be retired substantially earlier than their stated
maturities or final scheduled distribution dates. Because of the uncertainty of
the cash flows on these tranches, the market prices and yields of these
tranches are more volatile. In addition, some inverse floating rate obligation
CMOs exhibit extreme sensitivity to changes in prepayments. As a result, the
yield to maturity of these CMOs is sensitive not only to changes in interest
rates, but also to changes in prepayment rates on the related underlying
Mortgage Assets.

Included within the category of CMOs are PAC Bonds. PAC Bonds are a type of CMO
tranche or series designed to provide relatively predictable payments, provided
that, among other things, the actual prepayment experience on the underlying
Mortgage Assets falls within a predefined range. If the actual prepayment
experience on the underlying Mortgage Assets is faster or slower than the
predefined range or if deviations from other assumptions occur, payments on the
PAC Bond may be earlier or later than predicted and the yield may rise or fall.
The magnitude of the predefined range varies from one PAC Bond to another; a
narrower range increases the risk that prepayments on the PAC Bond will be
greater or smaller than predicted. Because of these features, PAC Bonds
generally are less subject to the risk of prepayment than are other types of
mortgage related securities.

Corporates. Corporates are Fixed Income Securities issued by private
businesses. Holders, as creditors, have a prior legal claim over holders of
Equity Securities of the issuer as to both income and assets for the principal
and interest due the holder.

Fannie Mae Certificates. Fannie Mae is a federally chartered and privately
owned corporation organized and

15
<PAGE>

existing under the Federal National Mortgage Association Charter Act of 1938.
The obligations of Fannie Mae are not backed by the full faith and credit of
the U.S. Government.

Each Fannie Mae certificate represents a pro rata interest in one or more pools
of mortgage loans insured by the Federal Housing Administration under the
Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed
by the Department of Veteran Affairs under the Servicemen's Readjustment Act of
1944, as amended ("VA Loans") or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate and adjustable mortgage loans secured by
multi-family projects.

Floaters. Floaters are Fixed Income Securities with a rate of interest that
varies with changes in specified market rates or indices, such as the prime
rate, or at specified intervals. Certain Floaters may carry a demand feature
that permits the holder to tender them back to the issuer of the underlying
instrument, or to a third party, at par value prior to maturity. When the
demand feature of certain Floaters represents an obligation of a foreign
entity, the demand feature will be subject to certain risks discussed under
"Foreign Investment."

High Yield Securities. High Yield Securities are generally considered to
include Fixed Income Securities rated below the four highest rating categories
at the time of purchase (e.g., Ba through C by Moody's or BB through D by S&P)
and unrated securities considered to be of equivalent quality. High Yield
Securities are not considered investment grade and are commonly referred to as
junk bonds or high yield, high risk securities.

While High Yield Securities offer higher yields, they carry a high degree of
credit risk and are considered speculative by the major credit rating agencies.
High Yield Securities are often issued by smaller, less credit worthy issuers,
or by highly leveraged (indebted) issuers that are generally less able than
more established or less leveraged issuers to make scheduled payments of
interest and principal. In comparison to Investment Grade Securities, the price
movement of these securities is influenced less by changes in interest rates
and more by the financial and business position of the issuer. The values of
High Yield Securities are more volatile and may react with greater sensitivity
to market changes.

Inverse Floaters. Inverse floating rate obligations ("Inverse Floaters") are
Fixed Income Securities that have coupon rates that vary inversely at a
multiple of a designated floating rate, such as LIBOR (London Inter-Bank
Offered Rate). Any rise in the reference rate of an Inverse Floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an Inverse Floater causes an increase
in the coupon rate. Inverse Floaters may exhibit substantially greater price
volatility than fixed rate obligations having similar credit quality,
redemption provisions and maturity, and Inverse Floater CMOs exhibit greater
price volatility than the majority of other mortgage-related securities.

Investment Grade Securities. Investment Grade Securities are Fixed Income
Securities rated by one or more of the rating agencies in one of the four
highest rating categories at the time of purchase (e.g., AAA, AA, A or BBB by
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch"), or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's"))
or determined to be of equivalent quality by the Adviser. Securities rated BBB
or Baa represent the lowest of four levels of Investment Grade Securities and
are regarded as borderline between definitely sound obligations and those in
which the speculative element begins to predominate. Ratings assigned to Fixed
Income Securities represent only the opinion of the rating agency assigning the
rating and are not dispositive of the credit risk associated with the purchase
of a particular Fixed Income Security. Moreover, market risk also will affect
the prices of even the highest rated Fixed Income Securities so that their
prices may rise or fall even if the issuer's capacity to repay its obligations
remains unchanged.

Loan Participations and Assignments. Loan Participations are interests in loans
or other direct debt instruments ("Loans") relating to amounts owed by a
corporate, governmental or other borrower to another party. Loans may represent
amounts owed to lenders or lending syndicates, to suppliers of goods or
services (trade claims or other receivables), or to other parties ("Lenders")
and may be fixed rate or floating rate. Loans also may be arranged through
private negotiations between an issuer of sovereign debt obligations and
Lenders.

A Portfolio's investments in Loans are expected in most instances to be in the
form of a participation in Loans ("Participations") and assignments of all or a
portion of Loans ("Assignments") from third parties. In the case of a
Participation, a Portfolio will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In the event of an insolvency of the Lender selling a
Participation, a Portfolio may be treated as a general creditor of the Lender
and may not benefit from any set-off between the Lender and the borrower.
Certain Participations may be structured in a manner designed to avoid
purchasers of Participations being subject to the credit risk of the Lender
with respect to the Participation. Even under such a structure, in the event of
a Lender's insolvency, the Lender's servicing of the Participation may be
delayed and the assignability of the Participation may be impaired. A Portfolio
will acquire Participations only if the Lender interpositioned between a

16
<PAGE>

Portfolio and the borrower is determined by the Adviser to be creditworthy.

When a Portfolio purchases Assignments from Lenders it will acquire direct
rights against the borrower on the Loan. However, because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by a Portfolio as the purchaser
of an Assignment may differ from, and be more limited than, those held by the
assigning Lender. Because there is no liquid market for such securities, it is
likely that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Portfolio's ability to
dispose of particular Assignments or Participations when necessary to meet a
Portfolio's liquidity needs or in response to a specific economic event, such
as a deterioration in the creditworthiness of the borrower. The lack of a
liquid secondary market for Assignments and Participations also may make it
more difficult for a Portfolio to assign a value to these securities for
purposes of valuing a Portfolio's securities and calculating its NAV.

Loan Participations and Assignments involve a risk of loss in case of default
or insolvency of the borrower. In addition, they may offer less legal
protection to a Portfolio in the event of fraud or misrepresentation and may
involve a risk of insolvency of the Lender. Certain Loan Participations and
Assignments may also include standby financing commitments that obligate the
investing Portfolio to supply additional cash to the borrower on demand.
Participations involving emerging market country issuers may relate to Loans as
to which there has been or currently exists an event of default or other
failure to make payment when due, and may represent amounts owed to Lenders
that are themselves subject to political and economic risks, including the risk
of currency devaluation, expropriation, or failure. Such Loan Participations
and Assignments present additional risk of default or loss.

Money Market Instruments. Money Market Instruments are high quality short-term
Fixed Income Securities. Money Market Instruments may include obligations of
governments, government agencies, banks, corporations and special purpose
entities and Repurchase Agreements relating to these obligations. Certain Money
Market Instruments may be denominated in a foreign currency.

Mortgage-Backed Securities. With mortgage-backed securities ("MBSs"), many
mortgagees' obligations to make monthly payments to their lending institution
are pooled together and passed through to investors. The pools are assembled by
various governmental, Government-related and private organizations. A Portfolio
may invest in securities issued or guaranteed by Government National Mortgage
Association ("GNMA" or "Ginnie Mae"), Federal Home Loan Mortgage Corporation
("FHLMC" or "Freddie Mac"), Fannie Mae, private issuers and other government
agencies. MBSs issued by non-agency issuers, whether or not such securities are
subject to guarantees, may entail greater risk, since private issuers may not
be able to meet their obligations under the policies. If there is no guarantee
provided by the issuer, a Portfolio will purchase only MBSs which at the time
of purchase are rated investment grade by one or more NRSROs or, if unrated,
are deemed by the Adviser to be of comparable quality.

MBSs are issued or guaranteed by private sector originators of or investors in
mortgage loans and structured similarly to governmental pass-through
securities. Because private pass-throughs typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality,
however, they are generally structured with one or more of the types of credit
enhancement described below. Fannie Mae and FHLMC obligations are not backed by
the full faith and credit of the U.S. Government as GNMA certificates are.
FHLMC securities are supported by its right to borrow from the U.S. Treasury.
Each of GNMA, Fannie Mae and FHLMC guarantees timely distributions of interest
to certificate holders. Each of GNMA and Fannie Mae also guarantees timely
distributions of scheduled principal. Although FHLMC has in the past guaranteed
only the ultimate collection of principal of the underlying mortgage loan,
FHLMC now issues MBSs (FHLMC Gold PCS) which also guarantee timely payment of
monthly principal reductions. Resolution Funding Corporation ("REFCORP")
obligations are backed, as to principal payments, by zero coupon U.S. Treasury
bonds, and as to interest payment, ultimately by the U.S. Treasury.

There are two methods of trading MBSs. A specified pool transaction is a trade
in which the pool number of the security to be delivered on the settlement date
is known at the time the trade is made. This is in contrast with the typical
MBS transaction, called a TBA (to be announced) transaction, in which the type
of MBS to be delivered is specified at the time of trade but the actual pool
numbers of the securities that will be delivered are not known at the time of
the trade. The pool numbers of the pools to be delivered at settlement are
announced shortly before settlement takes place. The terms of the TBA trade may
be made more specific if desired. Generally, agency pass-through MBSs are
traded on a TBA basis.

Like fixed income securities in general, MBSs will generally decline in price
when interest rates rise. Rising interest rates also tend to discourage
refinancings of home mortgages, with the result that the average life of MBSs
held by a Portfolio may be lengthened. As average life extends, price
volatility generally increases. This extension of average life causes the
market price of the MBSs to decrease further when interest rates rise than if
their average lives were fixed. However, when interest rates fall, mortgages
may not enjoy as large a gain in market value due to prepayment risk because
additional mortgage prepayments must be reinvested at lower interest rates.
Faster prepayment will shorten the average life
17
<PAGE>

and slower prepayments will lengthen it. However, it is possible to determine
what the range of the average life movement could be and to calculate the
effect that it will have on the price of the MBS. In selecting MBSs, the
Advisers look for those that offer a higher yield to compensate for any
variation in average maturity. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, a Portfolio may fail to
fully recoup its initial investment in these securities, even if the security
is in one of the highest rating categories. A Portfolio may invest, without
limit, in MBSs issued by private issuers when the Adviser deems that the
quality of the investment, the quality of the issuer, and market conditions
warrant such investments. The Portfolios will purchase securities issued by
private issuers which are rated investment grade at the time of purchase by
Moody's or S&P or be deemed by the Advisers to be of comparable investment
quality.

Mortgage Related Securities. Mortgage related securities are securities that,
directly or indirectly, represent a participation in, or are secured by and
payable from, mortgage loans on real property. Mortgage related securities
include collateralized mortgage obligations and mortgage-backed securities
issued or guaranteed by agencies or instrumentalities of the U.S. Government or
by private sector entities.

Municipals. Municipal securities ("Municipals") are debt obligations issued by
local, state and regional governments that provide interest income that is
exempt from federal income taxes and in certain instances, from state and local
taxes. Municipals include both municipal bonds (those securities with
maturities of five years or more) and municipal notes (those securities with
maturities of less than five years). Municipal bonds are issued for a wide
variety of reasons: to construct public facilities, such as airports, highways,
bridges, schools, hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered municipal bonds if
their interest is exempt from federal income taxes. Industrial development
bonds are issued by or on behalf of public authorities to obtain funds for
various privately-operated manufacturing facilities, housing, sports arenas,
convention centers, airports, mass transportation systems and water, gas or
sewer works. Industrial development bonds are ordinarily dependent on the
credit quality of a private user, not the public issuer.

Repurchase Agreements. Repurchase Agreements are transactions in which a
Portfolio purchases a security or basket of securities and simultaneously
commits to resell that security or basket to the seller (a bank, broker or
dealer) at a mutually agreed upon date and price. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated
to the coupon rate or date of maturity of the purchased security. Repurchase
Agreements may be viewed as a fully collateralized loan of money by the
Portfolio to the seller at a mutually agreed upon rate and price. The term of
these agreements is usually from overnight to one week, and never exceeds one
year. Repurchase Agreements with a term of over seven days are considered
illiquid.

In these transactions, the Portfolio receives as collateral securities that
have a market value at least equal to the purchase price (including accrued
interest) of the Repurchase Agreement, and this value is maintained during the
term of the agreement. These securities are held by the Portfolio's Custodian
or an approved third party for the benefit of the Portfolio until repurchased.
Repurchase Agreements permit a Portfolio to remain fully invested while
retaining overnight flexibility to pursue investments of a longer-term nature.
If the seller defaults and the collateral value declines, the Portfolio might
incur a loss. If bankruptcy proceedings are commenced with respect to the
seller, the Portfolio's realization upon the collateral may be delayed or
limited.

Pursuant to an order expected to be issued by the Securities and Exchange
Commission (the "SEC"), the Portfolios managed by an Adviser may pool their
daily uninvested cash balances in order to invest in Repurchase Agreements on a
joint basis with other investment companies advised by that Adviser. By
entering into Repurchase Agreements on a joint basis, the Portfolios expect to
incur lower transaction costs and potentially obtain higher rates of interest
on such Repurchase Agreements. Each Portfolio's participation in the income
from jointly purchased Repurchase Agreements will be based on that Portfolio's
percentage share in the total Repurchase Agreement. The Portfolios' ability to
invest in Repurchase Agreements on a joint basis will be contingent upon
issuance of the order by the SEC described above.

Stripped Mortgage-Backed Securities. Stripped Mortgage-Backed Securities
("SMBSs") are multi-class mortgage securities issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans. SMBSs are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of Mortgage Assets. In some cases, one class will receive all of the
interest ("interest-only" or "IO class"), while the other class will receive
all of the principal ("principal-only" or "PO class"). The yield to maturity on
IO classes and PO classes is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying Mortgage Assets, and
significant changes in the rate of principal repayments will have a
corresponding effect on the SMBSs' yield to maturity.

Temporary Investments. When the Adviser believes that changes in economic,
financial or political conditions make it advisable, each Portfolio may invest
up to 100% of its assets in cash and certain short- and medium-term Fixed
Income Securities for temporary defensive purposes. These Temporary Investments
may consist of obligations of the

18
<PAGE>

U.S. or foreign governments, their agencies or instrumentalities; Money Market
Instruments; and instruments issued by international development agencies.

U.S. Government Securities. U.S. Government Securities are Fixed Income
Securities that are backed by the full faith and credit of the U.S. Government
as to the payment of both principal and interest. U.S. Government Securities
may include securities issued by the U.S. Treasury and securities issued by
federal agencies and U.S. Government sponsored instrumentalities.

Yankee Dollar Obligations. Yankee dollar bank obligations are dollar-
denominated obligations issued in the U.S. capital markets by foreign banks.
Yankee dollar obligations are subject to the same risks as domestic issues,
notably credit risk, market risk and liquidity risk. To a limited extent, they
are also subject to certain sovereign risks. One such risk is the possibility
that a sovereign country might prevent capital, in the form of dollars, from
flowing across its borders. Other risks include adverse political and economic
developments; the extent and quality of government regulations of financial
markets and institutions; the imposition of foreign withholding taxes; and the
expropriation or nationalization of foreign issuers. The Portfolios may
consider Yankee dollar obligations to be domestic securities for purposes of
their investment policies.

Zero Coupons. Zero Coupons are fixed income securities that do not make regular
interest payments. Instead, Zero Coupons are sold at a discount from their face
value. The difference between a Zero Coupon's issue or purchase price and its
face value represents the imputed interest an investor will earn if the
obligation is held until maturity. Zero Coupons may offer investors the
opportunity to earn a higher yield than that available on ordinary interest-
paying obligations of similar credit quality and maturity.

Foreign Investment

Investing in foreign securities involves certain special considerations which
are not typically associated with investing in the Equity Securities or Fixed
Income Securities of U.S. issuers. Foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting standards and may have
policies that are not comparable to those of domestic issuers. As a result,
there may be less information available about foreign issuers than about
domestic issuers. Securities of some foreign issuers are generally less liquid
and more volatile than securities of comparable domestic issuers. There is
generally less government supervision and regulation of stock exchanges,
brokers and listed issuers than in the United States. In addition, with respect
to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, political and social instability, or diplomatic
developments which could affect U.S. investments in those countries. The costs
of investing in foreign countries frequently is higher than the costs of
investing in the United States. Although the Advisers endeavor to achieve the
most favorable execution costs in portfolio transactions, fixed commissions on
many foreign stock exchanges are generally higher than negotiated commissions
on U.S. exchanges.

Investments in securities of foreign issuers generally are denominated in
foreign currencies. Accordingly, the value of a Portfolio's assets, as measured
in U.S. dollars may be affected favorably or unfavorably by changes in currency
exchange rates and in exchange control regulations. A Portfolio may incur costs
in connection with conversions between various currencies.

Certain foreign governments levy withholding or other taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. The Portfolios may be
able to claim a credit for U.S. tax purposes with respect to any such foreign
taxes.

Brady Bonds. Brady Bonds are Fixed Income Securities that are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring under a plan introduced by
Nicholas F. Brady when he was the U.S. Secretary of the Treasury. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar-denominated) and they are actively traded in the over-the-
counter secondary market. The Portfolios will invest in Brady Bonds only if
they are consistent with the Portfolio's quality specifications. However, Brady
Bonds should be viewed as speculative in light of the history of defaults with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds.

Emerging Market Country Securities. An emerging market country security is one
issued by a foreign government or private issuer that has one or more of the
following characteristics: (i) its principal securities trading market is in an
emerging market country, (ii) alone or on a consolidated basis it derives 50%
or more of its annual revenue from either goods produced, sales made or
services performed in emerging markets, or (iii) it is organized under the laws
of, and has a principal office in, an emerging market country.

Emerging market describes any country which is generally considered to be an
emerging or developing country by major organizations in the international
financial community, such as the International Bank for Reconstruction and
Development (more commonly known as the World Bank) and the International
Finance Corporation. Emerging markets can include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand and most
nations located in Western Europe.

19
<PAGE>

The economies of individual emerging market countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures. These economies also
have been, and may continue to be, adversely affected by economic conditions in
the countries with which they trade.

Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging market countries, and the extent of
foreign investment in certain fixed income securities and domestic companies
may be subject to limitation in other emerging market countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies in emerging market countries to prevent, among other concerns,
violation of foreign investment limitations. Repatriation of investment income,
capital and the proceeds of sales by foreign investors may require governmental
registration and/or approval in some emerging countries. A Portfolio could be
adversely affected by delays in, or a refusal to grant, any required
governmental registration of approval for such repatriation. Any investment
subject to such repatriation controls will be considered illiquid if it appears
reasonably likely that this process will take more than seven days.

Investing in emerging market countries may entail purchasing securities issued
by or on behalf of entities that are insolvent, bankrupt, in default or
otherwise engaged in an attempt to reorganize or reschedule their obligations,
and in entities that have little or no proven credit rating or credit history.
In any such case, the issuer's poor or deteriorating financial condition may
increase the likelihood that the investing Portfolio will experience losses or
diminution in available gains due to bankruptcy, insolvency or fraud. Emerging
market countries also pose the risk of nationalization, expropriation or
confiscatory taxation, political changes, government regulation, social
instability or diplomatic developments (including war) that could affect
adversely the economies of such countries or the value of a Portfolio's
investments in those countries. In addition, it may be difficult to obtain and
enforce a judgment in a court outside the United States.

Portfolios that invest in emerging markets may also be exposed to an extra
degree of custodial and/or market risk, especially where the securities
purchased are not traded on an official exchange or where ownership records
regarding the securities are maintained by an unregulated entity (or even the
issuer itself).

Eurodollar Obligations. Eurodollar bank obligations are dollar-denominated
certificates of deposit and time deposits issued outside the U.S. capital
markets by foreign branches of U.S. banks and by foreign banks. Eurodollar
obligations are subject to the same risks as domestic issues and are also
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include adverse political and economic
developments; the extent and quality of government regulations of financial
markets and institutions; the imposition of foreign withholding taxes; and the
expropriation or nationalization of foreign issuers.

Foreign Bonds. Foreign Bonds are Fixed Income Securities issued by a foreign
government or a private issuer in a foreign country.

Foreign Currency Transactions. The U.S. dollar value of the assets of the
Portfolios, to the extent they invest in securities denominated in foreign
currencies, may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and the Portfolios
may incur costs in connection with conversions between various currencies. The
Portfolios may conduct their foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or may enter into forward contracts to purchase or sell
foreign currencies. The Portfolios also may manage their foreign currency
transactions using the instruments and techniques described under "Derivatives"
below and may purchase and sell foreign currency forward contracts in
combination with other derivatives in order to gain exposure to an investment
in lieu of actually purchasing such investment.

A foreign currency forward contract involves an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for such trades. The Portfolios may
enter into foreign currency forward contracts in many circumstances. For
example, when a Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when a Portfolio anticipates the
receipt in a foreign currency of dividends or interest payments on a security
which it holds, the Portfolio may desire to "lock-in" the U.S. dollar price of
the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying transactions, the Portfolio will be able to protect
itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during
the period between the date on which

20
<PAGE>

the security is purchased or sold, or on which the dividend or interest payment
is declared, and the date on which such payments are made or received.
Additionally, when any of the Portfolios anticipates that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract for a fixed amount of dollars, to
sell the amount of foreign currency approximating the value of some or all of
such Portfolio's securities denominated in such foreign currency. However, it
may not be practicable to hedge currency risk in all markets, particularly
emerging markets.

The term hedging, generally, means that a Portfolio is using a derivative
product as a way to reduce or limit risk. For example, a Portfolio may hedge in
order to limit the effects of a change in the value of a particular foreign
currency versus the U.S. dollar. The Portfolios also may use certain complex
hedging techniques. For example, a Portfolio may use a type of hedge known as a
cross hedge or a proxy hedge, where the Portfolio hedges the risk associated
with one underlying by purchasing or selling a derivative product with an
underlying that is different. There is no limit on the use of forward foreign
currency contracts or other derivative products for hedging purposes.

The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the
forward contract is entered into and the date it matures. The projection of
short-term currency market movement is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.

Under normal circumstances, consideration of the prospect for changes in the
values of currency will be incorporated into the long-term investment decisions
made with regard to overall diversification strategies. However, the management
of the Fund believes that it is important to have the flexibility to enter into
such forward contracts when it determines that it is in the best interests of
the Portfolio. Except under circumstances where a segregated account is not
required under the 1940 Act or the rules adopted thereunder, the Fund's
Custodian will earmark cash or liquid securities or place them into a
segregated account of a Portfolio in an amount equal to the value of such
Portfolio's total assets committed to the consummation of forward currency
exchange contracts. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account
on a daily basis so that the value of the account will be equal to the amount
of such Portfolio's commitments with respect to such contracts.

The Portfolios generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Portfolio may
either sell the portfolio security and make delivery of the foreign currency,
or it may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency.

It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly,
it may be necessary for a Portfolio to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency that such Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.

If a Portfolio retains the portfolio security and engages in an offsetting
transaction, such Portfolio will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. Should
forward prices decline during the period between a Portfolio entering into a
forward contract for the sale of a foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, such Portfolio
will realize a gain to the extent that the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, such Portfolio would suffer a loss to the extent that
the price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.

The Portfolios are not required to enter into such transactions with regard to
their foreign currency-denominated securities. It also should be realized that
this method of protecting the value of portfolio securities against a decline
in the value of a currency does not eliminate fluctuations in the underlying
prices of the securities. It simply establishes a rate of exchange which one
can achieve at some future point in time. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.

Foreign Equity Securities. Foreign Equity Securities are Equity Securities of
an issuer in a foreign country.

Investment Funds. Some emerging market countries have laws and regulations that
currently preclude direct investment or make it undesirable to invest directly
in the securities of their companies. However, indirect investment in the
securities of companies listed and traded on the stock exchanges in these
countries is permitted by certain emerging market countries through Investment
Funds that have been specifically authorized. A Portfolio may invest in these
Investment Funds subject to the provisions of the 1940 Act, as applicable, and
other applicable laws.

Russian Equity Securities. The registration, clearing and settlement of
securities transactions involving Russian issuers are subject to significant
risks not normally associated with securities transactions in the United States
and other more developed markets. Ownership of Equity Securities in

21
<PAGE>

Russian companies is evidenced by entries in a company's share register (except
where shares are held through depositories that meet the requirements of the
1940 Act) and the issuance of extracts from the register or, in certain limited
cases, by formal share certificates. However, Russian share registers are
frequently unreliable and a Portfolio could possibly lose its registration
through oversight, negligence or fraud. Moreover, Russia lacks a centralized
registry to record securities transactions and registrars located throughout
Russia or the companies themselves maintain share registers. Registrars are
under no obligation to provide extracts to potential purchasers in a timely
manner or at all and are not necessarily subject to effective state
supervision. In addition, while registrars are liable under law for losses
resulting from their errors, it may be difficult for a Portfolio to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Although Russian companies with more than
1,000 shareholders are required by Russian law to employ an independent
registrar, in practice, such companies have not always followed this law.
Because of this lack of independence of registrars, management of a Russian
company may be able to exert considerable influence over who can purchase and
sell the company's shares by illegally instructing the registrar to refuse to
record transactions on the share register. Furthermore, these practices may
prevent a Portfolio from investing in the securities of certain Russian
companies deemed suitable by the Adviser and could cause a delay in the sale of
Russian Securities by the Portfolio if the company deems a purchaser
unsuitable, which may expose the Portfolio to potential loss on its investment.

In light of the risks described above, the Board Directors of the Fund has
approved certain procedures concerning the Fund's investments in Russian
Securities. Among these procedures is a requirement that a Portfolio will not
invest in the Equity Securities of a Russian company unless that issuer's
registrar has entered into a contract with the Fund's sub-custodian containing
certain protective conditions, including, among other things, the sub-
custodian's right to conduct regular share confirmations on behalf of the
Portfolio. This requirement will likely have the effect of precluding
investments in certain Russian companies that a Portfolio would otherwise make.

Other Securities and Investment Techniques

Borrowing for Investment Purposes. Borrowing for investment purposes creates
leverage which is a speculative characteristic. Portfolios authorized to borrow
will do so only when the Advisers believe that borrowing will benefit the
Portfolio after taking into account considerations such as the costs of
borrowing and the likely investment returns on securities purchased with
borrowed funds. Borrowing by a Portfolio will create the opportunity for
increased net income but, at the same time, will involve special risk
considerations. Leverage that results from borrowing will magnify declines as
well as increases in a Portfolio's net asset value per share and net yield.
Each Portfolio that engages in borrowing expects that all of its borrowing will
be made on a secured bases. The Portfolio's Custodian will either segregate the
assets securing the borrowing for the benefit of the lenders or arrangements
will be made with a suitable sub-custodian. If assets used to secure the
borrowing decrease in value, a Portfolio may be required to pledge additional
collateral to the lender in the form of cash or securities to avoid liquidation
of those assets.

Convertible Securities. Convertible Securities are securities that may be
exchanged under certain circumstances for a fixed number of shares of Common
Stock or other Equity Securities. Convertible Securities generally represent a
feature of some other type of security, such as a Fixed Income Security or
Preferred Stock, so that, for example, a Convertible Fixed Income Security
would be a Fixed Income Security that is convertible into Common Stock.
Convertible Securities may be viewed as an investment in the current security
or the security into which the Convertible Securities may be exchanged and,
therefore, are included in both the definition of Equity Security and Fixed
Income Security.

Loans of Portfolio Securities. Each Portfolio may lend its investment
securities to qualified institutional investors that need to borrow securities
in order to complete certain transactions, such as covering short sales,
avoiding failures to deliver securities or completing arbitrage operations. By
lending its investment securities, a Portfolio attempts to increase its net
investment income through the receipt of interest of the loan. Any gain or loss
in the market price of the securities loaned that might occur during the term
of the loan would be for the account of the Portfolio. Each Portfolio may lend
its investment securities to qualified brokers, dealers, domestic and foreign
banks or other financial institutions, so long as the terms, structure and the
aggregate amount of such loans are not inconsistent with the 1940 Act or the
Rules and Regulations or interpretations of the SEC thereunder, which currently
require that (i) the borrower pledge and maintain with the Portfolio collateral
consisting of liquid, unencumbered assets having a value at all times not less
than 100% of the value of the securities loaned; (ii) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e., the
borrower "marks to market" on a daily basis); (iii) the loan be made subject to
termination by the Portfolio at any time; and (iv) the Portfolio receive
reasonable interest on the loan (which may include the Portfolio investing any
cash collateral in interest bearing short-term investments), any distributions
on the loaned securities and any increase in their market value. There may be
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans will be made only to borrowers deemed by the Adviser to be of good
standing and when, in the judgment of the Adviser, the consideration which can
be earned currently from such securities loans justifies the attendant risk.
All relevant facts and

22
<PAGE>

circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Board of Directors.

At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities,
so long as such fees are set forth in a written contract and approved by the
investment company's Board of Directors. In addition, voting rights may pass
with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.

Non-Publicly Traded Securities, Private Placements and Restricted
Securities. The Portfolios may invest in securities that are neither listed on
a stock exchange nor traded over-the-counter, including privately placed and
restricted securities. Such unlisted securities may involve a higher degree of
business and financial risk that can result in substantial losses. As a result
of the absence of a public trading market for these securities, they may be
less liquid than publicly traded securities. Although these securities may be
resold in privately negotiated transactions, the prices realized from these
sales could be less than those originally paid by the Portfolio or less than
what may be considered the fair value of such securities. Furthermore,
companies whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements which might be applicable
if their securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before being
sold, the Portfolio may be required to bear the expenses of registration.

As a general matter, a Portfolio may not invest more than 15% (10% for the
Money Market Portfolio) of its net assets in illiquid securities, such as
securities for which there is not a readily available secondary market or
securities that are restricted from sale to the public without registration.
However, certain Restricted Securities can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("Rule 144A
Securities") and may be deemed to be liquid under guidelines adopted by the
Fund's Board of Directors. The Portfolios may invest without limit in liquid
Rule 144A Securities. Rule 144A Securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.

Preferred Stocks. Preferred Stocks are securities that evidence ownership in a
corporation and pay a fixed or variable stream of dividends. Preferred Stocks
have a preference over Common Stocks in the event of the liquidation of an
issuer and usually do not carry voting rights. Because Preferred Stocks pay a
fixed or variable stream of dividends they have many of the characteristics of
a Fixed Income Security and are, therefore, included in both the definition of
Equity Security and Fixed Income Security.

Reverse Repurchase Agreements. Under a Reverse Repurchase Agreement, a
Portfolio sells a security and promises to repurchase that security at an
agreed upon future date and price. The price paid to repurchase the security
reflects interest accrued during the term of the agreement. The Portfolio's
Custodian will earmark cash or liquid assets or establish a separate custodial
account holding cash and other liquid assets in an amount not less than the
purchase obligations of the agreement. Reverse Repurchase Agreements may be
viewed as a speculative form of borrowing called leveraging. A Portfolio may
invest in reverse repurchase agreements if (i) interest earned from leveraging
exceeds the interest expense of the original reverse repurchase transaction and
(ii) proceeds from the transaction are not invested for longer than the term of
the Reverse Repurchase Agreement.

Short Sales. A short sale is a transaction in which the Portfolio sells
securities it owns or has the right to acquire at no added cost (i.e., "against
the box") or does not own (but has borrowed) in anticipation of a decline in
the market price of the securities. To deliver the securities to the buyer, the
Portfolio arranges through a broker to borrow the securities and, in so doing,
the Portfolio becomes obligated to replace the securities borrowed at their
market price at the time of replacement. When selling short, the Portfolio
intends to replace the securities at a lower price and therefore, profit from
the difference between the cost to replace the securities and the proceeds
received from the sale of the securities. When the Portfolio makes a short
sale, the proceeds it receives from the sale will be held on behalf of a broker
until the Portfolio replaces the borrowed securities. The Portfolio may have to
pay a premium to borrow the securities and must pay any dividends or interest
payable on the securities until they are replaced.

The Portfolio's obligation to replace the securities borrowed in connection
with a short sale will be secured by collateral deposited with the broker that
consists of cash or other liquid securities. In addition, the Portfolio's
Custodian will earmark cash or liquid assets or place in a segregated account
an amount of cash or other liquid securities equal to the difference, if any,
between (i) the market value of the securities sold at the time they were sold
short, and (ii) any cash or other liquid securities deposited as collateral
with the broker in connection with the short sale. Short sales by the Portfolio
involve certain risk and special considerations. If the Advisers incorrectly
predict that the price of the borrowed security will decline, the Portfolio
will have to replace the securities with securities with a greater value than
the amount received from the sale. As a result, losses from short sales differ
from losses that could be incurred from a purchase of a security, because
losses from short sales may be unlimited, whereas losses from purchases can
equal only the total amount invested.

Structured Investments. Structured Investments are securities that are
convertible into, or the value of which is

23
<PAGE>

based upon the value of, other fixed income or equity securities or indices
upon certain terms and conditions. The amount a Portfolio receives when it
sells a Structured Investment or at maturity of a Structured Investment is not
fixed, but is based on the price of the underlying security or index.
Particular Structured Investments may be designed so that they move in
conjunction with or differently from their underlying security or index in
terms of price and volatility. It is impossible to predict whether the
underlying index or price of the underlying security will rise or fall, but
prices of the underlying indices and securities (and, therefore, the prices of
Structured Investments) will be influenced by the same types of political and
economic events that affect particular issuers of fixed income and equity
securities and capital markets generally. Structured Investments also may trade
differently from their underlying securities. Structured Investments generally
trade on the secondary market, which is fairly developed and liquid. However,
the market for such securities may be shallow compared to the market for the
underlying securities or the underlying index. Accordingly, periods of high
market volatility may affect the liquidity of Structured Investments, making
high volume trades possible only with discounting.

Structured Investments are a relatively new innovation and may be designed to
have various combinations of equity and fixed income characteristics. The
following sections describe four of the more common types of Structured
Investments. The Portfolios may invest in other Structured Investments,
including those that may be developed in the future, to the extent that the
Structured Investments are otherwise consistent with a Portfolio's investment
objective and policies.

Structured Notes. Structured Notes are derivative securities for 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. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. Structured Notes may be designed to have particular
quality and maturity characteristics and may vary from money market quality to
below investment grade. Depending on the factor used and the use of multipliers
or deflators, however, changes in interest rates and movement of the factor may
cause significant price fluctuations or may cause particular Structured Notes
to become illiquid. The Portfolios will 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.

Temporary Borrowing. Each Portfolio is permitted to borrow from banks in an
amount up to 10% of its total assets for extraordinary or emergency purposes.
For example, the Portfolios may borrow for temporary defensive purposes or to
meet shareholder redemptions when the Advisers believe that it would not be in
the best interests of a Portfolio to liquidate portfolio holdings. A Portfolio
will not purchase additional securities while temporary borrowings exceed 5% of
its total assets.

When-Issued and Delayed Delivery Securities. When-Issued and Delayed Delivery
Securities are securities purchased with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous yield or
price at the time of the transaction. Delivery of and payment for these
securities may take as long as a month or more after the date of the purchase
commitment, but will take place no more than 120 days after the trade date. The
payment obligation and the interest rates that will be received are each fixed
at the time a Portfolio enters into the commitment and no interest accrues to
the Portfolio until settlement. Thus, it is possible that the market value at
the time of settlement could be higher or lower than the purchase price if the
general level of interest rates has changed. When a Portfolio agrees to
purchase When-Issued or delayed delivery securities, its custodian will earmark
or segregate cash or liquid securities in an amount equal to the Portfolio's
commitment to purchase these securities.

Derivatives

The Portfolios are permitted to utilize various exchange-traded and over-the-
counter derivative instruments and derivative securities, both for hedging and
non-hedging purposes. Permitted derivative products include, but are not
limited to futures contracts ("futures"); forward contracts ("forwards");
options; swaps, caps, collars and floors; structured notes; and other
derivative products yet to be developed, so long as these new products are used
in a manner consistent with the objectives of the Portfolios. These derivative
products may be based upon a wide variety of underlying rates, indices,
instruments, securities and other products, such as interest rates, foreign
currencies, foreign and domestic fixed income and equity securities, groups or
"baskets" of securities and securities indices (for each derivative product,
the "underlying"). Each of the Equity Growth, U.S. Real Estate, Emerging
Markets Debt, Global Equity, International Magnum, Emerging Markets Equity,
Asian Equity and Latin American Portfolios will limit its use of derivatives to
33 1/3% of its total assets measured by the aggregate national 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 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.

24
<PAGE>

The term hedging, generally, means that a Portfolio is using a derivative
product as a way to reduce or limit risk. For example, a Portfolio may hedge in
order to limit the effects of a change in the value of a particular foreign
currency versus the U.S. dollar or a Portfolio could use a portion of its cash
to buy securities futures in order to hedge the risk of not being fully
invested. The Portfolios also may use certain complex hedging techniques. For
example, a Portfolio may use a type of hedge known as a cross hedge or a proxy
hedge, where the Portfolio hedges the risk associated with one underlying by
purchasing or selling a derivative product with an underlying that is
different. There is no limit on the use of forward foreign currency contracts
or other derivative products for hedging purposes.

The Portfolios may use derivative products under a number of different
circumstances to further their investment objectives. For example, a Portfolio
may purchase derivatives to gain exposure to a market quickly in response to
changes in the Portfolio's investment strategy, upon the inflow of investable
cash or when the derivative provides greater liquidity than the underlying
market. A Portfolio may use derivatives when it is restricted from directly
owning the "underlying" or when derivatives provide a pricing advantage or
lower transaction costs. The Portfolios also may purchase combinations of
derivatives in order to gain exposure to an investment in lieu of actually
purchasing such investment. Derivatives may also be used by a Portfolio for
hedging or risk management purposes and in other circumstances when the Adviser
believes it advantageous to do so consistent with the Portfolio's investment
objectives and policies. The Portfolios will not 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.

The use of derivative products 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 forecasts of
market values, interest rates, and currency exchange rates, the investment
performance of the Portfolios will be less favorable than it would have been in
these investment techniques had not been used.

Some of the derivative products in which the Portfolios may invest and some of
the risks related thereto are described in further detail below.

Futures Contracts (Futures) and Forward Contracts (Forwards). The Portfolios
may purchase and sell futures contracts, including futures on securities
indices, baskets of securities, foreign currencies and interest rates of the
type generally known as financial futures. These are standardized contracts
that are bought and sold on organized exchanges. A futures contract obligates a
party to buy or sell a specific amount of the "underlying," such as a
particular foreign currency, on a specified future date at a specified price or
to settle the value in cash.

The Portfolios may also purchase and sell forward contracts, such as forward
rate agreements and other financial forward contracts. The Portfolios may also
use foreign currency forward contracts which are separately discussed under
"Foreign Currency Transactions." These forward contracts are privately
negotiated and are bought and sold in the over-the-counter market. Like a
future, a forward contract obligates a party to buy or sell a specific amount
of the underlying on a specified future date at a specified price. The terms of
the forward contract are customized. Forward contracts, like other over-the-
counter contracts that are negotiated directly with an individual counterparty,
subject the Portfolio to the risk of counterparty default.

In some cases, the Portfolios may be able to use either futures contracts,
forward contracts or exchange-traded or over-the-counter options to accomplish
similar purposes. In all cases, the Portfolios will use these products only as
permitted by applicable laws and regulations. Some of the ways in which the
Portfolios may use futures contracts, forward contracts and related options are
as follows:

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 may purchase
securities index futures or options in order to gain market exposure. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging markets. The nature of the strategies
adopted by the Advisers, and the extent to which those strategies are used, may
depend on the development of such markets. The Portfolios may also purchase and
sell foreign currency futures to lock in rates or to adjust their exposure to a
particular currency.

The Portfolio may engage in transactions in interest rate futures and related
products. The value of these contracts rises and falls inversely with change in
interest rates. The Portfolios may engage in such transactions to hedge their
holdings of debt instruments against future changes in interest rates or for
other purposes.

Gains and losses on future contracts, forward contracts and related options
depend on the Adviser's ability to predict correctly the direction of movement
of securities prices, interest rates and other economic factors. Other risks
associated with the use of these instruments include (i) imperfect correlation
between the changes in market value of investments held by a Portfolio and the
prices of derivative products relating to investments purchased or sold by the
Portfolio, and (ii) possible lack of a liquid secondary market for a derivative
product and the resulting inability to close out a position. A Portfolio will
seek to minimize the risk by only entering into transactions for which there
appears to be a liquid exchange or secondary market. In some strategies, the
risk of loss in trading on futures and related transactions

25
<PAGE>

can be substantial, due both to the low margin deposits required and the
extremely high degree of leverage involved in pricing.

Under rules adopted by the Commodity Futures Trading Commission (the "CFTC"),
each Portfolio may, without registering with the CFTC as a Commodity Pool
Operator, 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-bona
fide hedging activities.

Options. The Portfolios may seek to increase their returns or may hedge their
portfolio investments through options transactions with respect to individual
securities, indices or baskets in which such Portfolios may invest; other
financial instruments; and foreign currency. Various options may be purchased
and sold on exchanges or over-the-counter markets.

Each Portfolio may purchase put and call options. Purchasing a put option gives
a Portfolio the right, but not the obligation, to sell the underlying (such as
a securities index or a particular foreign currency) at the exercise price
either on a specific date or during a specified exercise period. The purchaser
pays a premium to the seller (also known as the writer) of the option.

Each Portfolio also may write put and call options on investments held in its
portfolio, as well as foreign currency options. A Portfolio that has written an
option receives a premium that increases the Portfolio's return on the
underlying 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
above the exercise price of the option. By writing a put option, a Portfolio
will be exposed to the amount by which the price of the underlying is less than
the strike price.

By writing an option, a Portfolio incurs an obligation either to buy (in the
case of a put option) or sell (in the case of a call option) the underlying
from the purchaser of the option at the option's exercise price, upon exercise
by the purchaser. Pursuant to guidelines established by the Board of Directors,
the Portfolios may only write options that are "covered." A covered call option
means that until the expiration of the option, the Portfolio will either
earmark or segregate sufficient liquid assets to cover its obligations under
the option or will continue to own (i) the underlying; (ii) securities or
instruments convertible or exchangeable without the payment of any
consideration into the underlying; or (iii) a call option on the same
underlying with a strike price no higher than the price at which the underlying
was sold pursuant to a short option position. In the case of a put option, the
Portfolio will either earmark or segregate sufficient liquid assets to cover
its obligations under the option or will own another put option on the same
underlying with an equal or higher strike price.

There currently are limited options markets in many countries, particularly
emerging market countries, and the nature of the strategies adopted by the
Advisers and the extent to which those strategies are used will depend on the
development of these options markets. The primary risks associated with the
Portfolios' use of options as described include (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.

Swaps, Caps, Collars and Floors. Swaps are privately negotiated over-the-
counter derivative products in which two parties agree to exchange payment
streams calculated in relation to a rate, index, instrument or certain
securities and a particular "notional amount." As with many of the other
derivative products available to the Portfolios, the underlying may include an
interest rate (fixed or floating), a currency exchange rate, a commodity price
index, and a security, securities index or a combination thereof. A great deal
of flexibility is possible in the way the products may be structured, with the
effect being that the parties may have exchanged amounts equal to the return on
one rate, index or group of securities for another. For example, in a simple
fixed-to-floating interest rate swap, one party makes payments equivalent to a
fixed interest rate, and the other make payments equivalent to a specified
interest rate index. A Portfolio may engage in simple or more complex swap
transactions involving a wide variety of underlyings. The currency swaps that
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.

Caps, collars and floors are privately-negotiated option-based derivative
products. A Portfolio may use one or more of these products in addition to or
in lieu of a swap involving a similar rate or index. As in the case of a put or
call option, the buyer of a cap or floor pays a premium to the writer. In
exchange for that premium, the buyer receives the right to a payment equal to
the differential if the specified index or rate rises above (in the case of a
cap) or falls below (in the case of a floor) a pre-determined strike level. As
in the case of swaps, obligations under caps and floors are calculated based
upon an agreed notional amount, and like most swaps (other than foreign
currency swaps), the entire notional amount is not exchanged and thus is not at
risk. A collar is a combination product in which the same party, such as the
Portfolio, buys a cap from and sells a floor to the other party. As with put
and call options, the amount at risk is limited for the buyer, but, if the cap
or floor in not hedged or covered, may be unlimited for the seller. Under
current market

26
<PAGE>

practice, caps, collars and floors between the same two parties are generally
documented under the same "master agreement." In some cases, options and
forward agreements may also be governed by the same master agreement. In the
event of a default, amounts owed under all transactions entered into under, or
covered by, the same master agreement would be netted and only a single payment
would be made.

Swaps, caps, collars and floors are credit-intensive products. A Portfolio that
enters into a swap transaction bears the risk of default, i.e. nonpayment, by
the other party. The guidelines under which each Portfolio enters derivative
transactions, along with some features of the transactions themselves, are
intended to reduce these risks to the extent reasonably practicable, although
they cannot eliminate the risks entirely. Under guidelines established by the
Board of Directors, a Portfolio may enter into swaps only with parties that
meet certain credit rating guidelines. Consistent with current market
practices, a Portfolio will generally enter into swap transactions on a net
basis, and all swap transactions with the same party will be documented under a
single master agreement to provide for net payment upon default. In addition, a
Portfolio's obligations under an agreement will be accrued daily (offset
against any amounts owing to the Portfolio) and any accrued, but unpaid, net
amounts owed to the other party to a master agreement will be covered by the
maintenance of a segregated account consisting of cash or liquid securities.

Interest rate and total rate of return (fixed income or equity) swaps generally
do not involve the delivery of securities, other underlying assets, or
principal. In such case, if the other party to an interest rate or total rate
of return swap defaults, a Portfolio's risk of loss will consist of the
payments that a Portfolio is contractually entitled to receive from the other
party. This may not be true for currency swaps that require the delivery of the
entire notional amount of one designated currency in exchange for the other. If
there is a default by the other party, a Portfolio may have contractual
remedies under the agreements related to the transaction.

Taxes

The following is only a summary of certain additional federal income tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Portfolios' prospectuses. No attempt is made to
present a detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Portfolios' prospectuses is
not intended as a substitute for careful tax planning. Shareholders are urged
to consult their tax advisors with specific reference to their own tax
situations, including their state and local tax liabilities.

Federal Income Tax Treatment of Dividends and Distributions

The following general discussion of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative charges or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.

Each Portfolio within the Fund is generally treated as a separate corporation
for federal income tax purposes, and thus the provisions of the Code generally
will be applied to each Portfolio separately, rather than to the Fund as a
whole.

Qualification as a Regulated Investment Company

The Fund intends that each of its Portfolios qualify and elect to be treated
for each taxable year as a regulated investment company ("RIC") under
Subchapter M of the Code. Accordingly, each Portfolio must, among other things,
(a) derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to security loans, gains from the sale or other
disposition of stock, securities or foreign currencies, and certain other
related income, including generally, certain gains from options, futures and
forward contracts; and (b) diversify its holdings so that, at the end of each
fiscal quarter of the Portfolio's taxable year, (i) at least 50% of the market
value of the Portfolio's total assets is represented by cash and cash items,
United States Government securities, securities or other RICs, and other
securities, with such other securities limited, in respect to any one issuer,
to an amount not greater than 5% of the value of the Portfolio's total assets
or 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its total assets is invested in the securities (other
than United States Government securities or securities of other RICs) of any
one issuer or two or more issuers which the Portfolio controls and which are
engaged in the same, similar, or related trades or business. For purposes of
the 90% of gross income requirement described above, foreign currency gains
which are not directly related to a Portfolio's principal business of investing
in stock or securities (or options or futures with respect to stock or
securities) may be excluded from income that qualifies under the 90%
requirement.

In addition to the requirements described above, in order to qualify as a RIC,
each Portfolio must distribute at least 90% of each Portfolio's net investment
income (that generally includes dividends, taxable interest, and the excess of
net short-term capital gains over net long-term capital losses less operating
expenses) and at least 90% of its net tax-exempt interest income, if any, to
shareholders. If a Portfolio meets all of the RIC requirements, it will not be
subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.

27
<PAGE>

Some of the Portfolios may make investments in securities (such as STRIPS) that
bear "original issue discount" or "acquisition discount" (collectively, "OID
Securities"). The holder of such securities is deemed to have received interest
income even though no cash payments have been received. Accordingly, OID
Securities may not produce sufficient current cash receipts to match the amount
of distributable net investment income a Portfolio must distribute to satisfy
the Distribution Requirement. In some cases, a Portfolio may have to borrow
money or dispose of other investments in order to make sufficient cash
distributions to satisfy the Distribution Requirement.

Although each Portfolio intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, a
Portfolio will be subject to federal income taxation to the extent any such
income or gains are not distributed.

If a Portfolio fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent
of such Portfolio's current and accumulated earnings and profits. In this
event, distributions generally will be eligible for the dividends-received
deduction for corporate shareholders.

For certain transactions, each Portfolio is required for federal income tax
purposes to recognize as gain or loss its net unrealized gains or losses on
forward currency and futures contracts as of the end of each taxable year, as
well as those actually realized during the year. In most cases, any such gain
or loss recognized with respect to a regulated futures contract is considered
to be 60% long-term capital gain or loss and 40% short-term capital gain or
loss, without regard to the holding period of the contract. Realized gain or
loss attributable to a foreign currency forward contract is treated as 100%
ordinary income. Furthermore, foreign currency futures contracts which are
intended to hedge against a change in the value of securities held by a
Portfolio may affect the holding period of such securities and, consequently,
the nature of the gain or loss on such securities upon disposition.

Short sales engaged in by a Portfolio may reduce the holding period of property
held by a Portfolio which is substantially identical to the property sold
short. This rule may have the effect of converting capital gains recognized by
the Portfolio from long-term to short-term as well as converting capital losses
recognized by the Portfolio from short-term to long-term.

Each Portfolio will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by a Portfolio
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.

Federal Excise Tax

If a Portfolio fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), such Portfolio will be subject to a
nondeductible 4% Federal excise tax on the undistributed amounts. Each
Portfolio intends to make sufficient distributions to avoid imposition of this
tax, or to retain, at most its net capital gains and pay tax thereon.

Foreign Income Taxes

Each Portfolio that invests in foreign securities may be subject to foreign
withholding taxes with respect to its dividend and interest income from foreign
countries, thus reducing the net amount available for distribution to a
Portfolio's shareholders. The United States has entered into tax treaties with
many foreign countries that may entitle a Portfolio to a reduced rate of, or
exemption from, taxes on such income. It is impossible to determine the
effective rate of foreign tax in advance because the amount of a Portfolio's
assets to be invested within various countries is not known.

If more than 50% of the value of a Portfolio's total assets at the close of its
taxable year consists of the stock or securities of foreign corporations, such
Portfolio may elect to "pass through" to its shareholders the amount of foreign
income taxes paid by the Portfolio (the "Foreign Tax Election"). Pursuant to
the Foreign Tax Election, shareholders would be required to (i) include in
gross income, even though not actually received, their respective pro-rata
shares of the foreign income taxes paid by the Portfolio; (ii) either deduct
their pro-rata share of foreign taxes in computing their taxable income, or use
such share (subject to various Code limitations) as a foreign tax credit
against federal income tax (but not both). In determining the source and
character of distributions received from a Portfolio for purposes of the
foreign tax credit limitation rules of the Code, shareholders would, if that
Portfolio makes the Foreign Tax Election, be required to treat their pro-rata
shares of such foreign taxes and allocable portions of Portfolio distributions
as foreign source income.

Purchase of the Shares of the Portfolios

Shares of the Portfolios will be purchased by life insurance companies for
their separate accounts under variable annuity contracts and variable life
insurance policies and by other entities under qualified pension and retirement
plans. Under the provisions of the Code currently in effect, net income and
realized capital gains of Portfolios of the Fund are not currently taxable when
left to accumulate within a variable annuity contract or variable life
insurance policy or under a qualified pension or retirement plan.

For information on federal income taxation of a life insurance company with
respect to its receipt of distributions from the

28
<PAGE>

Fund and federal income taxation of owners of the company's variable annuity
contracts or variable life insurance policies, refer to the life insurance
company's variable annuity contract or variable life insurance policy
prospectus.

State and Local Tax Considerations

Rules of U.S. state and local taxation of dividend and capital gains
distributions from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other U.S. state
and local tax rules regarding an investment in a Portfolio.

Purchase of Shares

The purchase price of each Portfolio of the Fund, except the Money Market
Portfolio, is the net asset value next determined after the order is received.
For each Portfolio of the Fund other than the Money Market Portfolio, an order
received prior to the close of the New York Stock Exchange (the "NYSE")
(normally 4:00 pm Eastern Time) will be executed at the price computed on the
date of receipt; and an order received after the close of the NYSE will be
executed at the price computed on the next day the NYSE is open as long as the
Fund's transfer agent receives payment by check or in Federal Funds prior to
the close of the NYSE on such day. Shares of the Money Market Portfolio may be
purchased at the net asset value per share at the price next determined after
Federal Funds are available to such Portfolio. Shares of the Fund may be
purchased on any day the NYSE is open. The NYSE will be closed on the following
days: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day, and on the preceding Friday or subsequent Monday when any of
these holidays falls on a Saturday or Sunday, respectively.

Each Portfolio reserves the right in its sole discretion to suspend the
offering of its shares and to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Portfolio.

Redemption of Shares

Redemptions. Each Portfolio may suspend redemption privileges or postpone the
date of payment (i) during any period that the NYSE is closed, or trading on
the NYSE is restricted as determined by the SEC, (ii) during any period when an
emergency exists as defined by the rules of the SEC as a result of which it is
not reasonably practicable for a Portfolio to dispose of securities owned by
it, or fairly to determine the value of its assets, and (iii) for such other
periods as the SEC may permit.

Distributions In Kind. If the Board of Directors determines that it would be
detrimental to the best interests of the shareholders of a Portfolio to make a
redemption payment wholly in cash, and subject to applicable agreements with
life insurance companies and other qualified investors, the Fund may pay a
portion of a redemption by distribution in kind of portfolio securities in lieu
of cash. Securities issued in a distribution in kind will be readily
marketable, although shareholders receiving distributions in kind may incur
brokerage commissions when subsequently selling shares of those securities.

Investment Limitations

Fundamental Limitations

Each current Portfolio has adopted the following restrictions, which are
fundamental policies and may not be changed without the approval of the lesser
of: (1) at least 67% of the voting securities of the Portfolio present at a
meeting if the holders of more than 50% of the outstanding voting securities of
the Portfolio are present or represented by proxy, or (2) more than 50% of the
outstanding voting securities of the Portfolio. Each Portfolio of the Fund will
not:

(1) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (except this shall not prevent the
Portfolio from purchasing or selling futures contracts or options thereon or
from investing in securities or other instruments backed by physical
commodities);

(2) purchase or sell real estate, although it may purchase and sell securities
of companies that deal in real estate and may purchase and sell securities that
are secured by interests in real estate;

(3) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or repurchase agreements;

(4) except with respect to the International Fixed Income, Emerging Markets
Equity, Emerging Markets Debt, International Magnum, Latin American and U.S.
Real Estate Portfolios (i) purchase more than 10% of any class of the
outstanding voting securities of any issuer and (ii) purchase securities of an
issuer (except obligations of the U.S. Government and its agencies and
instrumentalities) if as a result, with respect to 75% of its total assets,
more than 5% of the Portfolio's total assets, at market value, would be
invested in the securities of such issuer;

(5) issue senior securities and will not borrow, except from banks in an
amount not in excess of 33 1/3% of its total assets (including the amount
borrowed) less liabilities;

29
<PAGE>

(6) underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the 1933 Act
in the disposition of restricted securities; and

(7) acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Portfolio's total assets
would be invested in securities of companies within such industry; provided,
that (i) there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or (in the
case of the Money Market Portfolio) instruments issued by U.S. Banks; (ii)
utility companies will be divided according to their services, for example,
gas, gas transmission, electric and telephone will each be considered a
separate industry; (iii) financial service companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry; and (iv) ABSs will be classified according to the underlying assets
securing such securities; and provided further that the U.S. Real Estate
Portfolio may invest more than 25% of its total assets in the U.S. real estate
industry and the Latin American Portfolio may invest more than 25% of its
assets in companies in the telecommunications industry or financial services
industry.

In accordance with Fundamental Restriction No. (7), the Latin American
Portfolio will only invest more than 25% of its total assets in companies
involved in the telecommunications industry or financial services industry if
the Board of Directors determines that the Latin American markets are dominated
by securities of issuers in such industries and that, in light of the
anticipated return, investment quality, availability and liquidity of the
issuers in such industries, the Portfolio's ability to achieve its investment
objective would, in light of the investment policies and limitations, be
materially adversely affected if the Portfolio was not able to invest greater
than 25% of its total assets in such industries. The Board of Directors has
made the foregoing determination with respect to the telecommunications
industry and, accordingly, the Latin American Portfolio will invest between 25%
and 40% of its assets in securities of issuers engaged in the
telecommunications industry.

Non-fundamental Limitations

In addition, each current Portfolio of the Fund has adopted non-fundamental
investment limitations as stated below. Such limitations may be changed without
shareholder approval. Each current Portfolio of the Fund will not:

(1) sell short (other than "against the box") unless the Portfolio's
obligation is covered by unencumbered liquid assets in a segregated account and
by collateral held by the lending broker; provided that transactions in futures
contracts and options are not deemed to constitute selling securities short;

(2) invest for the purpose of exercising control over management of any
company;

(3) invest its assets in securities of any investment company except as may be
permitted by the 1940 Act;

(4) invest more than an aggregate or 15% of the net assets of the Portfolio
(10% in the case of the Money Market Portfolio), determined at the time of
investment, in illiquid securities;

(5) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitations as
described in the prospectus) that are publicly distributed, and (ii) by lending
its portfolio securities to banks, brokers, dealers and other financial
institutions and, in the case of the High Yield Portfolio, institutional
investors, so long as such loans are not inconsistent with the 1940 Act or the
Rules and Regulations or interpretations of the SEC thereunder;

(6) purchase on margin, except for use of short-term credit as may be
necessary for the clearance of purchases and sales of securities, but it may
make margin deposits in connection with transactions in options, futures, and
options on futures; and

(7) except in the case of the Emerging Markets Debt and Latin American
Portfolios, borrow money, other than temporarily or for extraordinary or
emergency purposes or purchase additional securities when borrowings exceed 5%
of total (gross) assets.

Each of the International Fixed Income, Emerging Markets Debt, Emerging Markets
Equity, International Magnum, Latin American and U.S. Real Estate Portfolios
will diversify its holdings so that, at the close of each quarter of its
taxable year, (i) at least 50% of the market value of the Portfolio's total
assets is represented by cash (including cash items and receivables), U.S.
Government securities, and other securities, with such other securities
limited, in respect of any one issuer, for purposes of this calculation to an
amount not greater than 5% of the value of the Portfolio's total assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total assets is invested in the securities of any one
issuer (other than U.S. Government securities).

The percentage limitations contained in these restrictions apply at the time of
purchase of securities. Future Portfolios of the Fund may adopt different
limitations.

The investments of life insurance company separate accounts made under variable
annuity contracts and variable life insurance policies are subject to state
insurance laws and regulations. The Fund and its Portfolios will, when
required, comply with investment restrictions imposed under such laws and
regulations on life insurance company separate accounts investing in the
Portfolios.

30
<PAGE>

In addition, Section 817(h) of the Internal Revenue Code requires that the
assets of each Portfolio be adequately diversified so that insurance companies,
and not variable contract owners, are considered the owners for federal income
tax purposes of the assets held in the separate accounts. To meet the
diversification requirements of regulations issued under Section 817(h), each
Portfolio will meet the following test: no more than 55% of the assets will be
invested in any one investment; no more than 70% of the assets will be invested
in any two investments; no more than 80% of the assets will be invested in any
three investments; and no more than 90% will be invested in any four
investments. Each Portfolio must meet the above diversification requirements
within 30 days of the end of each calendar quarter.

Determining Maturities of Certain Instruments

Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining until the date noted on the face of the instrument as the date
on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a
government obligation with a variable rate of interest readjusted no less
frequently than annually may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (b) an instrument
with a variable rate of interest, the principal amount of which is scheduled on
the face of the instrument to be paid in one year or less, may be deemed to
have a maturity equal to the period remaining until the next readjustment of
the interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand; (d) an instrument with a floating rate of interest that is subject to a
demand feature may be deemed to have a maturity equal to the period remaining
until the principal amount can be recovered through demand; and (e) a
repurchase agreement may be deemed to have a maturity equal to the period
remaining until the date on which the repurchase of the underlying securities
is scheduled to occur, or where no date is specified, but the agreement is
subject to demand, the notice period applicable to a demand for the repurchase
of the securities. In addition, for securities that are subject to prepayments,
the weighted average life of the security will be used in the weighted average
maturity calculation instead of the stated maturity date on the instrument. The
weighted average life of a security takes into consideration the impact of
prepayments on the length of time the security will be outstanding and
typically indicates an actual maturity that is shorter than the maturity date
stated on the face of the instrument.

31
<PAGE>

Management Of The Fund

Officers and Directors

The Fund's officers, under the supervision of the Board of Directors, manage
the day-to-day operations of the Fund. The Directors set broad policies for the
Fund and choose its officers. Directors and officers of the Fund are also
directors and officers of some or all of the other investment companies
managed, administered, advised or distributed by the Advisers or their
affiliates. Two Directors and all of the officers of the Fund are directors,
officers or employees of the Fund's advisers, distributor or administrators.
The other Directors have no affiliation with the Fund's advisers, distributor
or administrators. A list of the Directors and officers of the Fund and a brief
statement of their present positions and principal occupations during the past
five years is set forth below:

<TABLE>
<CAPTION>
Name, Address and
Date of Birth Position with Fund Principal Occupation During Past Five Years
----------------- ---------------------------- -------------------------------------------
<S> <C> <C>
Barton M. Biggs* Chairman and Director Chairman, Director and Managing Director of Morgan
Morgan Stanley Dean Witter Stanley Dean Witter Investment Management Inc. and
Investment Management Morgan Stanley Dean Witter Investment Management
1221 Avenue of the Americas Limited; Managing Director of Morgan Stanley & Co.
New York, NY 10020 Incorporated; Director of Rand McNally Company;
11/26/32 Member of the Yale Development Board; Chairman and
Director of various U.S. registered investment
companies managed by Morgan Stanley Dean Witter
Investment Management Inc.

Michael F. Klein* Director and President Principal of Morgan Stanley & Co. Incorporated and
Morgan Stanley Dean Witter Morgan Stanley Dean Witter Investment Management
Investment Management Inc.; President and Officer of various U.S.
1221 Avenue of the Americas registered investment companies managed by Morgan
New York, NY 10020 Stanley Dean Witter Investment Management Inc.
12/12/58 Previously practiced law with the New York law
firm of Rogers & Wells.

John D. Barrett, II Director Chairman and Director of Barrett Associates, Inc.
Barrett Associates Inc. (investment counseling); Director of the Ashforth
521 Fifth Avenue Company (real estate); Director of Morgan Stanley
New York, NY 10135 Dean Witter Institutional Fund, Inc. and Morgan
8/21/35 Stanley Dean Witter Strategic Adviser Fund, Inc.
Gerard E. Jones Director Partner in Richards & O'Neil LLP (law firm);
Richards & O'Neil LLP Director of Morgan Stanley Dean Witter
43 Arch Street Institutional Fund, Inc. and Morgan Stanley Dean
Greenwich, CT 06830 Witter Strategic Adviser Fund, Inc.
1/23/37

Andrew McNally IV Director Director of Mercury Finance (consumer finance);
8255 North Central Zenith Electronics, Hubbell, Inc. (industrial
Park Avenue electronics); Director of Morgan Stanley Dean
Skokie, IL 60076 Witter Institutional Fund, Inc. and Morgan Stanley
11/11/39 Dean Witter Strategic Adviser Fund, Inc.; Formerly
Chairman and Chief Executive Officer of Rand
McNally & Company (publishing).

Samuel T. Reeves Director President, Pinnacle Trading L.L.C. (investments);
8211 North Fresno Street Director of Morgan Stanley Dean Witter
Fresno, CA 93720 Institutional Fund, Inc. and Morgan Stanley Dean
7/28/34 Witter Strategic Adviser Fund, Inc. and Morgan
Stanley India Investment Fund, Inc.

Fergus Reid Director Chairman and Chief Executive Officer of LumeLite
85 Charles Colman Blvd Plastics Corporation (injection molding); Trustee
Pawling, NY 12564 and Director of Vista Mutual Fund Group; Director
8/12/32 of Morgan Stanley Dean Witter Institutional Fund,
Inc. and Morgan Stanley Dean Witter Strategic
Adviser Fund, Inc.

Frederick O. Robertshaw Director Of Counsel, Copple, Chamberlin & Boehm, P.C.;
2025 North Third Street Formerly, of Counsel, Bryan, Cave LLP (law firms);
Suite 300 Director of Morgan Stanley Dean Witter
Phoenix, AZ 85004 Institutional Fund, Inc. and Morgan Stanley Dean
1/24/34 Witter Strategic Adviser Fund, Inc.
</TABLE>

32
<PAGE>

<S> <C> <C>
Harold J. Schaaff, Jr.* Vice President Principal of Morgan Stanley & Co. Incorporated
Morgan Stanley Dean Witter and Morgan Stanley Dean Witter Investment
Investment Management Management Inc.; General Counsel and Secretary
1221 Avenue of the Americas of Morgan Stanley Dean Witter Investment
New York, NY 10020 Management Inc.; Vice President of various U.S.
6/10/60 registered investment companies managed by
Morgan Stanley Dean Witter Investment Management
Inc.

Joseph P. Stadler* Vice President Principal of Morgan Stanley & Co. Incorporated
Morgan Stanley Dean Witter and Morgan Stanley Dean Witter Investment
Investment Management Management Inc.; Previously with Price
1221 Avenue of the Americas Waterhouse LLP (now PricewaterhouseCoopers LLP)
New York, NY 10020 (accounting); Vice President of various U.S.
6/7/54 registered investment companies managed by
Morgan Stanley Dean Witter Investment Management
Inc.
Lorraine Truten* Vice President Vice President, MAS Funds; Head of Mutual Fund
Miller Andersen & Sherrerd, Services, Miller Anderson & Sherrerd, LLP;
LLP Principal of Morgan Stanley Dean Witter
One Tower Bridge Investment Management Inc.; President, MAS Fund
West Conshohocken, PA 19428 Distribution, Inc.
5/11/61

Stefanie V. Chang* Vice President and Acting Vice President of Morgan Stanley & Co.
Morgan Stanley Dean Witter Secretary Incorporated and Morgan Stanley Dean Witter
Investment Management Investment Management Inc.; Vice President of
1221 Avenue of the Americas various U.S. registered investment companies
New York, NY 10020 managed by Morgan Stanley Dean Witter Investment
11/30/66 Management Inc. Previously practiced law with
the New York law firm of Rogers & Wells.

James A. Gallo* Vice President Vice President of Morgan Stanley Dean Witter &
Miller Andersen & Sherrerd, Co.; Head of Fund Administration, Miller
LLP Andersen & Sherrerd, LLP; Treasurer MAS Funds;
One Tower Bridge formerly Manager, Internal Accounting and then
West Conshohocken, PA 19428 Vice President and Director of Investment
6/18/64 Accounting, PFPC, Inc.

Karl O. Hartmann* Assistant Secretary Senior Vice President, Secretary and General
Chase Global Funds Services Counsel of Chase Global Funds Services Company;
Company Previously President, Secretary and General
73 Tremont Street Counsel, Leland, O'Brien, Rubinstein Associates,
Boston, MA 02108-3913 Inc. (investments).
3/7/55

Joanna Haigney* Treasurer Assistant Vice President, Senior Manager of Fund
Chase Global Funds Services Administration and Compliance Services, Chase
Company Global Funds Services Company; Treasurer of
73 Tremont Street various U.S. registered investment companies
Boston, MA 02108-3913 managed by Morgan Stanley Dean Witter Investment
10/10/66 Management Inc. Previously with Coopers &
Lybrand LLP (now PricewaterhouseCoopers LLP).

Belinda A. Brady* Assistant Treasurer Fund Administration Manager, Chase Global Funds
Chase Global Funds Services Services Company; Assistant Treasurer of various
Company U.S. registered investment companies managed by
73 Tremont Street Morgan Stanley Dean Witter Investment Management
Boston, MA 02108-3913 Inc. Previously was senior auditor at Price
1/23/68 Waterhouse LLP (now PricewaterhouseCoopers LLP).
</TABLE>
- -------
* "Interested Person" within the meaning of the 1940 Act.

33
<PAGE>

Remuneration of Directors and Officers

Members of the Board of Directors who are not "interested persons" within the
meaning of the 1940 Act ("Non-interested Directors") receive compensation from
the Fund and from other investment companies advised by MSDW Investment
Management or MAS (or by affiliated companies) (the Fund and such other
investment companies are referred to as the "Fund Complex"). The open-end
investment companies in the Fund Complex pay each of the Noninterested
Directors an annual aggregate compensation of $65,000, plus out-of-pocket
expenses, and pay each of the Noninterested Directors on the Board Audit
Committees additional annual aggregate compensation of $10,000 for serving on
such committees. The aggregate of such compensation for each Noninterested
Director is allocated among the open-end investment companies in direct
proportion to their respective average annual net assets. For the fiscal year
ended December 31, 1998, the Fund paid approximately $8,655 in Directors fees
and expenses. Column (2) in the following table sets forth the portions of the
annual aggregate compensation paid by the Fund to each Director for serving as
a Director of the Fund for the fiscal year ended December 31, 1998. Column (5)
in the table sets forth aggregate compensation paid by the Fund and Fund
Complex to each Director during the fiscal year ended December 31, 1998.
Compensation amounts do not include reimbursements of out-of-pocket expenses.
Directors who are officers or otherwise "interested persons" receive no
remuneration for their services as Directors. Directors and Officers of the
Fund do not own shares of the Fund.

Compensation Table

<TABLE>
<CAPTION>
(5)
Total
(3) (4) Compensation
Pension or Estimated From Fund
(2) Retirement Annual and Fund
Aggregate Benefits Accrued Benefits Complex
(1) Compensation as Part of Fund Upon Paid to
Name of Director From Fund Expenses Retirement Directors
---------------- ------------ ---------------- ---------- ------------
<S> <C> <C> <C> <C>
Barton M. Biggs $ 0 $ 0 $ 0 $ 0
Michael F. Klein 0 0 0 0
John D. Barrett, II(a) 1,340 0 0 65,000(c)
Gerard E. Jones(a) 1,340 0 0 72,100(c)(d)
Andrew McNally, IV(a)(b) 1,545 0 0 81,808(c)
Samuel T. Reeves(a)(b) 1,545 0 0 95,078(c)
Fergus Reid(a) 1,340 0 0 107,774(c)(d)
Frederick O. 1,545 0 0 75,000(c)
Robertshaw(a)(b)
</TABLE>
- -------
(a) Of the amounts payable to Messrs. Barrett, Jones, McNally, Reeves, Reid and
Robertshaw, nothing was deferred pursuant to the Fund's deferred
compensation plan in the fiscal year ended December 31, 1998.
(b) Member of Audit Committee of the Board of Directors of the Fund.
(c) Number of other investment companies in Fund Complex from whom Director
received compensation: Mr. Barrett--2; Mr. Jones--3; Mr. McNally--2; Mr.
Reeves--3; Mr. Reid--3; Mr. Robertshaw--2.
(d) Includes amounts paid for service as Director of a closed-end investment
company in the Fund Complex, in addition to amounts paid by the open-end
investment companies.

The Fund maintains an unfunded Deferred Compensation Plan which allows each
independent Director to defer payment of all, or a portion, of the fees he or
she receives for attending meetings of the Board of Directors throughout the
year. Each eligible Director generally may elect to have the deferred amounts
credited with a return equal to either of the following: (i) a rate equal to
the prevailing rate for 90-day U.S. Treasury Bills, or (ii) a rate equal to the
total return on one or more portfolios of the Fund or other funds in the Fund
Complex selected by the Director. Distributions generally are in the form of
equal annual installments over a period of five years beginning on the first
day of the year following the year in which the Director's service terminates,
except that the Board of Directors, in its sole discretion, may accelerate or
extend such distribution. The Fund intends that the Deferred Compensation Plan
shall be maintained at all times on an unfunded basis for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The
rights of an eligible Director and the beneficiaries to the amounts held under
the Deferred Compensation Plan are unsecured and such amounts are subject to
the claims of the creditors of the Fund.

Investment Advisory, Sub-Advisory And Administrative Agreements

MSDW Investment Management is a wholly owned subsidiary of Morgan Stanley Dean
Witter & Co. ("MSDW"). The principal offices of MSDW are located at 1585
Broadway, New York, N.Y. 10036 and the principal offices of MSDW Investment
Management are located at 1221 Avenue of the Americas, New York, N.Y. 10020.
MAS, with principal offices located at One Tower Bridge, West Conshohocken,
Pennsylvania 19428, is also a subsidiary of MSDW.

34
<PAGE>

Pursuant to an investment advisory agreement, MSDW Investment Management and
MAS receive compensation for providing investment advisory services in the
amounts described below.

Advisory Fees

The following table shows for each Portfolio the advisory fee paid for each of
the past three fiscal years.

MSDW Investment Management Advised Portfolios:*

<TABLE>
<CAPTION>
Advisory Fee Paid (000)
---------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
Portfolio 1998 1997 1996
- --------- -------------------------------- --------------------------------- --------------------------------
<S> <C> <C> <C>
Equity Growth Portfolio $26 (net of fee waivers of $136) $0/1/ (net of fee waivers of $30 N/A
and reimbursements of $36)
U.S. Real Estate $24 (net of fee waivers of $92) $0/2/ (net of fee waivers of $49 N/A
Portfolio and reimbursements of $26)
Emerging Markets Debt $74 (net of fee waivers of $143) $8/3/ (net of fee waivers of $63) N/A
Portfolio
Global Equity Portfolio $95 (net of fee waivers of $141) $0/1/ (net of fee waivers of $62 N/A
and reimbursements of $37)
International Magnum $51 (net of fee waivers of $220) $0/1/ (net of fee waivers of $116 N/A
Portfolio and reimbursements of $119)
Emerging Markets Equity $0 (net of fee waivers of $447 $0 (net of fee waivers of $279 $0/4/ (net of fee waivers of $32
Portfolio and reimbursements of $87) and reimbursements of $240) and reimbursements of $82)
Asian Equity Portfolio $0 (net of fee waivers of $93 $0/2/ (net of fee waivers of $68 N/A
and reimbursements of $91) and reimbursements of $81)
</TABLE>
- -------
* The Money Market and Latin American Portfolios were not operational in the
fiscal years ended December 31, 1998, 1997 and 1996. Consequently, no
advisory fees were paid by these Portfolios.
/1/For the period from January 2, 1997 to December 31, 1997.
/2/For the period from March 3, 1997 to December 31, 1997.
/3/For the period from June 16, 1997 to December 31, 1997.
/4/For the period from October 1, 1996 to December 31, 1996.

MAS Advised Portfolios:**

<TABLE>
<CAPTION>
Advisory Fee Paid (000)
-----------------------------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
Portfolio 1998 1997 1996
- --------- ------------------------------- -------------------------------- ------------
<S> <C> <C> <C>
Fixed Income Portfolio $17 (net of fee waivers of $93) $0/1/ (net of fee waivers of $38 N/A
and reimbursements of $58)
High Yield Portfolio $34 (net of fee waivers of $77) $0/1/ (net of fee waivers of $49 N/A
and reimbursements of $36)
Value Portfolio $14 (net of fee waivers of $86) $0/1/ (net of fee waivers of $38 N/A
and reimbursements of $32)
Mid Cap Value Portfolio $44 (net of fee waivers of $99) $0/1/ (net of fee waivers of $47 N/A
and reimbursements of $22)
</TABLE>
- -------
** The Balanced, Core Equity, International Fixed Income, Mid Cap Growth and
Multi-Asset-Class Portfolios were not operational in the fiscal years ended
December 31, 1998, 1997 and 1996. Consequently, no advisory fees were paid
by these Portfolios.
/1/For the period from January 2, 1997 to December 31, 1997.

Sub-Advisory Fees

Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), with principal
offices at Two World Trade Center, New York, New York 10048, serves as the
investment sub-adviser to the Money Market Portfolio pursuant to an investment
sub-advisory agreement with MSDW Investment Management. As compensation for
managing the day-to-day investments of the Money Market Portfolio, MSDW
Investment Management pays MSDW Advisors 40% of the investment advisory fee
that MSDW Investment Management receives from this Portfolio.

35
<PAGE>

Administration Fees

Pursuant to separate Administration Agreements with the Fund, MSDW Investment
Management and MAS provide administrative services to MSDW Investment
Management Advised Portfolios and MAS Advised Portfolios, respectively. For its
services under the Administration agreement, the Fund pays each Adviser a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of each Portfolio managed by that Adviser. The following table shows the
administration fees paid to MSDW Investment Management and MAS by the MSDW
Investment Management Advised Portfolios and MAS Advised Portfolios,
respectively.

Under a Sub-Administration Agreement between each Adviser and Chase Global
Funds Services Company ("Chase Global"), a corporate affiliate of The Chase
Manhattan Bank, Chase Global provides certain administrative services to the
Fund. Chase Global's business address is 73 Tremont Street, Boston,
Massachusetts 02108-3913.

European Currency Transition. On January 1, 1999, the European Monetary Union
(EMU) implemented a new currency unit, the Euro, which is expected to reshape
financial markets, banking systems and monetary policies in Europe and other
parts of the world. Implementation of this plan means that financial
transactions and market information, including share quotations and company
accounts, in participating countries are now denominated in Euros. Monetary
policy for participating countries is uniformly managed by a new central bank,
the European Central Bank (ECB).

The transition to the Euro may change the economic environment and behavior of
investors, particularly in European markets. For example, the process of
implementing the Euro may adversely affect financial markets world-wide and may
result in changes in the relative strength and value of the U.S. dollar or
other major currencies, as well as possible adverse tax consequences. The
transition to the Euro is likely to have a significant impact on fiscal and
monetary policy in the participating countries and may produce unpredictable
effects on trade and commerce generally. These resulting uncertainties could
create increased volatility in financial markets world-wide.

Year 2000

The management and distribution services provided to the Fund by the Advisers,
MSDW Advisors and Morgan Stanley & Co. Incorporated ("'Morgan Stanley") depend
on the smooth functioning of their computer systems. Many computer software
systems in use today cannot recognize the year 2000, but revert to 1900 or some
other date, due to the manner in which dates were encoded and calculated. That
failure could have a negative impact on the handling of securities trades,
pricing and account services. The Advisers, MSDW Advisors and Morgan Stanley
have been actively working on necessary changes to their own computer systems
to deal with the year 2000 problem and expect that their systems will be
adapted before that date. There can be no assurance, however, that they will be
successful. In addition, other unaffiliated service providers may be faced with
similar problems. The Advisers, MSDW Advisors and Morgan Stanley are monitoring
their remedial efforts, however, there can be no assurance that they and the
services they provide will not be adversely affected.

In addition, it is possible that the markets for securities in which the
Portfolios invest may be detrimentally affected by computer failures throughout
the financial services industry beginning January 1, 2000. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Accordingly, the Portfolios' investments may be
adversely affected.

Distribution of Fund Shares

Under a Distribution Agreement with the Fund, Morgan Stanley, a subsidiary of
MSDW, serves as exclusive distributor of the Portfolios and sells shares of
each Portfolio on the terms described in the Fund's Prospectus.

Code of Ethics

The Board of Directors of the Fund has adopted a Code of Ethics under Rule 17j-
I of the 1940 Act which incorporates the Code of Ethics of each Adviser
(together, the "Codes"). The Codes restrict the personal investing activities
of all employees of each Adviser and, as described below, impose additional,
more onerous, restrictions on the Fund's investment personnel.

The Codes require that all employees of each Adviser preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition

36
<PAGE>

or limitation applicable to the proposed investment. The substantive
restrictions applicable to all employees of the Adviser include a ban on
acquiring any securities in a "hot" initial public offering and a prohibition
from profiting on short-term trading in securities. In addition, no employee
may purchase or sell any security that at the time is being purchased or sold
(as the case may be), or to the knowledge of the employee is being considered
for purchase or sale, by any fund advised by that Adviser. Furthermore, the
Codes provide for trading "blackout periods" that prohibit trading by
investment personnel of the Fund within periods of trading by the Fund in the
same (or equivalent) security.

Principal Holders of Securities

As of March 10, 1999, the following persons were 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 Allmerica Financial Life 42%
Portfolio Insurance & Annuity Company*/1/
440 Lincoln St., S-134
Worcester, MA 01653

General American Life Insurance Company*/2/ 27%
700 Market Street
St. Louis, MO 63101

American General Life Insurance Company* 7%
P. O. Box 1591
Houston, TX 77251

Transamerica Life Insurance and Annuity Company* 7%
Separate Account VA6
401 North Tryon Street
Charlotte, NC 28210

Hartford Life & Annuity Insurance Company* 8%
Separate Account
P. O. Box 2999
Hartford, CT 06104

High Yield Hartford Life & Annuity Insurance Company*/3/ 35%
Portfolio Separate Account Three
P. O. Box 2999
Hartford, CT 06104

American General Life Insurance Company* 20%
P. O. Box 1591
Houston, TX 77251

Integrity Life Insurance Company* 18%
515 West Market Street
Louisville, KY 40202

National Integrity Life Insurance Company* 9%
515 West Market Street
Louisville, KY 40202

Transamerica Life Insurance and Annuity Company* 9%
Separate Account VA6
401 North Tryon Street
Charlotte, NC 28210

Equity Growth Northbrook Life Insurance Company*/4/ 45%
Portfolio 3100 Sanders Road
Northbrook, IL 60062

</TABLE>

37
<PAGE>

<TABLE>
<CAPTION>
Percent of
Outstanding
Portfolio Name of Beneficial Owner Shares
--------- ------------------------ -----------
<S> <C> <C>
American General Life Insurance Company*/5/ 26%
P. O. Box 1591
Houston, TX 77251

AIG Life Insurance Company* 14%
1 Alico Plaza
Wilmington, DE 19801

General American Life Insurance Company* 11%
700 Market Street
St. Louis, MO 63101

Value Portfolio American General Life Insurance Company*/5/ 49%
P. O. Box 1591
Houston, TX 77251

AIG Life Insurance Company*/6/ 24%
1 Alico Plaza
Wilmington, DE 19801

The Travelers Insurance Company* 11%
One Tower Square
Hartford, CT 06183

General American Life Insurance Company* 6%
700 Market Street
St. Louis, MO 63101

Mid Cap Value American General Life Insurance Company*/5/ 53%
Portfolio P. O. Box 1591
Houston, TX 77251

Hartford Life & Annuity Insurance Company*/3/ 29%
Separate Account Three
P. O. Box 2999
Hartford, CT 06104

The Travelers Insurance Company* 11%
One Tower Square
Hartford, CT 06183

U.S. Real Estate Ameritas Variable Life Insurance Company* 22%
Portfolio Separate Account VA-2
P.O. Box 82550
Lincoln, NE 68501

Integrity Life Insurance Company* 18%
515 West Market Street
Louisville, KY 40202

Northbrook Life Insurance Company* 19%
3100 Sanders Road
Northbrook, IL 60062

Connecticut General Life Insurance Company* 12%
P.O. Box 2975
Hartford, CT 06104

Annuity Investors Life Insurance Company* 9%
P. O. Box 5423
Cincinnati, OH 45201

Ameritas Variable Life Insurance Company* 6%
Separate Account V
P.O. Box 82550
Lincoln, NE 68501
</TABLE>

38
<PAGE>

<TABLE>
<CAPTION>
Percent of
Outstanding
Portfolio Name of Beneficial Owner Shares
--------- ------------------------ -----------
<S> <C> <C>
National Integrity Life Insurance Company* 6%
515 West Market Street
Louisville, KY 40202

Global Equity Fidelity Investments Life Insurance Company*/7/ 39%
Portfolio 82 Devonshire Street, R258
Boston, MA 02109

Ameritas Variable Life Insurance Company* 20%
Separate Account V
P.O. Box 82550
Lincoln, NE 68501

American General Life Insurance Company* 19%
P.O. Box 1591
Houston, TX 77251

The Travelers Insurance Company* 7%
One Tower Square
Hartford, CT 06183

Ameritas Variable Life Insurance Company* 5%
P.O. Box 82550
Lincoln, NE 68501

International Fidelity Investments Life Insurance Company*/7/ 25%
Magnum 82 Devonshire Street, R258
Portfolio Boston, MA 02109

General American Life Insurance Company* 21%
700 Market Street
St. Louis, MO 63101

American General Life Insurance Company* 20%
P.O. Box 1591
Houston, TX 77251

Ameritas Variable Life Insurance Company* 14%
P.O. Box 82550
Lincoln, NE 68501

Northbrook Life Insurance Company* 9%
3100 Sanders Road
Northbrook, IL 60062

Emerging New York Life Insurance and Annuity Corporation*/8/ 41%
Markets 300 Interpace Parkway
Equity Parsippany, NJ 07054
Portfolio

Fidelity Investments Life Insurance Company* 13%
82 Devonshire Street, R258
Boston, MA 02109

Penn Mutual Life Insurance Company* 8%
Variable Annuity Account--03
Independence Square
Philadelphia, PA 19172

Ameritas Variable Life Insurance Company* 7%
P.O. Box 82550
Lincoln, NE 68501

Penn Mutual Life Insurance Company* 6%
Diversifier I--SEPFB
Independence Square
Philadelphia, PA 19172

American General Life Insurance Company* 6%
P.O. Box 1591
Houston, TX 77251
</TABLE>

39
<PAGE>

<TABLE>
<CAPTION>
Percent of
Outstanding
Portfolio Name of Beneficial Owner Shares
--------- ------------------------ -----------
<S> <C> <C>
Asian Equity Portfolio Morgan Stanley Dean Witter & Co. /9/ 42%
1585 Broadway
New York, NY 10036

Integrity Life Insurance Company*/10/ 28%
515 West Market Street
Louisville, KY 40202

National Integrity Life Insurance Company* 11%
515 West Market Street
Louisville, KY 40202

Ameritas Variable Life Insurance Company* 11%
P.O. Box 82550
Lincoln, NE 68501

American General Life Insurance Company* 5%
P.O. Box 1591
Houston, TX 77251

Emerging Markets Debt Nationwide Life Insurance Company*/11/ 34%
Portfolio P.O. Box 182029
Columbus, OH 43218

Morgan Stanley Dean Witter & Co. 17%
1585 Broadway
New York, NY 10036

Integrity Life Insurance Company* 14%
515 West Market Street
Louisville, KY 40202

Nationwide Life Insurance Company* 14%
P.O. Box 182029
Columbus, OH 43218

Fidelity Investments Life Insurance Company* 9%
82 Devonshire Street, R258
Boston, MA 02109

Money Market Portfolio AIG Life Insurance Company*/6/ 100%
1 Alico Plaza
Wilmington, DE 19801
</TABLE>
- -------

* Shares of the Portfolio are sold to insurance companies for their variable
annuity contracts and variable life insurance policies.
/1/Allmerica Financial Life Insurance & Annuity Company's state of
incorporation is Massachusetts.
/2/General American Life Insurance Company's parent company is GenAmerica
Corporation and its state of incorporation is Missouri.
/3/Hartford Life & Annuity Insurance Company's parent company is The Hartford
Financial Services Group and its state of incorporation is Connecticut.
/4/Northbrook Life Insurance Company's parent company is Allstate Life
Insurance Company and its state of incorporation is Arizona.
/5/American General Life Insurance Company's parent company is American General
Corporation and its state of incorporation is Texas.
/6/AIG Life Insurance Company's parent company is American International Group
and its state of incorporation is Delaware.
/7/Fidelity Investments Life Insurance Company's parent company is FMR
Corporation and its state of incorporation is Utah.
/8/New York Life Insurance and Annuity Corporation's parent company is New York
Life Insurance company and its state of incorporation is Delaware.
/9/Morgan Stanley Dean Witter & Co.'s state of incorporation is Delaware.
/10/Integrity Life Insurance Company's direct parent is Integrity Holdings,
Inc., whose direct parent is ARM Financial Group, Inc. The state of
incorporation of Integrity Life Insurance Company is Ohio.
/11/Nationwide Life Insurance Company's parent company is Nationwide Financial
Services, Inc. and its state of incorporation is Ohio.

40
<PAGE>

As currently required under law, the insurance companies vote their shares of
the Portfolios in accordance with instructions received from their variable
annuity contract and variable life insurance policy owners. MSDW 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 MSDW nor
the insurance companies are deemed to be in control of the Portfolios.

Net Asset Value For The Money Market Portfolio

The Money Market Portfolio seeks to maintain a stable net asset value per share
of $1.00. The Portfolio uses the amortized cost method of valuing its
securities, which does not take into account unrealized gains or losses. The
use of amortized cost and the maintenance of the Portfolio's per share net
asset value at $1.00 is based on the Portfolio's election to operate under the
provisions of Rule 2a-7 under the 1940 Act. As a condition of operating under
that Rule, the Money Market Portfolio must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 397 days or less, and invest only in securities which
are of "eligible quality" as determined in accordance with regulations of the
SEC.

The Rule also requires that the Directors, as a particular responsibility
within the overall duty of care owed to shareholders, establish procedures
reasonably designed, taking into account current market conditions and the
Portfolio's investment objectives, to stabilize the net asset value per share
as computed for the purposes of sales and redemptions at $1.00. These
procedures include periodic review, as the Directors deem appropriate and at
such intervals as are reasonable in light of current market conditions, of the
relationship between the amortized cost value per share and a net asset value
per share based upon available indications of market value. In such review,
investments for which market quotations are readily available are valued at the
most recent bid price or quoted yield available for such securities or for
securities of comparable maturity, quality and type as obtained from one or
more of the major market makers for the securities to be valued. Other
investments and assets are valued at fair value, as determined in good faith by
the Directors.

In the event of a deviation of over 1/2 of 1% between the Portfolio's net asset
value based upon available market quotations or market equivalents and $1.00
per share based on amortized cost, the Directors will promptly consider what
action, if any, should be taken. The Directors will also take such action as
they deem appropriate to eliminate or to reduce to the extent reasonably
practicable any material dilution or other unfair results which might arise
from differences between the two. Such action may include redemption in kind,
selling instruments prior to maturity to realize capital gains or losses or to
shorten the average maturity, withholding dividends, paying distributions from
capital or capital gains or utilizing a net asset value per share as determined
by using available market quotations.

The Money Market Portfolio values its assets at amortized cost while also
monitoring the available market bid price, or yield equivalents. Since
dividends from net investment income will be declared daily and paid monthly,
the net asset value per share of the Portfolio will ordinarily remain at $1.00,
but the Portfolio's daily dividends will vary in amount. Net realized gains, if
any, will normally be declared and paid monthly.

Portfolio Transactions

The policy of the Fund regarding purchase and sales of securities for its
Portfolios is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid
in all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Advisers from obtaining a high quality of brokerage
and research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisers rely upon their experience
and knowledge regarding commissions generally charged by various brokers and on
their judgment in evaluating the brokerage and research services received from
the broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for those
services is not ascertainable.

In seeking to implement the Fund's policies, the Advisers effect transactions
with those brokers and dealers who the Advisers believe provide the most
favorable prices and are capable of providing efficient executions. If the
Advisers believe such prices and executions are obtainable from more than one
broker or dealer, they may give consideration to placing portfolio transactions
with those brokers and dealers who also furnish research and other services to
the Fund or Advisers. The Advisers may pay broker-dealers (other than their
affiliates) higher commissions than another broker-dealer may have charged on
the Fund's brokerage transactions in recognition of research services. During
the fiscal year ended December 31, 1998, the Fund directed transactions of
$631,584,903 and paid related commissions of $674,339 to brokers because of
research services provided. Such services may include, but are not limited to,
any one or more of the following: reports on industries and companies, economic
analyses and review of business conditions, portfolio strategy, analytic
computer software, account performance services, computer terminal and various
trading and/or quotation equipment. They also include advice from
41
<PAGE>

broker-dealers as to the value of securities, availability of securities,
availability of buyers, and availability of sellers. In addition, they include
recommendations as to purchase and sale of individual securities and timing of
such transactions.

The information and services received by the Advisers from brokers and dealers
may be of benefit to them in the management of accounts of some of their other
clients and may not in all cases benefit the Fund directly. While the receipt
of such information and services is useful in varying decrees and would
generally reduce the amount of research or services otherwise performed by the
Advisers and thereby reduce their expenses, it is of indeterminable value and
the advisory fees paid to an Adviser is not reduced by any amount that may be
attributable to the value of such services.

In over-the-counter transactions, orders are placed directly with a principal
market-maker and such purchases normally include a mark-up over the bid to the
broker-dealer based on the spread between the bid and the asked price for the
security.

Portfolio securities will not be purchased from, or through, or sold to or
through, the Advisers or MSDW or any of its affiliates when such entities are
acting as principals, except to the extent permitted by law.

Brokerage Fees

The following table shows the brokerage commissions paid by the Portfolios to
Morgan Stanley and its affiliates for the fiscal years ended December 31, 1998.

<TABLE>
<CAPTION>
Brokerage Commissions Paid During
Fiscal Year Ended December 31, 1998
------------------------------------------------
Commissions Paid to Morgan Stanley
------------------------------------
Percent of
Total Percent of Total
Commissions Total Total Brokered
Portfolio* Paid Commissions Commissions Transactions
---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Global Equity $ 90,498.00 $11,900.00 13.15% 13.95%
International Magnum 92,226.00 8,842.00 9.58 9.01
Emerging Markets Equity 221,754.00 8,780.00 3.96 3.19
Asian Equity 106,953.00 3,438.00 3.21 4.05
</TABLE>
- -------
* The Fixed Income, High Yield, Equity Growth, Value, Mid Cap Value, U.S. Real
Estate and Emerging Markets Debt Portfolios did not pay any commissions to
affiliated brokers for the fiscal year ended December 31, 1998. The Money
Market, Latin American, Balanced, Core Equity, International Fixed Income,
Mid Cap Growth and Multi-Asset-Class Portfolios were not operational in the
fiscal year ended December 31, 1998, and consequently, no brokerage fees
were paid by these Portfolios.

The following table shows the brokerage commissions paid by the Portfolios to
Morgan Stanley and its affiliates for the fiscal years ended December 31, 1997.

<TABLE>
<CAPTION>
Brokerage Commissions Paid During
Fiscal Year Ended December 31, 1997
---------------------------------------------------
Commissions Paid to Morgan Stanley
------------------------------------
Percent of
Total Percent of Total
Commissions Total Total Brokered
Portfolio* Paid Commissions Commissions Transactions
---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed Income $ 143.75/1/ $ 0 0% 0%
Equity Growth 24,660.00/1/ 24.00 0.10 0.15
Global Equity 27,665.00/1/ 2,406.00 8.70 7.25
International Magnum 48,111.00/1/ 221.00 0.46 0.29
Emerging Markets Equity 170,785.00 7,454.00 4.37 3.86
Asian Equity 164,416.00 1,698.00 1.03 1.87
</TABLE>
- -------

* The High Yield, Value and Mid Cap Value Portfolios did not pay any
commissions to affiliated brokers for the period from January 2, 1997 to
December 31, 1997. The U.S. Real Estate Portfolio did not pay any
commissions to affiliated brokers for the period from March 3, 1997 to
December 31, 1997. The Emerging Markets Debt Portfolio did not pay any
commissions to affiliated brokers for the period from June 16, 1997 to
December 31, 1997. The Money Market, Latin American, Balanced, Core Equity,
International Fixed Income, Mid Cap Growth and Multi-Asset-Class Portfolios
were not operational in the fiscal year ended December 31, 1997, and
consequently, no brokerage fees were paid by these Portfolios.
/1/For the period from January 2, 1997 to December 31, 1997.

42
<PAGE>

The following table shows the brokerage commissions paid by the Emerging
Markets Equity Portfolio to Morgan Stanley and its affiliates for the period
from October 1, 1996 (commencement of operations) through December 31, 1996.

<TABLE>
<CAPTION>
Brokerage Commissions Paid for the Period from October 1, 1996
(commencement of operations) Through December 31, 1996
----------------------------------------------------------------
Commissions Paid to Morgan Stanley
------------------------------------------------
Percent of
Total Percent of Total
Commissions Total Total Brokered
Portfolio* Paid Commissions Commissions Transactions
---------- ------------------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Emerging Markets Equity $42,941.00 $26.00 0.06% 0%
</TABLE>
- -------
* The Emerging Markets Equity Portfolio was the only Portfolio operational in
the fiscal year ended December 31, 1996.

Directed Brokerage. During the fiscal year ended December 31, 1998, the
Portfolios paid brokerage commissions to brokers because of research services
provided as follows:

<TABLE>
<CAPTION>
Brokerage Commissions in Aggregate Dollar Amount of
Connection with Research Transactions for Which Such
Services Provided for Fiscal Commissions were Paid for
Year Ended December 31, Fiscal Year Ended December 31,
Portfolio 1998 1998
--------- ---------------------------- ------------------------------
<S> <C> <C>
Equity Growth Portfolio $ 76,835 $ 64,149,719
Asian Equity Portfolio $ 35,930 $ 8,264,690
Emerging Markets Equity
Portfolio $221,981 $ 65,707,126
U.S. Real Estate
Portfolio $ 64,188 $ 26,679,693
Emerging Markets Debt
Portfolio $ 0 $ 0
Global Equity Portfolio $ 87,342 $ 32,064,291
International Magnum
Portfolio $ 86,762 $ 37,886,905
Value Portfolio $ 23,125 $ 15,870,713
Fixed Income Portfolio $ 3,864 $290,417,368
Mid Cap Value Portfolio $ 78,285 $ 60,144,010
High Yield Portfolio $ 69 $ 31,408,319
</TABLE>

43
<PAGE>

Portfolio Turnover

The Portfolios generally do not invest for short-term trading purposes,
however, when circumstances warrant, each Portfolio may sell investment
securities without regard to the length of time they have been held. Market
conditions in a given year could result in a higher or lower portfolio
turnover rate than expected and the Portfolios will not consider portfolio
turnover rate a limiting factor in making investment decisions consistent with
their investment objectives and policies. Higher portfolio turnover (e.g.,
over 100%) necessarily will cause the Portfolios to pay correspondingly
increased brokerage and trading costs.

Performance Information

Performance figures for the Portfolios may be quoted from time to time to
illustrate their past performance.

Performance quotations by investment companies are subject to rules adopted by
the SEC, which require the use of standardized performance quotations. In the
case of total return, non-standardized performance quotations may be quoted
but must be accompanied by certain standardized performance information
computed as required by the SEC. Current yield and average annual compounded
total return quotations are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods
used by the Fund to compute or express performance follows.

Total Return

Total return on an investment in the Portfolios may be advertised from time to
time. Total return figures are based on historical earnings and are not
intended to indicate future performance. The average annual total return is
determined by finding the average annual compounded rates of return over 1-,
5-, and 10-year periods (or over the life of the Portfolio) that would equate
an initial hypothetical $1,000 investment to its ending redeemable value. The
calculation assumes that all dividends and distributions are reinvested when
paid. The quotation assumes the amount was completely redeemed at the end of
each 1-, 5-, and 10-year period (or over the life of the Portfolio) and the
deduction of all applicable Fund expenses on an annual basis.

These total returns are calculated according to the following formula:

P(1 + T)/n/ = ERV

where:
P=a hypothetical initial payment of $1,000
T=average annual total return
n=number of years
ERV= ending redeemable value of hypothetical $1,000 payment made at the
beginning of the 1-, 5-, or
10-year periods at the end of the 1-, 5-, or 10-year periods (or
fractional portion thereof).

Performance Chart

The following table shows the total return numbers for the one year ended
December 31, 1998 and the average annual total return since inception for each
of the Portfolios.*

<TABLE>
<CAPTION>
Average
Annual Average
Total Annual
Return One Total
Inception Year ended Return Since
Name of Portfolio* Date 12/31/98 Inception
- ------------------ --------- ---------- ------------
<S> <C> <C> <C>
Fixed Income 1/02/97 7.90% 8.94%
High Yield 1/02/97 4.80% 9.10%
Equity Growth 1/02/97 19.29% 26.06%
Value 1/02/97 -2.13% 8.84%
Mid Cap Value 1/02/97 15.85% 27.86%
U.S. Real Estate 3/03/97 -10.86% 2.79%
Emerging Markets Debt 6/16/97 -28.38% -19.06%
Global Equity 1/02/97 13.47% 16.76%
International Magnum 1/02/97 8.97% 8.16%
Emerging Markets Equity 10/01/96 -24.34% -12.26%
Asian Equity 3/03/97 -6.45% -29.43%
</TABLE>
- -------
* The Money Market, Latin American, Balanced, Core Equity, International
Fixed Income, Mid Cap Growth and Multi-Asset-Class Portfolios were not
operational in the fiscal year ended December 31, 1998. Consequently, total
return numbers are not available.

Calculation of Yield For Non-Money Market Fixed Income Portfolios

Portfolio yield may be advertised from time to time.

Current yield reflects the income per share earned by a Portfolio's
investments.

Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for
the period include any fees charged to all shareholders during the base
period.

Yield is obtained using the following formula:
Yield = 2[(a - b + 1)/6/ - 1]
-----
cd
where:
a= dividends and interest earned during the period
b= expenses accrued for the period (net of reimbursements)
c= the average daily number of shares outstanding during the period that were
entitled to receive income distributions
d= the maximum offering price per share on the last day of the period.

The respective current yields for certain of the Fund's Portfolios for the 30-
day period ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Portfolio Name 30-Day Yield
- -------------- ------------
<S> <C>
Emerging Markets Debt.............................................. 13.03%
Fixed Income....................................................... 4.97%
High Yield......................................................... 9.02%
</TABLE>

44
<PAGE>

Calculation of Yield For The Money Market Portfolio

The current yield of the Money Market Portfolio is calculated daily on a base
period return for a hypothetical account having a beginning balance of one
share for a particular period of time (generally 7 days). The return is
determined by dividing the net change (exclusive of any capital changes in such
account) by its average net asset value for the period, and then multiplying it
by 365/7 to determine the annualized current yield. The calculation of net
change reflects the value of additional shares purchased with the dividends by
the Portfolio, including dividends on both the original share and on such
additional shares. An effective yield, which reflects the effects of
compounding and represents an annualization of the current yield with all
dividends reinvested, may also be calculated for the Portfolio by dividing the
base period return by 7, adding 1 to the quotient, raising the sum to the 365th
power, and subtracting 1 from the result.

The yield of a Portfolio will fluctuate. The annualization of a week's dividend
is not a representation by the Portfolio as to what an investment in the
Portfolio will actually yield in the future. Actual yields will depend on such
variables as investment quality, average maturity, the type of instruments the
Portfolio invests in, changes in interest rates on instruments, changes in the
expenses of the Fund and other factors. Yields are one basis investors may use
to analyze the Portfolios of the Fund, and other investment vehicles; however,
yields of other investment vehicles may not be comparable because of the
factors set forth in the preceding sentence. differences in the time periods
compared, and differences in the methods used in valuing portfolio instruments,
computing net asset value and calculating yield.

Comparisons

To help investors better evaluate how an investment in a Portfolio might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance as reported by various financial
publications. Advertisements may also compare performance (as calculated above)
to performance as reported by other investments, indices and averages.

In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the composition of investments in the Fund's Portfolios and
that the indices and averages are generally unmanaged and do not reflect the
deduction of any fees or expenses. In addition, there can be no assurance that
the relative performance of the Fund to such averages and indices will
continue.

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, the investment performance of a Portfolio may be compared to
other mutual funds tracked by financial or business publications and
periodicals. For example, Morningstar, Inc. may be quoted in 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 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. Performance of these capital markets may be used 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.

Advertisements may include 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 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

45
<PAGE>

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). In addition, 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 MSDW Investment
Management and MAS; and the portfolio managers' goals, strategies and
investment techniques.

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. 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, may be included in advertisements. 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
Portfolios' shareholder reports (including the investment composition of a
Portfolio), as well as the views of MSDW Investment Management and MAS 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' advertisements may quote various measures of volatility and
benchmark correlation and the measures may be compared 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. The Portfolios
may also advertise their current interest rate sensitivity, duration, weighted
average maturity or similar maturity characteristics.

The Portfolios may advertise examples of the effects of periodic investment
plans, including the principal 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.

General Information

Description of Shares and Voting Rights

The Fund's Articles of Incorporation permit the Directors to issue 9.5 billion
shares of common stock, par value $.001 per share, from an unlimited number of
classes ("Portfolios") of shares. Currently the Fund consists of shares of 18
Portfolios.

The shares of each Portfolio of the Fund are fully paid and nonassessable, and
have no preference as to conversion, exchange, dividends, retirement or other
features. The shares of each Portfolio of the Fund have no pre-emptive rights.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors can
elect 100% of the Directors if they choose to do so. A shareholder is entitled
to one vote for each full share held (and a fractional vote for each fractional
share held), then standing in his name on the books of the Fund.

Dividends and Capital Gains Distributions

The Fund's policy is to distribute substantially all of each Portfolio's net
investment income, if any. The Fund may also distribute any net realized
capital gains in the amount and at the times that will avoid both income
(including taxable gains) taxes on it and the imposition of the federal excise
tax on income and capital gains (see discussion under "Taxes" in this Statement
of Additional Information). However, the Fund may also choose to retain net
realized capital gains and pay taxes on such gains. The amounts of any income
dividends or capital gains distributions cannot be predicted. Any dividend or
distribution paid shortly after the purchase of shares of a Portfolio by an
investor may have the effect of reducing the per share net asset value of that
Portfolio by the per share amount of the dividend or distribution.

As set forth in the Prospectus, unless the shareholder elects otherwise in
writing, all dividends and capital gains distributions for a class of shares
are automatically received in additional shares of such class of that Portfolio
of the Fund at the net asset value as of the business day following the record
date. This automatic reinvestment of dividends and distributions will remain in
effect until the Fund is notified by the shareholder in writing at least three
days prior to the record date that either the Income Option (income dividends
in cash and capital gains distributions in additional shares at net asset
value) or the Cash Option (both income dividends and capital gains
distributions in cash) has been elected.

46
<PAGE>

Custody Arrangements

Chase serves as the Custodian of the assets of the Portfolios. Chase is not an
affiliate of either of the Advisers or the Distributor. In maintaining custody
of foreign assets held outside the United States, Chase employs sub-custodians
approved by the Board of Directors of the Fund in accordance with regulations
of the SEC for the purpose of providing custodial services for such assets.

Prior to October 1, 1998, Morgan Stanley Trust Company acted as the Fund's
custodian for foreign assets held outside the United States. MSTC, an affiliate
of MSDW, received custody fees of $369,055 for the period from January 1, 1998
through September 30, 1998.

In the selection of foreign sub-custodians, the Directors or their delegates
consider a number of factors, including, but not limited to, the reliability
and financial stability of the institution, the ability of the institution to
provide efficiently the custodial services required for the Fund, and the
reputation of the institution in the particular country or region.

Legal Matters

Morgan, Lewis & Bockius LLP serves as legal counsel to the Fund.

Description of Ratings

Description of Commercial Paper Ratings

Description of Moody's Ratings of State and Municipal Notes: Moody's ratings
for state and municipal notes and other short-term obligations are designated
Moody's Investment Grade ("MIG"). Symbols used are as follows: MIG-l--best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established broad-based access to the market for
refinancing, or both; MIG-2--high quality with margins of protection ample
although not so large as in the preceding group; MIG-3--favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades.

Description of Moody's Highest Commercial Paper Rating: Prime-1 ("P1")--Judged
to be of the best quality. Their short-term debt obligations carry the smallest
degree of investment risk.

Excerpt From S&P's Rating of Municipal Note Issues: SP-1+ --very strong
capacity to pay principal and interest; SP-2--strong capacity to pay principal
and interest.

Description of S&P's Highest Commercial Paper Ratings: A-1+ --this designation
indicates the degree of safety regarding timely payment is overwhelming. A-1--
this designation indicates the degree of safety regarding timely payment is
very strong.

Description of Moody's Corporate Bond Ratings:

AAA--Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

AA--Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as for Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.

A--Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

BAA--Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

BA--Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.

B--Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.

CAA--Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

CA--Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.

C--Bonds rated C are the lowest-rated class of bonds and issued so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.

47
<PAGE>

Moody's applies numerical modifiers 1, 2 and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

Description of S&P's Corporate Bond Ratings:

AAA--Debt rated AAA has the highest rating assigned by S&P's to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions that could lead to
inadequate capacity to meet timely interest and principal payments.

B--Debt rated B has greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.

CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal.

CC--Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.

C--The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.

CI--The rating CI is reserved for income bonds on which no interest is being
paid.

D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating will also be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

Financial Statements

The Fund's financial statements for the fiscal year ended December 31, 1998,
including the notes thereto and the report of PricewaterhouseCoopers LLP, are
herein incorporated by reference from the Fund's Annual Report to Shareholders.
A copy of the Fund's Annual Report must accompany the delivery of this
Statement of Additional Information.